As with nearly every industry, the wholesale wine and spirits industry has experienced significant disruption in the wake of COVID-19. As consumers limit interactions and spend more time at home, there have been 10-20% spikes in demand, based on observations from our own wholesale wine and spirits distribution clients.
However, in parallel, lead times are increasing, raw materials are becoming scarcer, and consumer preferences are evolving with our current environment. Early on, global supply chains effectively shut down and have been slow to recover. Moreover, new government stimulus, regulations, and the current political environment have caused increasing uncertainty during these already challenging times. In order to capitalize on this uncertainty, we recommend focusing on the below three challenges and mitigation approaches:
1. Supply Chain Impacts Due to Prioritization of Resources
The most apparent challenge for wine and spirits wholesalers arising from COVID-19 is likely the increasing shortages and challenges sourcing key products. A global prioritization of resources towards medical products, facilities, and firms supporting a vaccine for COVID-19 has led to resources rightfully being shifted away from many consumer products and packaging. Coupled with disruptions in international cargo transportation as airlines drastically reduce flights and cargo often flies in the belly of passenger aircraft, global supply chains face increasing shortages and uncertainty.
Moreover, as alcohol consumption from restaurants and bars has primarily shifted to consumer’s households, manufacturers have struggled to keep up with demand due to a shortage in packaging, or bottles and cans. Canmaker Ball Corp., one of the largest can makers in the U.S., plans to open two new plants and add two new production to U.S. facilities by the end of 2021. However, a shortage of goods required for packaging will likely exist through the end of next year. Many manufacturers are simply not fulfilling orders. Molson Coors Beverage Company noted that it lost market share during August due to having to suspend production from certain canned beers. The demand for kegs has essentially declined to zero while the demand for a 12-ounce can has exploded. Thus, lead times have increased and wholesalers are typically holding over 6 weeks supply of domestically sourced products, and longer for international products. Wholesale wine and spirits partners may not be able to change how their manufacturing partners are currently operating during this pandemic, but they can certainly optimize their own processes and assortment to meet today’s demands.
2. Concurrent Consumer Shifts Towards Premiumization and Value
Beginning even prior to COVID-19, but exacerbated to an extent in its wake, there have been parallel shifts towards premium products and value products within the wine and spirits industry. The high-end, premium market continues to experience considerable growth through the pandemic with the market nearing all-time highs and most consumers spending more time from their living room. Belvedere Vodka initially lost considerable revenue when the pandemic impacted the U.S. as nightclubs, bars, and restaurants closed their doors, their main source of revenue.
However, strong demand for their products led consumers to drive up both retail and eCommerce sales to the point where Belvedere is now up 11% for sales year-to-date, and their second quarter of 2020 exceeded the year prior by 16%. Moreover, new, high-end products have become trendy with consumers as evidenced through the continued launch of new celebrity brands, from Channing Tatum’s Born & Bred Vodka to Bob Dylan’s Heaven’s Door Whiskey to Nick Jonas’ Villa One Tequila. Wholesalers must compete to distribute these new burgeoning brands, but the additional SKUs and uncertainty can increase operational complexity.
At the same time, consumers expect products to be offered at a relative value, whether through larger sizes, discounting, or bundling. As consumers shun restaurants and bars and more regularly consume alcohol from home, their preferences while shopping for alcohol has shifted creating greater demand for “handles” of liquor and “cases” of beer and wine.
Within in the beer industry specifically, the pandemic has led to significant demand for low-calorie, low-cost, light beers from the major brands. Busch Light has experienced a 44% increase in sales between March and April, while Miller Light, Michelob Ultra, and Natural Light all rose between 14 and 17%. Moreover, Nielsen noted that larger packs of 24 or 30 cans grew by 90% at its peak in March. As consumer preference continue to change due to these unprecedented times, wholesalers need to ensure strong partnerships with their manufacturers to navigate these changes, along with the organizational and operational agility to ensure their inventory is always supporting demand.
3. Government Policy Impacts on Demand
As the pandemic has progressed, governments across the globe have instituted fiscal stimuluses, new regulations, and other changes meant to ease the burden of COVID-19. While well-intentioned, these policies further the uncertainty for wholesale wine and spirts as they can negatively impacts the ability to maintain efficiencies. For example, in Alabama, the state closed 78 of 170 state-owned ABC liquor stores and was only offering emergency curbside pickup early on. Then, that state and many others, permitted the sales of alcohol with restaurant takeout, limiting consumers to one liter of alcohol, 1500ml of Wine, or 288 ounces of beer.
In order to capitalize on these changes, restaurants require the flexibility to adjust their product mix – and a wholesale wine and spirits partner who can fulfill these needs. While many states will look to revert temporary alcohol delivery or public consumptions statues, or already have, Colorado recently passed Senate Bill 20-213 to extend permittable alcohol takeout sales through June 2021. When wholesalers pair this uncertainty from policy changes with the current political unrest domestically and abroad, predicting current demand appears to be an impossible task. Wholesalers should look toward new ways to evaluate, understand, and react to political environment and policy, or regulation, changes in real-time.
Our Recommendation for Wholesale Wine and Spirits Partners
Continuous innovation and digitization of a wholesaler’s supply chain will offer the greatest benefits during our current pandemic and future disruptions. Investing in enterprise resource planning systems, material requirements planning systems, and warehouse management systems are foundational to a digital supply chain. Moreover, wholesalers should look to integrate network-enabled sensors throughout their supply chain to provide real-time inventory information.
Wholesalers should also operationalize the use of external data – point-of-sale, syndicated data, social media – to give near-term demand sensing information. An advanced analytics platform can process these data points real-time and provide insights, allowing wholesalers to adjust to changing demand and supply. Using these connected systems and insights, imagine collaborating with your manufacturers remotely for demand shaping and distribution considerations. Altogether, these systems allow wholesale wine and spirits partners to better forecast, plan, and execute on strategies specific to their consumers during times of significant disruptions, whether a pandemic or otherwise. If you need any assistance evaluating or executing on opportunities to digitize your supply chain, contact us today.