Category: general

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: https://corestaurant.org/foundation/angel-relief-fund

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.

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.

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.

But, first, some highlights from the tariffs imposed on October 13, 2019:

• The primary beverage alcohol imports impacted by the tariffs are French, German and Spanish Wines less than 14% ABV in 2L or smaller containers, Irish or Scotch Single Malt (or straight) Whisky, and German, Spanish, UK Cordials and Liqueurs.
• Collectively the imports of these products were down -10% in volume and -30% in value in November 2019 versus November 2018.
• French wines and UK Whisky account for roughly 75% of the Value of these imports.
• French Wines were down -18% by volume and -42% by value in November 2019 versus November 2018.
• UK Whiskies were down -9% in volume and -36% in value in November 2019 versus November 2018.
• Given the timing of orders and shipments it is likely that there were orders in suppliers systems that were not possible to change and were impacted by the tariffs in November 2019.
• Average case prices for French wines and UK whisky both declined significantly, roughly -30% – implying either some price decreases were implemented to reduce the cost of the tariffs or mix was significantly impacted.

And now, the regular longer-term updates.

Beer, Spirits, & Wine – Packaged Imports Grow +7.40% By Value Over Last Twelve Months through November 2019, Packaged Exports Decline -7.20%

Total Beverage Alcohol:

• Total beverage alcohol imports (including bulk and packaged) grew +7.90% by value over the last twelve months and grew +8.70% by value over the last three months. 26.3% of all imported beverage alcohol by value came from Mexico over the last twelve months.

• Total beverage alcohol exports (included bulk and packaged) declined -10.0% by value over the last twelve months and declined -2.20% by value over the last three months. 20.7% of all exported beverage alcohol by value went to Canada over the last twelve months.

Each of the bw166 Import and Export Reports (for Beer, Spirits, and Wine) enable tracking Beverage Alcohol imports and exports on a monthly basis for volume, value in USD, and value in local currency for all major trading countries.

Beer:

• Imported beer grew +2.40% by volume and grew +5.40% by value over the last twelve months. Over the last three months imports grew +7.20% by volume and grew +11.5% by value. 70.8% of imported beer by value comes from Mexico.
• Exported beer declined -20.5% by volume and grew +17.8% by value over the last twelve months. Over the last three months exports grew +3.70% by volume and grew +48.0% by value. 21.2% of exported beer by value goes to Chile.

For more details regarding imported and exported beer across all countries, subscribe to the bw166 Beer – Imports and Exports report.

Spirits:

• Imported packaged spirits for the last twelve months grew +9.20% by volume and grew +13.0% by value. Over the last three months volumes grew +10.0% and grew +7.80% by value.
• Imported bulk spirits for the last twelve months grew +4.90% by volume and grew +20.5% by value. Over the last three months volumes grew +9.00% and grew +43.6% by value.
• 29.6% of all imported packaged spirits by value arrived from France while 53.2% of all imported bulk spirits by value arrived from Brazil.
• Exported packaged spirits for the last twelve months declined -34.1% by volume and declined -15.1% by value. Over the last three months volumes declined -45.5% and declined -1.60% by value.
• Exported bulk spirits for the last twelve months declined -7.80% by volume and declined -13.9% by value. Over the last three months volumes declined -27.3% and declined -15.1% by value.
• 13.5% of all exported packaged spirits by value is destined for Canada while 22.0% of all exported bulk spirits by value is destined for Canada.

For more details regarding imported and exported spirits including detailed category breakdowns across all countries, subscribe to the bw166 Spirits – Imports and Exports report.

Wine:

• Imported packaged wine for the last twelve months grew +4.40% by volume and grew +2.30% by value. Over the last three months volumes grew +5.70% and grew +1.60% by value.
• Imported bulk wine for the last twelve months grew +11.8% by volume and declined -6.60% by value. Over the last three months volumes grew +18.5% and grew +3.70% by value.
• 34.2% of all imported packaged wine by value arrived from France while 26.8% of all imported bulk wine by value arrived from Chile.
• Exported packaged wine for the last twelve months declined -7.20% by volume and declined -9.30% by value. Over the last three months volumes declined -3.00% and grew +3.60% by value.
• Exported bulk wine for the last twelve months grew +2.40% by volume and declined -3.00% by value. Over the last three months volumes grew +4.10% and grew +10.9% by value.
• 36.1% of all exported packaged wine by value is destined for Canada while 53.9% of all exported bulk wine by value is destined for United Kingdom.

For more details regarding imported and exported wine including detailed category breakdowns across all countries, subscribe to the bw166 Wine – Imports and Exports report.

The beverage alcohol market slowed in the first quarter with overall servings of Beer, Wine, and Spirits only being up +0.1% over the last three months and up +1.1% over the past twelve months.  Spirits is showing good growth over twelve months ending March 2019 with volume growth of +3.7%.  Beer and Wine are relatively flat for the same period.

Legal drinking age population is up +1.03% over the last twelve months so per capita consumption is relatively flat.  This is consistent with trends over the last 15 years where Total Beverage Alcohol servings are up 20.7% while the Legal Drinking age population has increased by 19.6%.

Consumer spending has performed better than servings with spending up +2.8% over the past twelve months. This consists of only +1.1% growth in off premise spending but +5.1% growth in on premise spending.  Total wholesale revenue growth is estimated at +1.0% with on premise operators expanding margins to offset expense increases such as labor, which is up +5.9%.

Trends in beverage alcohol are similar to overall trends in consumer spending.  Over the last twelve months consumer spending has increased to $14.34 Trillion, +4.4%.  Services have grown to $9.94 Trillion, +5.1% which includes on premise beverage alcohol sales.  Food and beverages, which are part of the non-durable goods segment have grown to $1.01 Trillion, +2.1%.