Still enjoying the post-pandemic momentum of the fundamental need to socialise, lockdown-driven savings and revenge conviviality, alcoholic drinks has been witnessing a strong bounce-back across all its key channels and markets. As Euromonitor International analysis had predicted, the industry roared back, staging an intoxicating rebound that underscored its fundamental adaptability and strategic effervescence. Registering total volume growth of 4.5% in 2021 following the nigh apocalyptic decline of 6.7% in 2020 is testament to its underlying resilience.
However, seemingly shielded from the intensifying macroeconomic headwinds, the industry is currently crossing over the stagflationary cliff. Suspended in mid- air, could this be the moment just before gravity ultimately takes hold?
Stagflation: A stiff chaser after the pandemic hangover?
Parallels to the legendary roaring 20s (a decade synonymous with hedonism and indulgence, that followed the Spanish flu pandemic and the end of World War I) will continue fuelling the resurgent on-trade, but mounting economic challenges will inevitably, and at least partially, derail that narrative.
Unprecedented inflationary pressures are severely limiting discretionary incomes, creating a negative feedback loop in consumer sentiment. Within alcoholic drinks, the vast majority of key players have increased prices and are planning to continue to do so, even if anecdotal evidence suggests that the rises are relatively more subdued than in other industries. This strategy will have a cost, but some losses in share of throat and volumes will be a price worth paying in order to maintain brand equity and secure longer-term aspirational credentials especially within the premium sphere.
Beer, off-trade channels, local specialities and economy products generally tend to be the most resilient and could benefit from cross-category movements, but drinking rituals, occasions and historic consumption patterns are different in every market. In addition, wider macroeconomic dynamics and underlying government and social support schemes (or lack thereof) have the potential to soften the blows or make them more devastating.
Beyond black swan events (and we need to remember that COVID-19 and the war in Ukraine both fall in this territory) the spectre of stagflation a toxic mix of sustained, stubbornly-high inflationary pressures and slower or stagnating growth is looking increasingly likely. If it was to materialise and become embedded, this would be detrimental to the recovery narrative. According to Euromonitor Internationals latest forecast, global total volume growth for 2022 will be 2.3%, a figure that now looks likely to be downgraded moderately if the current trajectory is maintained.
Nevertheless, as was proven in previous recessionary cycles, alcoholic drinks might not be fully recession-proof, but it is definitely recession-resilient. Macroeconomic challenges will most likely translate into a slowdown in the short term, and will mainly take the form of channel shifts, primarily from the on-trade to the off-trade, and trading down/trading across, rather than a wholesale curtailing of consumption. Just like the eponymous cartoon character, the industry will survive the fall, pick itself up again and get back to what it does best chasing the heady highs of expansion and premiumisation.
Source: Euromonitor International
See the original post:
Alcoholic Drinks and the Spectre of Stagflation; A Wile E. - Euromonitor International
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