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SA's prohibition

SA’s liquor losses make for a very sobering situation

South Africa’s entry into an era of liquor prohibition saw a loss of R20bn in alcohol sales, equating to R304m per day, during the first nine weeks of lockdown. With a second embargo now in place, the country will lose a further R10bn for every month the ban continues.

This data emanated from a recent Nielsen client webinar, Recovering from a Sobering Situation, based on extensive research into the South African liquor industry both before, during and after the first Covid-19 lockdown.

Nielsen MD for South Africa, Kelly Arnold, reports: “During the first prohibition the South African liquor industry lost 17% of annual sales during nine weeks, including three critical ‘month-ends’ when sales are generally at their highest.

“To put this in perspective, that is the equivalent of a loss of sales of the entire confectionery supergroup for a year, or four years of bread sales, or three years of airtime sales in modern trade outlets.”

Before the lockdown

In stark contrast, last year the liquor sector was the picture of health, recording R121bn in sales, which represented an R11bn annual increase or around R30m more per day. This equated to 10% annual growth, which was ahead of the FMCG industry as a whole, which grew at 7%.

Once the Covid-19 pandemic hit our shores and ahead of the lockdown, those consumers who realised that liquor would be prohibited and those who had the means to stock up, rushed to stores to load up on liquor supplies. However, much of this stocking up behaviour defied previous trends and, in reality, only equated to around three days more.

For example, beer as a whole suffered and flavoured alcoholic beverages (FABs) growth also dropped. Brandy and vodka added growth but below-average levels. The big winners during this time were wine, whisky and gin all of which excelled as consumers opted for ‘longer lasting bottles’.

A short reprieve

Once the alcohol sector reopened at the beginning of June, consumers initially queued to stock up. Sales soared by 126% in the first week versus a year ago and 61% in the second week, both of which were well ahead of sales during the pantry loading in the week prior to lockdown.

However, by the third week of reopened alcohol trading, sales had dropped to just 0.5% more than the same week a year ago – a clear indication that consumers did not have the cash to continue spending. Consumers were also thinking carefully about what to add back into their pantries.

“Long-lasting bottles’ such as wine and spirits accounted for 78% of the incremental sales in the first three weeks after reopening. Beer and FABs were already declining in week three, once again, indicative of the capacity constraints in terms of spend,” says Arnold.

“Interestingly, during that time, the top-selling five spirits accounted for 17% of total liquor sales, with all but one priced under the R200 mark. Gin, vodka, brandy and whisky were the clear overall favourites.”

No time to stock up

The second prohibition announcement on Sunday 12 July left consumers with no time to stock up. Nielsen says that based on sales up to the end of June, consumers currently have a couple of days at most in their reserves.

Looking ahead, Arnold comments: “The worst possible scenario that will play out is more than 40% of annual sales will possibly be eradicated and some volumes may be regained, but not completely recovered.”

She adds that amidst the continued prohibition of liquor sales, the industry faces not only a void in sales, but also vastly unprepared consumers, and changing consumption patterns and behaviours. Consumers will be forced to return to prohibition behaviour, which includes severe rationalisation.

“As we embark on the most challenging and unprecedented journey ever, we will need to have a deep and empathetic understanding of changed consumer circumstances and the reforms they will make.

“To recover growth; business strategies will therefore play out in a far tougher competitor environment for both brands and retailers and they will need to be planned and executed with extreme precision. Serving the consumer’s changed and new needs, within their constrained wallets, will be a challenge like no other,” concludes Arnold.

Source: Nielsen South Africa

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