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On-trade sales ‘may never’ return to pre-pandemic levels

16 October 2023 By Ron Emler

Bar owners and restaurateurs are facing even tighter pressures on their businesses due to a sea change in social habits following the Covid-19 pandemic. Of all the major markets, only Asia’s on-trade is truly bouncing back.

A new report from the International Wine and Spirits Record (IWSR) shows that the hoped-for return to the normality of drinkers flocking back to their favourite on-trade watering holes after Covid lockdowns has not taken place and, worse still, might never do so.

IWSR says that “beverage alcohol consumers are showing a clear preference for home consumption versus visiting the on-trade, with signs that behaviours learned during the Covid-19 pandemic have become entrenched” in people’s social habits.

Put simply, the “cocktails at home” culture that took off during the pandemic is now so strong that a rebound to 2019 levels in the on-trade looks a distant hope.

People have discovered that they can enjoy their favourite brands, and possibly even trade up the quality scale, at a far cheaper price than in bars and restaurants.

Although there was a spree of “revenge hospitality” in 2022 as bars, clubs, restaurants and hotels reopened, in most major markets the on-trade has yet to return to the sales levels it achieved in 2019.

IWSR’s consumer tracking into 15 of the world’s leading markets (Australia, Brazil, Canada, China, France, Germany, India, Italy, Japan, Mexico, South Africa, Spain, Taiwan, UK and the US) shows that of these only Mexico has made a complete recovery in the on-trade.

Sales in China, India and Brazil, the giant emerging markets that the international premium drinks producers are targeting for much of their future growth and profitability, continue to fall well short of their 2019 levels, as they do in the UK.

Globally, IWSR says, on-trade accounted for 35% of total beverage alcohol (TBA) volumes in 2019; that figure slumped to 23% in 2020, before a partial recovery to 28% in 2021 and 29% in 2022.

Add the current depressed sales levels to the burdens of soaring cost price inflation for food and drink, rapidly rising staff wages, extra utility costs and the additional problem of meeting higher interest rates and a pattern emerges of more businesses struggling to survive.

Raising prices for consumers is virtually the only way to recoup those extra costs and the report points out that on-trade pricing in the US has risen at nearly double the rate in retail outlets.

In Brazil, where beverage alcohol prices have gone up in the on-trade at nearly double the rate of the off-trade, 53% of drinkers say they are going out less. They are voting with their wallets and switching to drinking at home.

Richard Halstead, COO Consumer Insights at IWSR, warned: “High costs – of energy, staff, food and drink – are making life very hard for the on-premise in many countries now. There are expected to be further closures in 2023 as a result.”

Drinkers in Europe and America are showing the most reluctance to return to bars and restaurants.

IWSC notes a strong variation between the Old World – where drinking at home is “being used as an economising measure in the cost-of-living crisis” – and Asia where entertaining outside the home is more deeply-seated in cultures.

Drinkers in Europe and America are showing the most reluctance to return to bars and restaurants.

Some 59% of American consumers said they were going out less – and IWSR believes that “negative perceptions” of the on-trade have been exacerbated by pandemic behaviours, when consumers became more aware of the increased costs associated with going out for a drink.

“The trend around going out is polarised across key markets, with consumers in most regions recalling net withdrawal from the on-trade,” says Halstead..

“Asia is the only region showing net positive sentiment towards going out.

Consumption at home, he says “is being used as an economising tool in many markets to allow consumers to maintain relationships with premium brands. But this is not the case in Asia, where the on-premise revival remains in full swing.”

The data, compiled in the spring, shows about three fifths of consumers in North America, parts of Europe, South Africa, and Australia saying they are going out less. However, in China and India, around half say they are going out more.

That bodes well in terms of hopes of stronger recoveries in the giant emerging markets. However, initial reports suggest that trade in China’s recent Golden Week was soft and the latest figures from LVMH showed the pace of growth there decelerating.

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