Preface: A slightly different version of this article appeared in the print version of Pursuit of Hoppiness (out now), using the previous round of data from Stats NZ with the 12-month period from Oct 2019-Sept 2020. As your humble correspondent learned the hard way, trying to draw early conclusions from the strangest year in living memory was indeed a fools’ errand! A relatively soft final quarter for beer versus a monster one in 2019 shifted the overall annual position for beer from historic growth in the year to September 2020, to slight decline in the calendar year, and also changed the picture for spirits and RTDs in the opposite direction. The most interesting parts of the narrative, what happening over lockdown and why, and the overall picture for Craft, remain the same.
Put the kettle on, it’s data time. While we’re a long way from being able to say Covid-19 is behind us, now 2020 is in the rearview mirror it’s time for an attempt to make numerical sense of last year’s beer market. As beer fans we’ll all know how the pandemic may have changed where, when, how, and what we personally bought and drank, and those of us involved in the industry in brewing or retailing will know how it affected our own businesses. But taking a step back and looking at the total market can give a different perspective. So once you’ve got your feet up with a cuppa, let’s have a look at what Statistics NZ’s latest ‘Alcohol Available for Consumption’ dataset, and some retail sales data from Foodstuffs, can tell us about what happened to the beer market in that funny old year.
Having lived through the hardships and downright strangeness of a global pandemic, it won’t come as a surprise that 2020 played out a little differently in beer world. On-premise venues were either closed or operating under straitened conditions for several months nationally from late March, and for another burst in Auckland in August. Bottle shops were closed for much of the first lockdown, although click and collect and online sales were available for part of that time. And grocery stores, open as essential services throughout, suffered major issues with out-of-stocks amidst panic buying and issues with their supply chains and those of their suppliers. And with borders closed, there were no tourists contributing to the beer economy. On the upside, direct-to-consumer online sales flourished, both from breweries themselves and the growing range of subscription and online retail services. The latest Stats NZ data available gives us quarterly volume data for 2020, encompassing the quarter before the first lockdown, the period covering the national lockdown and Auckland’s second innings, and then the final, ‘normal’ quarter of the year.
As befitting a year where the word unprecedented was used an unprecedented number of times, the data tells a strange old story, with beer’s performance in and out of lockdown oscillating wildly. Were one to write a version of this article before the Q4 data was released, one might get a little excited and describe historic beer market growth, as happened to your humble correspondent. A relatively soft Q4 vs the huge 2019 Q4 brought the total performance for beer back to slight decline, while doing the opposite for categories who endured a tougher lockdown.
Overall, the 2020 beer market was 1.7% down vs 2019. Fascinatingly, the period covering the national and Auckland lockdowns (Q2 and Q3) was a whopping 10% up on the prior year, with the quarters not involving lockdowns (Q1 and particularly Q4) well back on big quarters the year prior*. There are some potential reasons for beer’s strong lockdown performance, and relatively soggy showing in the other quarters, partly linked to the performance of other categories.
The other major alcohol categories** all saw growth vs 2019, although like beer, there were some marked differences across the quarters. Wine had a big year, with volume up 4%: like beer, it had big growth over lockdown, but unlike beer, held flat in Q4 to finish at an all-time annual high volume. Challenges with exports markets may have bolstered wine’s domestic performance. Spirits and RTDs fared worse over lockdown, with both impacted by the closure of bottle shops, but both rebounded handsomely in Q4 with over 20% growth on prior year, and finished the year up 4% and 5% respectively. Cider saw a similar trend to beer, with big lockdown growth but volume reduction in Q4, for an annual growth of just under 2% growth.
So what to make of these trends? At a total alcohol level, lockdown didn’t have much of an impact on the total volume, although channel mix shifted dramatically. At a total level, it seems that the closure of on-premise and specialist liquor for periods simply shifted purchasing behaviour from these channels into others, such as grocery and online, where Kiwis ended up buying what they couldn’t at the pub, and sometimes a bit more besides. The restrictions on specialist liquor over lockdown crimped spirits and RTD volume, which shifted into beer, wine, and cider, but then moved back with interest in Q4.
It’s worth noting we’re just talking about volume here. A litre of beer sold in the on-premise looks very different to a litre sold in the off-premise in terms of dollar sales, and its overall economic impact. Different pack formats, different pricing and margin expectations, and different relationships and ability to access each channel mean this kind of channel shift can have dramatic impacts on brewery profitability, some good, most bad. The net effect would be negative in most cases, with the impact on bars and bottle shops clearly adverse.
That said, and despite the overall volume decline, the numbers indicate that the brewing sector in NZ is in much better shape than elsewhere. Across the world, brewers big and small are facing massive volume downturns in most markets. The world’s biggest brewer, AB InBev, reported global sales down 30% in the early months of the pandemic; the UK’s inconsistent lockdowns are pummelling an already wobbly pub sector; and the US Brewers Association is calling a 7-8% sales decrease for craft beer in that country in 2020. NZ’s position as one of the countries least impacted by Covid is clearly a key driver of our industry’s relatively good position, although the fact that beer performed better during lockdown than before and after it remains a curiosity.
