Covid-19 Has Brought Big Wins and Tough Losses to the Alcohol Industry

Delivery services are up, while tasting rooms are down

Off-premise alcohol sales soar, as on-premise sales cease to exist. Getty Images

Key insights:

The Covid-19 pandemic has been great for some companies, and catastrophic for others. That’s even the case within specific industries, as individual businesses encounter financial tailwinds or headwinds depending on their position.

That’s certainly what’s happening to the alcohol industry, which appears to be splitting into two camps. Retail, DTC and delivery services are benefiting, while bars, restaurants and many alcohol brands themselves are struggling.

In March and April, spirits sales at liquor, grocery and convenience stores were up 34% compared to the same time period last year, according to figures from Nielsen. Wine sales, meanwhile, increased 30%. Beer, cider and flavored malt beverages—a category that includes hard seltzers—grew by 20%.

“Right now, it appears that many consumers are recreating the cocktail experience at home and socializing virtually, so it will be interesting to see trends as we move into the summer and people venture outside of the home more,” said Brandy Rand, COO of the Americas at IWSR Drinks Market Analysis.

Another beneficiary of the current moment is alcohol delivery services, such as Saucey and Drizly.

From February to March, for example, Saucey saw sales surge 400%. The company’s customer acquisition costs have also dropped so significantly that it’s now signing up 10 new customers for the previous price of bringing aboard one.

“Our biggest hurdle has always been awareness, followed by driving consumer purchasing behaviors,” said Chris Vaughn, CEO and co-founder of Saucey, which debuted in 2013 and operates in major cities across the country. “Through our data, we know that once we are able to guide a customer to their second or third purchase, Saucey will become their default buying channel.”

Revenue is also up at Drizly. On Cinco de Mayo, sales were about 10 times higher than they were on the holiday in 2019, according to the company.

With awareness of alcohol delivery services no longer a pressing issue, Liz Paquette, Drizly’s head of consumer insights, anticipates that demand will eventually cool as the crisis subsides. But, at the same time, the way people purchase alcohol isn’t going to return to normal.

“On-demand culture is pervasive,” said Paquette. “Consumers expect to be able to get what they want, when they want it, where they want it. We always believed that alcohol delivery would become a permanent fixture in [the beverage alcohol industry], just as it has become in food. We’re simply on an accelerated timeline now.”

DTC canned wine brand Bev has seen quarter-over-quarter online sales increase by more than 1,800%. The vast majority of these sales are happening on mobile devices.

“The alcoholic beverage industry is going to see very polarized results through the global pandemic,” said Bev’s founder, Alix Peabody. “I think once people get used to buying online and getting product straight to their doors, there will be a permanent behavior change in how people purchase food and beverages.”

But that’s where the good news seems to end. Apart from bars and restaurants taking an obvious hit, the nation’s tastings rooms have also suffered, leading to even bigger problems.

According to David Ozgo, chief economist at the Distilled Spirits Council of the United States, craft distilleries generate around 40% of their sales through tasting rooms. Amid the pandemic, that source of income has since dropped to near zero.

“Looking at the total industry, even though [retailers] are doing really well, the craft guys are really hurting because they’ve lost almost all the sales for one of their primary channels,” said Ozgo.

Recent survey data from the Distilled Spirits Council reveals that approximately 43% of employees at the nation’s small distilleries have either been furloughed or let go, and, barring change, four in 10 distilleries don’t think they’ll survive past another three months.

Even with the surge in off-premise retail sales, the world’s biggest brewers haven’t been able to offset the loss in on-premise sales at bars, restaurants, concert halls and sports stadiums.

In its Q1 earnings report, Anheuser-Busch InBev revealed that revenue was down 5.8% to $11 billion, noting that on-premise channels represented about one-third of the company’s global volume. Molson Coors, which said approximately 23% of its revenue came from on-premise consumption, stated that net sales decreased 8.7% to $2.1 billion. It’s worth noting that, even prior to the coronavirus outbreak, beer sales in America have been struggling.

“The first quarter of 2020 was unlike any other in our company’s long history,” said Gavin Hattersley, president and CEO of Molson Coors, in a statement. “Despite the early progress, our first quarter results were disproportionately affected by the coronavirus, a pandemic that has changed the world—not just for our business, and our industry, but for the entire global economy.”

To help mitigate some of the damage done in the U.S. market, Carlos Brito, CEO of Anheuser-Busch InBev, said in an earnings call that the company was re-evaluating its discretionary spending and taking a “hard look at sales and marketing.” He added that they intended to put more money behind e-commerce and direct-to-consumer initiatives, while putting a pause on product innovations and promotions because, “today, there’s no need for that.”

On a positive note, Brito said that the company’s new Bud Light Seltzer was performing well. With summer around the corner and the hard seltzer category still showing “incredible momentum,” according to IWSR’s Brandy Rand, Anheuser-Busch InBev has the potential to benefit. Last quarter, the hard seltzer segment grew by around 300%, while Anheuser-Busch InBev’s own portfolio of hard seltzers, led by Bud Light Seltzer, grew by nearly 600%, according to the company.

@hiebertpaul Paul Hiebert is a CPG reporter at Adweek, where he focuses on data-driven stories that help illustrate changes in consumer behavior and sentiment.