COVID-19 and the challenge for craft, niche spirits

The COVID-19 pandemic looks likely to cause a deep and lasting downturn in the drinks industry, with travel retail already hit hard first by the collapse of travel and now by the sluggish global recovery.

How might this play out for craft and niche producers, many of which emerged in recent years as the category (from beers to spirits) diversified, driven by high consumer interest and demand for newness? Many of these businesses remain reliant on the showcase that travel retail offers, and also sell heavily through the on-trade, which has been sharply affected by the crisis.

Analyst The IWSR said recently that the 2008/09 economic crisis saw a “shake-out” of small brands from retail as operators sought to maximise returns from larger brands with greater ability to invest. This time around, craft producers – unless they already have scale – will find it similarly tough, said the analyst.

So how do brand owners view the challenge of today and the industry landscape of tomorrow? Will COVID-19 have a disproportionately negative impact on smaller and craft producers? What are retailers’ responsibilities and how can craft brands tell their stories in new ways as consumer behaviour changes? Read on for a comprehensive survey of supplier opinion.

How do you assess the potential for craft products in light of the COVID-19 crisis and its impact on purchasing and consumption habits and on travel retail in particular?

Ian Macleod Distillers Global Travel Retail Director William Ovens: I think consumers will still want to discover and purchase craft brands and expressions… perhaps we need an uplifting and memorable experience now more than ever? A key factor here will the approach the retailers take in terms of choice within the category, and the role of craft spirits within this.

At the other end of the spectrum I do see the demand for value and standard category expressions increasing given the economic challenges and uncertainty.

Loch Lomond Group Managing Director Global Travel Retail Andre de Almeida: In the world of today, of fake news, instant gratification and mass produced commodities, there is a desire for authentic quality, for products with real provenance. This is reflected in the growing trend for craft spirits and it highlights how the diversity of offer remains as important now as it was before the crisis. As an example, I would still expect a strong demand among travellers worldwide who want to experience a taste of Scotland through Scotch whisky. I am confident that our range of single malts from Loch Lomond, Glen Scotia and Littlemill will offer something new and interesting to those consumers.

Bauer Spirits Global Travel Retail Director Hannes Koch: The channel should focus more on smaller brands with great stories and visible people behind the brand. It is far better to have real faces and persons that can be used in talking to the consumer and give an extra credibility to the operator. Shoppers trust a real person more than a marketing presentation from an external agency.

Wild Tiger Founder Gautom Menon: With disposable income a challenge, entry level spirits brands are thriving. But there will always be a space for craft spirits, especially those that offer real points of differentiation that go beyond production techniques and family heritage.

Death’s Door Gin International Business Development Steve de Luca: We assess these extremely positively. Our main craft brand, Death’s Door Gin, competes in what we call the super-premium craft gin segment – so at around US$40-45 for a litre bottle in duty free. This segment has grown at a healthy double-digit clip, even exceeding that of global gin and duty free gin category.

Unlike COVID-19’s challenging impact of smaller craft distilleries, our family company remains well capitalised. In addition, because Death’s Door was not previously present in the duty free segment, we’ve not been affected by the segment’s challenges due to COVID-19. As such, while we can appreciate the hardships of our craft distilling colleagues, and feel for them, our position in duty free is more attractive due to both planned, and fortunate, timing.

In any event, we feel the longer-term outlook for the entire craft segment is far more attractive than the shorter-term one.

Retailer buy-in, lively display and theatre is critical for the category from large multinationals to smaller independents

Stoli Group Global Duty Free and Travel Retail Director Jean-Philippe Aucher: Craft/niche brands have become massive business on domestic markets in recent years and that trend has spilled over into travel retail in a big way. From the original craft revolution in beer, we’ve seen that move into many spirit categories, most notably gin. We’re now seeing all sorts of craft spirits on shelves everywhere – the only problem is some claim ‘craft’ where there really is not very much. When consumers travel, they look for originality and uniqueness that they cannot find elsewhere.

In the future – for a while at least – travel is going to become less frequent for many people, more considered, more special. We are not going to be taking last-minute breaks or quick business trips. So, when consumers do travel, making the most of the (safe) experience and taking the chance to find something new and different will become more important than ever.

Walsh Whiskey Commercial Director John Kelly: For the industry in general we are very hopeful that the worst of the Covid-19 impact has passed and we will get back to consumers and shoppers being interested in new and different products, so Writers’ Tears and The Irishman will continue to grow strongly as they have done in the past number of years. Within the different channels it’s very clear that travel retail has suffered and is likely to be a changed retail experience for the long term.

However we are very determined to work with our travel retail partners to offer new, exciting, exclusive opportunities to those consumers and shoppers that are travelling. Travel retail is a key channel for us at Walsh Whiskey and we will continue to support the channel in the months and years to come with investment and innovation.

Thinking ahead: Investment in the future from Camus Cognac

Molson Coors Beverage Company Travel Retail Senior Manager EMEA and APAC James Thacker: Today’s travel retail channel has changed drastically with the COVID-19 pandemic, however we believe there is still room to grow craft products in the channel. In domestic markets, we’ve seen consumers make more conservative choices, on brands that they’re comfortable and familiar with, which has been to the detriment of smaller craft brands. However we don’t necessarily see the same trends translating into travel retail – an environment where consumers are naturally looking to try something new. In some ways, the COVID-19 pandemic has emphasised this, as consumers are able to travel less, and so want to make more of it when they do.

A more likely barrier for craft brands is availability, with the appetite of retailers to take on new products somewhat diminished as they focus on stock holdings and core ranges. Overall, I would expect this to be a short-term issue only, and that ultimately the same local and global trends that were at play before, are still relevant now and for the future. As an example, the ‘better for you’ trend driving the rise of Hard Seltzers in the US and increasingly in Europe, is still relevant now. Some new product launches may have been delayed, and marketing strategies may need to be changed, but the consumer trend is still the same.

Hunter Laing Business Development Director Scott Laing: We certainly believe that there is great potential for craft whiskies in the travel retail category. Obviously the COVID-19 crisis has changed purchasing and consumption habits throughout the world – consumers have been buying for home consumption given that bars and restaurants in the majority of countries have been closed or only operating with very strict sanitary protocols. People have been buying in wineries, off licences and supermarkets and many have begun to buy online from specialist web sites. This clearly has affected consumer behaviour and travel retail operators will need to take this into account when business restarts. Many consumers will be looking to buy online for pickup at the airport and some will want to avoid entering airport stores.