With the coronavirus pandemic sweeping the globe, the premium spirits sector expects to be hit hard, with the on-trade particularly affected. While China is a bright spot, there are concerns over the US market, particularly for Scotch whisky. Players in this segment are laying low, with a number of projects on hold.
Johnnie Walker owner Diageo said at the end of February that the company could lose £325m ($404.4m) in sales, and up to £200m ($249m) in profit in full-year 2020. On April 9th it withdrew that guidance due to “the uncertainty around the severity and duration of the impact across multiple markets”.
Widening location footprints of top-end segments like Cognac outside China and Asia is a long-standing strategy that was accelerated early in the Covid-19 crisis to soften regional blows. Pernod Ricard’s efforts to do this with its Martell brand have, however, been hampered by global country lockdowns and the company has forecasted a profit decline (from recurring operations) for the full year of about 20%.
On a brighter note, CEO Alexandre Ricard remarked that China appears to be making a gradual recovery. Diageo too, expects to see “a gradual improvement with consumption returning to normal levels towards the end of fiscal 2020,” in China and Asia Pacific. (As things stand today.)
This is not the case in North America, however, where the on-trade channel accounts for approximately 20% of US spirits’ sales and where most states began closing bars and restaurants in March.
Scotch whisky, whose top export market in 2019 was the US, faces a double challenge. Its luxury segment of single malts was already reeling from a US-imposed 25% tariff, which led to a decline in exports of 25% in the fourth quarter of 2019. The closure of the on-trade will hasten that slide.
Prior to the March restrictions, Karen Betts, CEO of the Scotch Whisky Association, said that smaller distillers were already questioning the viability of exporting to the US. Given that major Scotch markets such as third- and fourth-ranked Singapore and Taiwan have largely recovered from the virus, these regions could see new focus.
In general, whisky houses contacted by Luxe Packaging Insight are laying low until the outlook is clearer. “We’re using this time to review strategies and to maintain partner relationships so we’re ready when conditions improve,” summed up one brand owner.
Projects are also on hold until the right moment. At Loch Lomond Group, for example, a packaging overhaul of duty-free single malts is awaiting a green light, according to managing director of global travel retail André de Almeida.
“We expect a recovery, it’s just a question of when. It looks like Asia will be less affected than Europe, while the on-trade—bars and restaurants—might suffer more than the off-trade,” Sandra Newman, travel retail research director at market analyst IWSR told Luxe Packaging Insight.
In a bid to give the market more visibility, drinks analyst IWSR has launched a tool to quantify and forecast the impact of Covid-19. The Coronavirus Risk Assessment Model will launch in the second quarter of this year and be updated quarterly. Initial markets covered will include travel retail, China, South Korea and Italy.