Beverage Alcohol and the Pandemic

On September 24th, 2020, bw166 published its Total Beverage Alcohol Overview through August 2020. August marks almost six months of the impacts of the pandemic. The industry has seen a dramatic shift in consumer purchasing patterns by channel. The change has significantly benefited markets tracked by syndicated data companies such as Nielsen and IRI.

  • The bw166 Total Beverage Alcohol Index sits at 124.8 at the end of August 2020. The Index is up 1.9% from August 2019, measuring the growth in overall beverage alcohol servings.
  • Significant speculation exists to suggest that consumption has increased significantly due to the pandemic. Given that the bw166 Servings Index has grown slightly faster than the LDA population (which has increased by 1.0% over the past 12 months), per capita consumption has increased slightly. The data translates to less than one serving per LDA every 60 days.
  • The trends for six months ending August are:
    • Beer volume entering distribution: -2.2%. The decline is a result of declines in imports, primarily driven by Mexican Beer imports.
    • Wine volume entering distribution: +4.0%. 70% of the growth is driven by imports of Sangria, Coolers, and other flavored wine products.
    • Spirits volume entering distribution: +3.4%. The growth has been driven by +7.0% growth of domestically bottled products offset by a -4.8% decline in imported products.
  • Consumer spending on Beverage alcohol is up in the Off-Premise but not enough to make up for losses in the On-Premise.
    • Consumer spending for six months ending August totals $121.3 Billion, down -$23.9 Billion (-16.5%) versus the same period last year.
    • Syndicated data indicates continual trading up in the Off-Premise. Consumers are likely willing to spend more, given their savings in the On-Premise.
  • The On-Premise is challenging to track, given the fragmentation of On-Premise channels and across Beer, Wine, and Spirits products. Some states impose a Mixed beverage tax for Beverage Alcohol sales in the On-Premise. A few states and their trends on a value basis include:
    • Kansas: 12 months ending February 2020 +5.4%, six months ending August 2020 -45.0%, one month ending August 2020 -27.7%.
    • Tennessee: 12 months ending February 2020 +16.2%, six months ending August 2020 -59.6%, one month ending August 2020 -16.1%.
    • Texas data is only available through July, but the data includes a breakdown for Beer, Wine, and Spirits. The July data was negatively impacted by a second shut-down of bars in the state.
      • Beer: 12 months ending February 2020 +2.8%, five months ending July 2020 -65.5%, one month ending August 2020 -60.6%.
      • Wine: 12 months ending February 2020 +4.1%, five months ending July 2020 -66.5%, one month ending August 2020 -56.9%.
      • Spirits: 12 months ending February 2020 +8.9%, five months ending July 2020 -57.1%, one month ending August 2020 -49.4%.
  • The slight growth in servings entering distribution could be attributable to a small amount of pantry loading given channel shifts from Off-Premise to On-Premise. The market has seen some recovery in the On-Premise, but there is a long way to go. The one definitive forecast we can make is that beginning in March 2021, the channels tracked by Nielsen and IRI will show declines as the market comes up on the one-year anniversary of the pandemic.

Stable Per Capita Beverage Alcohol Consumption Over Past 30 Years

  • Currently, there is a proposal to modify the U.S. Dietary Guidelines which includes reducing the definition of moderate drinking for men from the current recommendation of up to two drinks per day to no more than one.
  • The committee cited evidence that alcohol consumption in the United States has increased during the past 20 years.
  • However, servings of beverage alcohol per legal drinking age adult (LDA, 21+) have been relatively stable since 1990 and are comparable to the levels of 1960. (The NIAAA data that the Committee cites uses a 14+ Population base for their computations)
  • Despite this stability, the Committee is recommending a 50% reduction in recommended alcohol consumption. If the purpose of using a comparison of the NIAAA data with the population 14+ was to either address underage drinking or binge drinking, the dietary guidelines do not seem the appropriate way to address these challenges.
  • bw166 projects servings across all channels grow between 1% and 2% in 2020. Comparatively, the LDA population will increase by 1.1%. Again, showing stability in overall servings per capita.
  • bw166 sources this information from tax paid shipments into the market on an annual basis since 1960. The volumetric data was converted to standard servings and compared to the LDA population sourced from the U.S. Census Bureau.
  • For an electronic copy of this information and additional details please click here.

