Analysis: Cash-strapped consumers are giving Australia's liquor makers a headache
05/09/2024 22:00
By Byron Kaye
SYDNEY, Sept 6 (Reuters) - A recent slump in sales means
Sydney liquor store owner Louise Dowling has to work an
additional 40 hours a week to make up for the staff she had to
let go, as a prolonged cost of living crisis in Australia drives
more people to drink less.
"Without the foot traffic, without the sales, you don't have
the money to employ extra people," said Dowling at her P&V Wine
+ Liquor Merchants store in Enmore, a popular dining and
nightlife suburb.
"Everyone's trying to tighten their belts, including us."
After a surge in sales propelled by pandemic lockdowns and
unused savings, Australia's alcohol industry is in its sharpest
downturn in memory as more people cut back on discretionary
spending and turn to healthier ways to relax.
In the year to June, alcohol sales grew just 0.7%, the
slowest pace in at least a quarter century, according to
Australian Bureau of Statistics (ABS) data, and even that small
increase was more likely due to rising prices, as alcohol sales
volumes fell 3.9% in the same period.
Australia is one of the world's wealthiest countries per
capita and one of its highest-spending on alcohol per capita,
and the slowdown coincides with a decade-long decline in the
number of people who drink globally, due to health concerns or
just personal choice.
The effects of these downtrends were on display in the
year-end earnings posted by alcohol sellers this month.
The second-largest alcohol retailer by sales, supermarket
giant Coles, COL.AX , said its liquor store profit fell 21%,
largely due to a decline in discretionary spending, while the
biggest wine producer Treasury Wine TWE.AX also reported a 7%
drop in its mid-range unit's profit, partly due to "soft
consumption trends" in Australia and Britain.
Endeavour EDV.AX , the biggest liquor store and pub owner
by sales, bucked the trend with a meagre 1.8% increase in
pre-tax profit, but was downgraded by analysts after it said
retail sales rose just 0.6% in the first six weeks of the 2024/5
financial year.
Tom Kierath, an analyst at investment bank Barrenjoey, said
that before the pandemic, alcohol companies benefited by
marketing more expensive products, and then during some of the
world's longest lockdowns, the same firms saw a surge in people
stocking up their cellars.
But as inflation soared after the pandemic, two years of
soaring bills for housing, energy and petrol have left drinkers
looking to spend less, he added.
"People are looking to save money now, and in a bunch of
consumer categories people are downgrading," he said. "Alcoholic
drinks is no different."
Australia's biggest brewer by volume Asahi 2502.T
3333.T , maker of beer fridge staples including Victoria Bitter
and Carlton Draught, said in a half-year update its operating
profit in Australia and New Zealand fell 11.7% and cut its
full-year profit forecast for the region to 1.7% growth from 9%
growth.
HEALTHIER, CHEAPER
While alcohol remains infused in the social life and
identity of Australians, researchers say they expect the
abstinence trend to grow over the next few years.
The Australian alcohol market shrank 3% from 2022 to 2023,
the most among major markets such as China, the United States
and Britain, according to data shared by industry researcher
IWSR which forecasts the Australian market to grow just 1% a
year, on average, until 2028.
Cost is certainly a factor, said IWSR research director for
Asia Pacific Sarah Campbell.
The government levies inflation-indexed tax hikes on alcohol
producers twice a year, and this, along with rising costs of
labour and ingredients, among other things, means companies are
no longer in a position to absorb these increases so pass them
on to the consumer, she said.
"Australian drinkers remain in down-trading mode," Campbell
added.
Health concerns, which became more heightened after COVID,
are also driving more people away from drink.
Data shared by the Australian Institute of Health and
Welfare, a government body, showed that while the number of
people who drink frequently has declined slightly, those who
don't drink at all jumped to 23.1% of the population in 2023
from 16.4% in 2001.
Michael Livingston, an alcohol policy researcher at Curtin
University, said the jump in abstinence began a decade ago with
teenagers who were consumed with "stress about the state of the
world and their lives".
"That generation is now ageing into the peak drinking
years," he said.
Alcohol producers and retailers had fought against this
trend by targeting their marketing to various groups of drinkers
but "there's not many avenues open to them at this point to
maintain profitability at the level they were", Livingston
added.
Melbourne blogger Natalie Battaglia, who started posting
non-alcoholic drinks recipes on Instagram account The Mindful
Mocktail in 2020, said her followers jumped from 120,000 to
586,000 in the past 18 months due to interest in becoming "sober
curious". About one-third of her followers are aged 18 to 25.
"This growing focus on health and wellness, alongside the
financial pressures from the cost of living crisis, suggest that
demand may not return to pre-downturn levels," she said.
(Reporting by Byron Kaye, with additional reporting by Wayne
Cole; editing by Miral Fahmy)
((byron.kaye@thomsonreuters.com; +612 9171 7541; @byronkaye;))