Strong performances in China and the US have shielded multinational drinks companies from the fallout of Covid-19 in recent months, according to analysis from IWSR.
The latest influx of financial results from the world’s biggest drinks firms have painted a similar picture: positive organic sales, with the US and China driving growth and mitigating losses incurred by the pandemic.
Together, the markets account for a third of global alcohol volume and over 40% of global value, according to IWSR data.
Leading the charge in the results announcements were France’s top distillers. For the first nine months of its 2020/21 fiscal year, Pernod Ricard, owner of Absolut Vodka, Chivas and Jacob’s Greek, reported organic sales growth of 1.7%. In the US, the group registered mid-single-digit growth, while in China Pernod Ricard saw gains of 34%.
For its full 2020/21 period, Rémy Cointreau witnessed organic sales growth of 1.8%, in large part thanks to “excellent momentum” in Cognac consumption in the US and China.
Moët Hennessy, meanwhile, announced a 36% uplift for wine and spirits in Q1 2021 compared to Q1 2020 and +17% versus Q1 2019 – showing strong growth even compared to pre-pandemic times. Regarding its latest results, the group highlighted a “strong rebound” in China and “robust demand” in the US. In its first quarter results, Moët Hennessy reported a 22% increase in Champagne volumes, driven by the US and Europe, and a 28% increase in Hennessy Cognac volumes, driven by China.
The results are in line with China’s drinks industry’s strong rebound led by spirits, beer and other alcoholic beverages, as we have reported earlier. Wine category however lags far behind.
Tommy Keeling, research director at IWSR, notes that most Chinese consumers are “perfectly comfortable going out and don’t mind the extra contact-tracing.” IWSR’s consumer sentiment tracking has shown that between August and December 2020, China was one of the few markets to show consistent increases in consumer willingness to visit the on-premise.
Duty-free Hainan driving global travel retail
Not only are Chinese consumers more comfortable going out, but IWSR consumer research shows that they are also willing to spend more when they do.
The loss of international travel means Chinese consumers are enhancing their domestic spend, some of which has filtered into drinks. Many consumers are also looking to vacation within the country, which is contributing to a boost in travel retail sales for destinations such as Hainan.
Last year, the Chinese government tripled Hainan’s duty-free allowances to CNY100,000 (US$15,500), further driving growth. The destination is expected to become a key driver of global travel retail growth for high-end international brands, with a number of travel retailers and suppliers pouring investment into the area.
“Based on external forecasts, Hainan is expected to represent 18% of total global duty-free business before 2024, with China representing 30% on a similar time frame,” a Beam Suntory spokesperson tells IWSR.
There are also inherent characteristics of the US market that have contributed to its resilience. Around 80% of the market’s drinks consumption takes place in the off-trade, meaning the shift to at-home consumption was an easier transition for consumers during lockdowns.
Brandy Rand, IWSR’s COO of the Americas, also observes, “the dinner table experience at home was heightened during the pandemic, which led to people wanting to spend more or invest more time in making those moments and occasions special.”
Furthermore, the US’s developed ready-to-drink (RTD) category contributed to the resilience of its total drinks market over the course of the pandemic, adds IWSR.
In terms of shared trends, both the US and China have seen a dramatic rise in ecommerce. IWSR research shows that in 2020, the value of beverage alcohol ecommerce across 10 key markets increased by 42%, driven largely by the US and China.
China is the world’s largest alcohol ecommerce market, but it is set to be overtaken by the US by the end of 2021.