There’s a business case for digging deep during a crisis. Lucy Britner looks at COVID-19’s impact on the big drinks companies and consumer behaviour
How a company behaves in the midst of this global crisis could have a huge impact on how consumers feel about that organisation in the future. As the coronavirus makes its way around the world, its effect on the global drinks industry continues to be catastrophic.
The big players with big business in China were hit first – Pernod Ricard’s outlook went from positivity around Chinese New Year performance, to the expectation that the first three months of 2020 will be “severely impacted” by COVID-19, as the on-trade shut down and the company moved to protect its employees in the country.
By the end of February, Diageo had issued a trading update for fiscal 2020, estimating the negative impact on organic net sales and organic operating profit to be in a range of £225m-£325m and £140m-£200m, respectively.
By mid-March the pound was at its lowest point against the dollar in more than 30 years and share prices in the drinks industry were down pretty much across the board. At this point, the virus had spread across the world, with drinks companies in Europe and the US telling their workers to stay at home. Distillery visitor centres, taprooms and bars almost universally shut up shop.
Meanwhile, St Patrick’s Day, usually a bumper on-trade sales day for brands such as Diageo’s Guinness and Pernod’s Jameson, took a different turn. Instead of bar tills ringing, drinks companies were moved to offer support to the massive numbers of displaced hospitality workers. Diageo used St Patrick’s and its Guinness brand to pledge £1m to support bartenders in Britain and ¤1.5m to support communities in Ireland. Jameson made a similar pledge in the US, with a $500k donation to help the trade.
Later in March, in the brewing world, Carlsberg announced a DKK95m (just under £12m) donation to support research scientists, art museums and community organisations. At the same time, many drinks companies all over the world rushed to make hand sanitiser at their distilleries or (in LVMH’s case) perfume factories.
Just as the coronavirus has brought out the best and worst in people – we’re looking at you, toilet roll hoarders – so too it is bringing out all sides of businesses. And, at a time when every global drinks company has been shouting about its sustainability credentials, it’s important to remember that sustainability isn’t just about carbon emissions and water usage – it’s also about the welfare of people.
Those companies that manage to make their employees and those employed indirectly – such as hospitality workers – feel safe and valued during this unprecedented time will surely be the winners of tomorrow. Moreover, as consumers continue to support authenticity and organisations that take action, stepping up now will have a knock-on effect in the future.
Changing trends
Speaking of the future, global drinks companies will also be looking at how the coronavirus pandemic will influence subsequent consumer trends. Much as the 2008 financial crisis changed some consumer behaviours (everyone became a prosecco drinker
for a start), the COVID-19 pandemic will influence new product development and affect the ways in which companies and consumers interact.
In the short term, brand launches will be postponed and it’s odds-on that consumers will turn to trusted brands and trusted businesses. Marketing spend from drinks companies will likely shift to e-commerce as self-isolators use the internet to stock up. Consumers with time on their hands may start to experiment with cocktails, drawing on online tutorials to help them. This could, in turn, spark more interest in cocktail culture.
Looking to the longer term and drinks companies could revisit direct-to-consumer sales as some COVID-19 consumer habits become part of the new normal. Working from home could also become a more widespread, regular fixture, giving rise to even more ‘third space’-type venues that act as office, bar, coffee shop and lounge all rolled into one.
As businesses in China begin to reopen, global drinks companies will be looking forward to a recovery in consumer demand. Perhaps even an enthusiastic return to the on-trade, after people have spent weeks in isolation. For those countries still in the grip of the virus, the trade and consumers will be looking for support. And they will no doubt remember where it came from.
We are living through an extraordinary time and this pandemic will have a huge and lasting impact on the global drinks industry. But it will pass. From singing on the balconies in Italy to exercising on the rooftops in Spain, one thing is for sure: (most) humans don’t want to exist in isolation. A great case for going back to the bar.