Looking ahead: The off-trade makes plans for the future
Supermarkets, convenience stores and online retailers have been the big winners in BWS over the lockdown period. In addition, many independent drinks shops have admirably managed to adapt their businesses in order to keep trading through these challenging weeks.
With pubs shut and a run of glorious weather, cider and beer have been the superstar off-trade categories over the past three months, while other drinks sectors have also seen a boost in sales.
These are some of the positive notes to have emerged since March, when the off-trade was unexpectedly – and with little warning – plunged into a precariously strong position when the entire on-trade channel shut down overnight.
But there are significant challenges ahead for the off-trade.
Sales of alcohol via the supermarket channel are strong, but it’s been a rocky road for retailers.
Sainsbury’s was the first to reveal that the costs of ensuring safe social distancing measures, alongside a drop in demand for nonfood, had hit the business hard and it might have to close stores if the costs of the pandemic continued to escalate.
The threat of a recession looms and the future of the high street looks gloomy. Plus, for many retailers, the rapid change in consumer shopping habits has been hard to keep up with.
Robert Cooke, Majestic Wine’s chief commercial officer, put this into words when he told Drinks Retailing: “Honestly, we don’t know how consumers are going to behave at the end of this.
“I think the retail landscape is going to be extremely different and, while we know what we are going to do from now until the end of the year, I suspect that will change very dramatically multiple times.
“I think retailers that do well over the next six months will be the ones that can be agile and able to adapt as quickly and flexibly as possible, because long-term planning for us at the moment – from a kind of trading perspective – is just a couple of weeks, which is not ideal when you have an agricultural supply chain and when half of your product is four months away.”
With consumers looking for new and low-key ways to socialise – at least for the foreseeable future – there is also some uncertainty about which drinks consumers might buy into, as Miles Beale, chief executive, of the Wine & Spirit Trade Association, notes.
He said: “We had hoped [by the start of the summer this year] to take a look at a couple of established, growing trends: the increasing interest in no/low-alcohol products in the UK and how (much) consumers are moving their purchasing online.
“Last month we saw White Claw, the hard seltzer brand that has taken the US by storm, announce its launch in the UK. It seems fair to suggest that this could well have been the summer of lower-alcohol RTD drinks in the hands of UK drinkers and all over Instagram.
“This could still transpire. It is hard to predict quite how lockdown will shape drinking trends over the summer. We don’t yet know when and under what restrictions the UK’s hospitality sector will be allowed to reopen – or how quickly.
“What we do know, however, is that UK consumers have taken to their computers, laptops and phones to order their drinks online in ever-increasing numbers, accelerating a modest, but established, trend that was likely to pick up pace anyway. So the question is probably how fast and how far?”
The off-trade has all of these challenges ahead and more, but one thing that is hugely important for the future of the drinks trade as a whole is the survival and success of the on-trade.
Many off-trade producers rely on supplying both the hospitality and retail sectors, while retailers have increasingly been adding an on-trade element into their stores over the past few years.
Nick Gillett, managing director of Mangrove Global, says: “Things are pretty grim in hospitality right now. We are all aware of that. Fast approaching is the unappetising prospect of it getting a whole lot worse. And, while the immediate impacts of this are being felt most strongly in the on-trade, ultimately the effects will be also felt by retailers and consumers. Drinks retailers need a strong on-trade.”
Kate Nicholls, chief executive of UK Hospitality, is one of many in the on-trade who has been working hard to highlight the danger of huge job losses if restrictions remain in the hospitality sector.
In a letter sent to the government earlier this month, Nicholls said one in five venues will be unable to reopen if social distancing is still recommended as two metres because revenue will automatically drop to 30% of normal levels.
She said: “So unless the reopening comes with either a package of support on rent to fund sub-economic reopening or it comes with changes on social distancing it could have little impact.”
Drinks Retailing recently polled hundreds of licensed retailers and many of them expressed their concerns about on-trade establishments closing.
John Chapman, operations director at Oxford Wine, said the potential closure of on-trade businesses around the country is his main concern for the future of the business. The company plans to invest more in retail and may potentially open another store.
He said: “We will focus on maximising efficiency in wholesale operations to allow a leaner cost base, which will hopefully make the reduced on-trade sales still profitable.”
However, the biggest concern for the future – highlighted by 54% of those polled – is the threat of a recession and therefore a lack of consumer disposable income.
Retailers also have fears of a potential rise in duty for alcohol to pay for UK debt, but although there are numerous concerns about the future, most of those polled have already injected funds into their businesses (since lockdown started in March) or they have plans to do so soon.
The survey asked retailers which areas of the business they had invested in over the lockdown weeks and 46% said they had put money into enhancing their websites.
Overall, technology seemed to be the most important area for immediate investment, with funds directed towards areas such as online apps to help consumers make cocktails at home, changes to tills to make the checkout process more efficient, and investments in phone technology.
Many said they had also absorbed the costs of delivery charges (37%) while others had invested in setting up social distancing and safety measures in stores.
All of those polled said the average basket spend had gone up and stores across the UK have been recording higher volume sales.
Rupert Pritchett, managing director of Taurus Wines near Guildford, said: “Average spend was up significantly [over the initial lockdown weeks]. People were stocking up on cases of reliable, inexpensive classics: Argentinian Malbec, New Zealand Sauvignon Blanc, etc.”
Looking ahead, many of the wine shops which responded to the survey said their priority for the immediate future is taking steps to reopen their stores and adding protective measures for social distancing.
Of those polled, 38% said they will be investing in enhancing or setting up online and delivery capabilities while 30% said they will look at conducting range reviews to change the product mix in their stores.
Only 4% are considering taking on new staff, while 15% said they will actively look at linking up with other businesses in some way.
Pritchett said: “We have reopened with the goal of replacing the wedding and party business that has been lost this year. Our bar van, which would normally be at a different event each weekend, has now been let to a local pub with a large garden ready for its reopening.”
Nick Pring, co-founder of Green Valley Cyder at Darts Farm, said: “Here at Darts Farm we are very positive about our future and investing substantially in additional hospitality and experience areas, including two new restaurants and a bar.
“We have opened a takeaway service for food and drink so that customers can use the parkland area.”