Support for the Hospitality Industry

Last week bw166 posted about Covid-19 and the Beverage Alcohol Industry – which stated: “The Beverage Alcohol Industry will see a reduction in expenses with a decrease in dining out.  Rather than banking these savings, the industry might consider identifying existing charities for donations that can immediately assist hospitality employees impacted by this event.”

At bw166, we believe in the adage, “practice what you preach.”  As such, we have taken the following steps:

  • Our primary office is in Colorado and we reached out to the Colorado Restaurant Foundation.
  • They advised that the Angel Relief Fund exists to support hospitality workers during this time.
  • They also advised that 100% of funds donated goes to industry employees in need.
  • We immediately made our first donation and set a reminder to make another next month.
  • For those in Colorado, the link for The Angel Relief Fund is:

We strongly encourage all members of the industry that are not severely impacted by this crisis to support hospitality workers.  Find the appropriate method or charity in your local area or state and do what you can. Stay safe and stay healthy.

Covid-19 and the Beverage Alcohol Industry

While government response to Covid-19 is exceptionally fluid, the industry can learn from lessons of the past on what to expect going forward. In the last two decades, September 11th and the Great Recession both demonstrated vital dynamics that will likely be in play again – the resilience of the industry overall to weather storms and the shift in consumption patterns from On-Premise to Off-Premise establishments.

Through both these prior events, overall industry volumes and consumption patterns held steady, and the loss of consumer expenditure dollars was attributable to channel shift and the significant markups in the On-Premise.

Given the recent announcements of mandated restaurant and bar closures, On-Premise volumes and consumer spending will take a dramatic hit for the foreseeable future as they have in the past. And, it becomes all the more critical for Off-Premise establishments to remain open and stocked (of which Pennsylvania’s decision to close its state wine and spirits stores is ideally a one-off rather than an indicator of future trends).

On-Premise operators will see the most significant negative impact of these closure mandates (for reference: in 2019 On-Premise contributed 19% of Beer volume and 45% of spending, 19% of Spirits volume and 49% of spending, and 16% of Wine volume and 38% of spending). Conversely, Off-Premise operators may see an increase in volume and spending as consumers shift their consumption locations. Wholesalers, Importers, and Producers may see short-term decreases, though they will likely recover over the medium term.  

With the disruption to business and people’s livelihoods, cash will be a priority (and, as always, “king”) moving forward which may result in:

  • On-Premise operators may delay or be unable to pay bills to their suppliers, including wholesalers. 
  • These delayed collections may cause some cash strains on wholesalers who will reduce inventories to conserve cash.
  • This inventory reduction will then reduce the cash flow of importers and producers. 
  • Based on history, given a cash flow shortfall, companies may make decisions to cut back on staffing and purchasing, which may be pragmatic in the short term but may make it more challenging to regain business when this crisis passes.

That said, there are some ways to minimize the volume impacts on the industry:

  • An old saying in the Beverage Alcohol business is “when times are good people drink when times are bad people drink more.”
  • With people at home for an extended period, there may be more opportunities to enjoy an occasional glass of Beer, Spirits, or Wine.
  • Wholesalers may want to consider expanding credit limits for retailers on a case by case basis as their business increases.
  • The industry needs to make sure that individuals can restock their pantry holdings of beverage alcohol products. As such, Industry organizations should attempt to assure that stores selling beverage alcohol can remain open if other closures are mandated.
  • Companies that can sell direct to consumers should consider opportunities for their customers to buy direct and have home delivery – included possible exclusive sales.
  • Producers need to keep operating to have inventory available, so industry organizations need to consider this when speaking with the government.