So how come? One theory is what economists call the lipstick effect. Like makeup, alcohol is broadly recession-proof, with sales sometimes growing in tough times, as smaller ‘everyday luxuries’ are chosen to replace purchases of big-ticket items. With overseas travel off the cards, thirsty Kiwis reached for a beer, wine, or cider as a treat. Category substitution clearly bolstered these categories too: the closure of specialist liquor and on-premise meant spirits and RTDs were less available, and it’s inevitable that some of those drinkers chose beer instead.
So, more beer was drunk over lockdown, but what types of beer? Finding market data at a more granular level is tough – while some commentators use the Stats >5% ABV classification as a proxy for craft, this is a far from perfect assumption, with plenty of craft beer sitting at 5% or under, and enough non-craft beer over 5% (a couple of million litres of imported cans of high-ABV lager in grocery for example) to muddy these waters. For this article we have been able to use sales data from Foodstuffs, covering the New World, Pak N Save, and Four Square banners, split by broad segments (craft, mainstream etc) which gives some really interesting insights into beer trends last year. Grocery makes up about 40% of beer sold in NZ, and these banners are about half of that, so it’s a big enough sample to provide some indicative colour.
It’s worth exploring the trends pre-Covid before seeing what changed during the pandemic. Firstly, there has been a broad channel shift occurring in NZ for decades, with supermarkets growing their share of the market, at the expense of bottle stores, and particularly on-premise. Within the beer category, some of the bigger long-term trends in beer have been the growth of craft, the growth of the ‘wellbeing’ segment (driven by low carb beer), and the steady decline of traditional mainstream brands.
The first table below shows how Foodstuffs 2020 beer sales split by segment; the second, segment growth by quarter vs the prior year. In this segmentation, Premium means green bottle lager and anything international; Mainstream is Speight’s, Tui, Lion Red, Export etc; and Craft includes Mac’s, Monteith’s, and Boundary Rd.
A couple of Covid impacts are plain to see in this data. The first is the massive channel-shift-driven uplift in the April-June and to a lesser extent July-September quarters. Q2 sales were up 60% on the same quarter in 2019, with Q3 sales up 17%, and then essentially back to underlying growth rates in Q4.
The second is that the trends at segment level change materially over the lockdown period. The biggest mover is the Mainstream segment, previously in seemingly inexorable decades-long decline. Q2, the height of the pandemic, saw a huge spike in Mainstream share, which then went straight back to normal thereafter. This was partly supply-driven, with both retailers and the big brewers focusing on their biggest lines in the supply chain chaos of early lockdown. Globally, heritage brands have flourished during the pandemic, especially those in big pack formats and at a lower price point. “During the pandemic our customers told us they were finding comfort in choosing trusted, local brands across all departments of the store” says Terry Vaa, Foodstuffs Category Manager for Beer, Cider and Tobacco, “and we saw a switch to value options across all categories”
What about Craft? It took a hit in Q2, experiencing the opposite of the Mainstream bump. But Craft hit back in a big way from Q3 onwards, with big growth on the same period in 2019, and finished 2020 in hefty growth. Vaa sees this as not just normal service resuming, but an acceleration of previous trends: “I think we might see things like craft beer and low carb growing even faster as changes in people’s behaviour speed up after the initial shock of the pandemic”.
While the Foodstuffs data shows Craft enjoying a strong Q4, the Mainstream bubble appeared to have popped. This hints at a plausible hypothesis for why total beer fell away in Q4, and spirits and RTDs boomed: drinkers of the latter categories swapped into Mainstream and Premium beer when bottle shops were shut, but eagerly swapped back once they reopened. The Stats NZ alcohol bands, while imperfect proxies, support this hypothesis, with the >5% band remaining in growth in Q4, but the 2.5-4% band (a proxy for Mainstream), and the 4-5% band (a mix of Premium, plus Wellbeing and lighter Craft) both down more than 10% on prior year.
Such a strange and unprecedented year is always going to mean making sense of numbers and trends is hard work, and doing so with imperfect or incomplete data can be a fools’ errand, as evidenced by the print edition of this article! But what we can say is that overall alcohol volume in NZ was relatively unaffected by the strange year of 2020, despite a rollercoaster ride across quarters, categories, and channels. Our beer industry also remains in better shape than almost any other country, and the Craft segment looks to be the healthiest part of the market. I’d propose raising a glass to that, but these numbers suggest you probably already have an empty one in hand!
*The market in lavish footnoting has been cornered, but this deserves at least a modest asterisk. It’s worth noting that the Stats data measures volume at the point at which excise was paid – when beer leaves the brewery or bonded warehouse. This means the volume is recorded at a point after production, and before its eventual sale by a retailer (and earlier still than when it is consumed). It is possible that the pandemic altered the normal lead and lag times (for example, kegs that were produced before the first lockdown but then sold later than normal, or not at all) but it is hard to see how this could have driven the huge growth over lockdown, and decline in Q4.
**The data is friendlier to excise analysis than pop journalism, so there’s a bit of jiggery-pokery needed to make the Stats categories more closely resemble how things are laid out in your local bottle shop.