USA: Alcohol market must increase volumes by 19% in off-trade to offset on-trade losses

The US alcohol market must increase volumes by 19% in the off-trade to offset losses in the on-trade, which is unlikely to return to the same level as pre-Covid for some time, the IWSR Drinks Market Analysis has predicted.

According to research from the IWSR, around 80% of alcohol sales in the US were typically made in the off-trade, while the remaining 20% came from the on-trade.

However, the coronavirus pandemic has impacted the on-trade alcohol landscape, the IWSR said, with the balance between the two channels shifting as consumers move to at-home consumption.

The significant increase in US off-trade alcohol volumes is not enough to offset the losses in the on-trade, the IWSR said.

According to IRI measured channels cited by the IWSR, total alcohol volume sales for the off-trade rose by 9.3% in the year ending 16 August 2020. To overcome the losses in the on-trade, which is estimated to be down by approximately 75%, the off-trade would need to increase volumes by 19%, the IWSR has estimated.

Sales of alcohol through e-commerce channels are predicted to be up more than 300% year-on-year through July 2020. The IWSR said this is driven by convenience.

The IWSR said spirits and ready-to-drink products have been performing strongly enough to bring the total industry to a 0.6% volume increase on a rolling 12-month basis from June 2020.

“Value growth will likely suffer substantially due to the on-premise mark-ups, while volume growth will be dictated by at-home consumption rates,” said Brandy Rand, IWSR’s chief operating officer for the Americas. “People are also investing in making their home environment more comfortable and functional in lieu of going out – outdoor spaces, technology and entertainment, and items for cooking and making cocktails.”

The IWSR also noted that a full return to the on-trade will mainly rely on the development of a vaccine, along with returning consumer confidence. Until there’s a vaccine, the closure of bar and restaurants are imminent, the IWSR warned.

Data from the IWSR in the past has shown that the off-trade has benefitted following economic recession. The IWSR said: “For now, it appears as if the days of an 80% off-premise and 20% on-premise volume split in the US are long gone, and it will likely take a while for the premise split to return to these levels.”

The IWSR said there is an opportunity for brands to meet the immediate needs of new at-home drinking occasions.

The IWSR also looked a number of factors behind what is driving the at-home occasion. One factor found was that in the past two decades in the US, off-trade alcohol consumer expenditures have outpaced the on-trade.

The IWSR believes the US on-trade is unlikely to return to the same level as before coronavirus for some time. As such, the industry will need to adapt and continue offering options such as meal kits and takeaway drinks.

Between 2000 and 2020, on-trade prices have increased across all categories by between 2.5% and 3%, or above inflation (2% in the same period), according to the Bureau of Labor Statistics. Off-trade prices have also increased, but at lower rates than the on-trade, the IWSR said. Off-trade prices across all categories rose between 0.6% and 2.1% in the same 20-year period.

In addition, the number of on-trade venues serving alcohol in the US has dropped by 20% from 2001 to 2019.

Looking at the at-home drinker by demographic, the IWSR said men consume spirits at home slightly more than women.

The 25 to 34 year old age bracket are the top consumers of beer and spirits, while those aged over 65 mainly consume wine. Drinkers aged between 21 and 24 prefer spirits, beer and then wine.

11 September, 2020