(Bloomberg Opinion) — Lockdown has us all reaching for the brandy. That’s a tonic for high-end liquor makers, but a worry for brewers of mainstream beers.
French spirits group Remy Cointreau SA said this week that its first-half profit wouldn’t plunge as much as it initially feared, thanks to consumers in the U.S., U.K. and Australia mixing more drinks at home. Similarly, Fevertree Drinks Plc, which makes popular mixers such as elderflower tonic water and smoky ginger ale, said last week that its sales through retailers rose by just over a third in the U.K. in the 12 weeks to June 14.
As bars, pubs and restaurants shut down, Americans and Brits wanting a tipple had little choice but to sip in their living rooms, gardens and balconies. Instead of pouring a quick beer after work, however, come 5:30 or 6 p.m., many would try their hand at crafting a Negroni or an Aperol spritz. Perhaps they even had time to bring out that bottle of vermouth last seen a few holidays ago and experiment with new creations.
It helps that the appetite for cocktails has grown in recent years, as many consumers, particularly younger Americans, have turned away from mass-market beer and toward different drinks, including spirits. Ever more focused on healthy living, they prefer to drink less alcohol, but make it premium.
During the pandemic, Remy Cointreau pivoted its marketing toward home drinking, offering online master classes from bartenders on how to mix inspired cocktails. Its efforts, and those of rival Diageo Plc, got a boost from a range of influencers and celebrities, such as “Bridesmaids” director Paul Feig, who started hosting virtual cocktail hours of their own.
Now mixing a drink at home has become a special occasion — a moment of indulgence, a way to socialize and an excuse to swap sweatpants for something smarter.
It’s no surprise that Cointreau, an ingredient in the Margarita, the Sidecar and the Cosmopolitan, has been the star performer for the group this year; the spirit’s retail sales have managed to offset lost sales in bars and pubs. But across the group’s portfolio, the thirst for homemade concoctions can’t fully make up for the decline in liquor sales through restaurants, bars and travel retail — venues where people are more inclined to trade up to a pricier tipple and where demand has mostly collapsed.
Despite the better-than-expected performance, Remy Cointreau’s first-half operating profits are still projected to fall by between 35% and 40% from the same time last year.
The situation for beer brewers is likely to be even worse. Consumers not only trade down when drinking beer at home, they often choose the cheapest option on offer in the supermarket. After years of slowing growth for mainstream beer brands, that’s further bad news for the likes of heavily indebted brewer Anheuser-Busch InBev SA. Meanwhile, the picture for wine is mixed. Demand has stalled in the U.S. and U.K. over the past couple of years, but it looks to have gotten a lift from lockdown.
Profit pressures should ease as more bars and restaurants reopen. But amid rising unemployment, some consumers may rein in their spending wherever they choose to drink. Others may still be nervous about venturing out, further entrenching the trend for home drinking.
The garden gin-and-tonic may be a feature for some time yet.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries. She previously worked at the Financial Times.
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