Ultimately, the hospitality industry is going to be drastically impacted by the mandated closure of bars and restaurants in many locales. The ability to sell for take-out or delivery will recover some revenues.  These actions will protect some of the back of the house positions.  These activities will not make up for the full revenue impact of mandated closures as On-Premise operators are reliant on the margins from their beverage alcohol sales. Wait staff who are highly dependent upon tip income will see the most significant impact.

The Beverage Alcohol Industry is highly reliant on the hospitality business to build brands over the long term.  A prolonged closure of restaurants and bars could change the hospitality landscape in a way that will have long term negative impacts.  Some possible actions that the industry might consider are:

  • Where long term credit-worthiness is apparent, wholesalers might extend credit terms.  Extending credit terms will likely require the approval of state liquor authorities.  If wholesalers extend credit terms to the hospitality sector, suppliers might consider extending some terms for wholesalers.
  • The Beverage Alcohol Industry will see a reduction in expenses with a decrease in dining out.  Rather than banking these savings, the industry might consider:
    • Identify existing charities for donations that can immediately assist hospitality employees impacted by this event.
    • Consider adopting local establishments to assist staff members directly.  Tied house issues will need to be considered, and possible waivers requested from state liquor authorities.

While the dynamics of this event are continually evolving, the key to remember is that like past crises, this too shall pass, and decisions going forward are for survival in the short term as well as long term strengths.

How Big is the U.S. Wine Market Really?

On January 13th, IWSR issued a press release that pronounced “Wine Consumption in the U.S. Declines for First Time in 25 Years”. Past statements from IWSR suggest that the U.S. wine market was about 360 million 9L cases in 2019. However, based on available tax collection data, bw166 projects that the U.S. wine market in 2019 was 409 million 9L cases*, an increase of +1.1%. This discrepancy of 49 million cases is the equivalent of 588 million bottles of Wine.

Key Highlights of the U.S. Wine Market

  • The market is highly fragmented with the TTB approving over 123,000 wine labels in 2019
  • Due to this fragmentation, bw166 uses tax paid data to track the size of the U.S. Beverage Alcohol market accurately. Tax Paid Shipments is the only measure that adequately measures all products entering commerce – as it reflects the point at which suppliers recognize revenue on their financial statements.
  • Traditional industry sources have reported on the Wine Market for several years. Looking at the trends of one of these Traditional Sources versus tax paid shipments since 2005 shows an interesting comparison and discrepancy.
    • Tax Paid Shipments of Wine have had a CAGR of +2.6% per bw166 versus +1.2% per a traditional source
    • As an additional point of comparison, bw166’s Tax Paid Shipment CAGRs for Beer and Spirits (flat and +2.4% since 2005, respectively) are nearly identical to those of the traditional sources, providing evidence that bw166’s methodology is sound and highlights the discrepancy in the traditional sources’ Wine numbers.
    • One possible explanation is that these traditional sources are overly reliant on surveys and data of the largest suppliers and wholesalers and do not adequately capture the fragmentation in the wine market nor the evolving consumer landscape into channels such as DTC and private label products. For Beer and Spirits, where there is less fragmentation than Wine, that approach appears more accurate.
  • One verification method bw166 uses is comparing theoretical excise tax collection with actual tax collections reported by the TTB. Generally, actual tax collections are slightly less than the theoretical tax collections due to small producer credits.
  • As further verification of volumes entering the market, bw166 has been working on a project to look deeply at tax paid shipments by state. This project is over 90% complete, and the results are validating the national tax paid numbers.
  • Please find a link to a short deck highlighting information on the U.S. Beverage Alcohol Market here. This deck also includes long term charts for volumes, share of servings, the bw166 Serving Index, and Consumer Spending on Beverage Alcohol.

* The bw166 wine data expressly excludes Cider but includes Table Wines, Sparkling Wines, Fortified Wines, Sake, Vermouth, and Other Wine (which includes Sangria, Wine Coolers, Wine Based Cocktails, and Wine with Fruit). This latter group accounts for only 17 million of the 409 million cases.

For more details please subscribe to the bw166 – TBA Overview.