2021 : What opportunities at the table of alcohols and spirits?

Like many other sectors, particularly those of consumer goods, the alcohol and spirits market is being hit hard by the effects of COVID-19. Although the duration and precise impact of the crisis remains uncertain, the sector may have to wait until 2024 to return to pre-pandemic levels. Indeed, in 2020, the sector will experience a double-digit decline in demand of volume for alcoholic beverages, mainly due to the sharp decline in restaurants, hotels, cafes and travel retail purchases at airports. In addition, the sector is undergoing profound changes which have emerged prior to COVID, that this crisis is likely to accelerate. Between changes in customers needs, particularly of younger consumers (focused on well-being, quality and durability of products) and the reflection on new distribution models, Alcimed gives you its vision of the main areas to be explored in the alcohols and spirits market by 2021.

Product innovation in alcohols and spirits makes contents and containers sparkle

The alcohol sector is undergoing important changes. By 2030, 550 million people will have reached the legal drinking age. The gradual arrival of these new consumers is accompanied by a major change in the consumption of alcoholic beverages, focusing on well-being, quality and sustainability of the products.

Conjugate the consumption of alcohols and spirits with the needs for well-being and pleasure of new consumers

Firstly, in order to keep pace with these changes, new beverages are appearing with claims based on lower calorie and health, in line with aspirations for well-being and pleasure. In this regard, hard seltzers (carbonated, flavored and alcoholic waters that appeared in 2018 in the United States) are meeting with considerable success. French brands are appearing, such as Natz, developing products for the domestic market. If water offers are moving to an alcoholic content, some players in the wines & spirits sector are offering products with low or no alcohol content, using dealcoholization processes. In 2020, Bacardi Martini launched Martini Vibrante and Martini Floreale, the first alcohol-free spirits. Does this set grounds for new categories to structure un 2021?

Growing demand for high quality alcohols and spirits

Secondly, there is also a rise in the range of products offer. For instance, Casino, launched in September its first collection of premium spirits, consisting of a Japanese whisky, a London Dry gin and a vodka made in France. This trend is mainly driven by consumers who are more demanding in terms of product quality and tend to opt for “less but better” consumption behaviors. This trend provides a growth potential in the context of a structural decline in volumes in traditional markets such as beer and still wines.

Sustainability of packaging as a new challenge in product innovation

Finally, the sustainability of products is now becoming a strategic issue for many players. Several innovations in this field should appear in 2021. In the spirits market, Diageo will launch in Spring 2021 its famous Johnnie Walker in a 100% paper, plastic-free and fully recyclable bottle; Pernod Ricard is testing a paper bottle concept with its Absolut Vodka and Absolut mixt RTD. Among brewers, Carlsberg is also considering the launch of a similar product that would contribute to the Danish brewer’s goal of reducing its carbon footprint by 30% by 2030. Beyond the spirits and alcoholic beverages market, this type of packaging could be a turning point for the entire food industry in the long term.

The COVID crisis: an opportunity to accelerate the adoption of alternative models

Driven by digital technology, direct-to-consumer (D2C) models are developing in France and abroad.

The COVID-19 crisis is forcing players in the alcoholic beverages sector to reconsider traditional distribution models, such as the Out-Of-Home channel, which has been fiercely hit by the crisis. Alternative models, putting companies closer to consumers, are emerging to adapt to this new reality. Driven by digital technology, direct-to-consumer (D2C) models are developing in France and abroad. For example, many pure web player brands such as Happy-Drink, Ubereats or Allo-Apéro and traditional brands such as Toupargel, offer home delivery services in urban areas, day and night. This creates a fluid experience that complements traditional channels. The challenge here is not to leave behind traditional routes, but to integrate online channels to build new models. E-commerce, although not very developed compared to physical commerce with 2.5% of worldwide sales in value, is a channel with very high potential. The e-commerce of alcohols and spirits could experience strong growth by 2024 with CAGR of 15% (compared to 1% for traditional channels). It could thus reach 46 billion dollars in 2024.

In 2018, Pernod Ricard became a “strategic” shareholder in Jumia, the main online sales platform on the African continent. This investment will enable the group to add a new distribution channel to its model by offering Pernod Ricard brands to the platform’s customers. Pernod Ricard also benefits from Jumia’s digital and logistics expertise, necessary to operate a platform in an e-commerce model. This collaboration could lead to limit the number of intermediaries and develop a closer relationship with its consumers.

Environmental impact: an increasingly important dimension in the strategy of wine & spirits companies

As a sign that environmental impact is becoming a central issue, Pernod Ricard is placing sustainability of its activities at the heart of its strategic plan “Transform and Accelerate”, through the “social responsibility” pillar. In particular, the Group has committed to reducing its carbon footprint by 50% by 2030.

This type of environmental commitment in the Wines & Spirits sector is multiplying all along the entire value chain. Traditionally, the upstream part of the wine industry is a large consumer of inputs. In fact, the sector uses 20% of the pesticides used in French agriculture for 3% of agricultural land. However, the sector is accelerating its ecological transition. In order to support the players in the sector, various standards exist, including the “High Environmental Value” (Haute Valeur Environnementale / HVE) label. This government label is a farm certification that guarantees the achievement of performance thresholds at four levels: in terms of biodiversity, regarding the use of phytosanitary products, fertilization management and irrigation. Launched in 2011, the number of HVE-certified farms increased by 50% in 2019, a sign of the integration of environmental impact considerations by the wine industry. In addition to independent operators, corporates also have a role to play in supporting this transition.

Downstream, the valorization of co-products is also an important environmental lever. Currently, fermentation and distillation by-products are generally dried and concentrated by evaporation with outputs in feed. The carbon footprint of these processes is not optimal since the techniques use a lot of energy in the form of heat and this footprint increases when the co-products are exported.

New thermal, thermochemical and biochemical processes are emerging but face significant technical and economic constraints. Some innovations are accompanied by technical constraints that make their use unsuitable in some cases or are at a too early stage of development for large-scale industrial deployment without significative investment. Moreover, the additional costs generated could be prohibitive for consumers. Therefore, improving the environmental footprint also demands to raise awareness of consumers on innovations and their impact.

The alcohols and spirits sector is undergoing major changes that represent medium-term growth opportunities. Product innovation, required to reach the millennials, could lead to the emergence of new product categories in the coming years. The growth of digital and of e-commerce offer more direct ways of interacting with consumers and adapting distribution models to the COVID crisis. Finally, improving the environmental footprint is a lever for differentiation and for strengthening brand image. These topics are central for industry’s future competitiveness.

About the author
Mathieu, Project Manager in Alcimed’s Agrifood  team in France