THE STATE OF THE LIQUOR NATION

Charlotte Cowan asks New Zealand liquor experts to share their insights on the challenges the industry has faced in 2020 so far, and what lies ahead.

When New Zealanders stood with their friends and yelled “Happy New Year” on January 1, no one could have predicted 2020 would pan out quite like this.

With New Zealand alternating between Alert Levels 2, 3 and 4 since March (with a small break between the end of May and beginning of August), local bars, pubs, wineries, breweries and distilleries have been sent into turmoil. With no onsite customers permitted during Levels 3 and 4, limited capacity for production and strict hygiene measures in place, the liquor industry has had to find new ways to stay afloat. Many have thrived but most have just barely survived – so what is the state of the liquor nation in New Zealand now?

KEEPING SPIRITS UP

Sue James, Chairperson of Distilled Spirits Aotearoa

For many local distilleries, Level 4 brought with it a steep learning curve. With the closure of the hospitality sector – therefore limited retail sales, no face-toface market visits and the cancellation of major events such as food shows – digital marketing and online sales became a necessity. Distilleries scrambled to streamline e-commerce systems and websites to capitalise on digital sales and according to Sue James, Chairperson of Distilled Spirits Aotearoa, these sales were initially massive.

“Cash flow was helped by selling directly to the customer at full margin, although New Zealand’s spread-out population was a wake-up call, with some rural deliveries absorbing much of the profit margin,” she says.

But James says the increase in website sales did not completely compensate for the significant loss of income in other areas. For example, the loss of international tourism and airport dutyfree directly impacted – and continues to impact – the significant sales of “souvenir” New Zealand spirits.

However, James says that distilleries immediately identified that they needed to catch the attention of the consumers who were experimenting with a method of sales that most had not used before. “New products were rushed off the block,” she says. “Premixed spirit RTDs, and innovations such as pre-cocktail packs (mixer, spirit and garnish in one box) took advantage of the lockdown state of the nation where each of the items was complicated to source individually.”

At least 12 New Zealand distilleries ventured into making hand sanitisers and utilised innovative packaging, sizes and giveaways. One local distillery reported making more profit in five weeks from hand sanitiser than they had from nine months previous spirit sales.

Over the last six months, James says the New Zealand distilled spirit industry has gained an increased number of aspirants looking for change, or forced into change, who see spirit distilling as an option.

“The increase in the number of New Zealand distilleries is going to grow the offerings to the consumer and challenge financial models,” she says. “Making money with one product in a saturated market is very difficult, and distilleries have high overheads.”

James says successful distilleries will need to diversify their product range, focus on margin and higher value revenue streams.

“Export with the power of ‘Brand NZ’ is a likely important step. The next two to three years will see a rationalisation in the industry – consolidation of small distilleries, collaborations within the wider beverage industry to leverage strengths, and possibly buyout by overseas interests.”

Overall, James says most distilleries report that they feel there is more vigour and energy in the trade and consumers than ever. “We are OK,” she says.

DON’T JUST GRIN AND BEER IT

COVID-19 has significantly affected all sectors of the liquor industry but according to Dylan Firth, Executive Director of the Brewers Association of New Zealand, beer consumption was down even before the virus hit New Zealand. “The January to March quarter saw a reduction in beer consumption of 11% compared to the same period in 2019,” he says. And during lockdown there was a significant change in demand for the style of beer consumers were seeking out – choosing classic brands over craft. Rory Glass, Managing Director Executive Director of Lion NZ, says they saw a definite move from consumers back to more traditional trusted brands in the beer market. “The sustained growth and success of Steinlager over this period emphasises the strength of trusted brands in times of uncertainty,” he says.

Dylan Firth, Brewers Association of New Zealand Executive Director

With these impacts in mind, Dylan Firth says it’s imperative for the brewing industry to not just throw their hands up during these uncertain times.

“We can’t just complain and put our hands out. It is important that we work through problems and rely on each other for a leg up,” he says.

According to Firth, the next two to three years is essential to ensuring the brewing and wider hospitality sectors can operate at a level where those invested in businesses and employing New Zealanders can survive.

“Levels of debt held by small businesses in the sector are unlikely to be sustainable long term,” he says. “So brewers and other suppliers will need to continue to support the sector.

“To date we have seen suppliers providing refunds on spoilt stock due to lockdown, advancements on credit, deferred payment on loans and multimillion dollar spend on marketing to get people out and about.”

Firth says the hospitality and tourism sectors are integral complementary industries for the wider brewing community, with beer sales through the hospitality sector representing approximately 63% of sales by value in New Zealand.

“This will no doubt see a hit with consumers being cautious with discretionary spend and the uncertainty of what will happen once the wage subsidy ends,” he says. “Not to mention the complete lack of international visitors to New Zealand, who spent over a quarter of a billion dollars on beer in the 2018/19 year to March.”

Firth says given the current and ongoing uncertainty for hospitality, it is important the government continues to be focused on supporting the sector.

“The perception of business as usual is dangerous and can lead to those with the ability to help, leaving us to our devices and ultimately some businesses going under,” he says.

“This may require further financial support from the government to ensure industry survival due not only to COVID-19 but also the recent minimum wage and alcohol excise increases.

“A proactive government, focused on the hospitality sector and the ongoing support of the brewing sector and other suppliers, will mean hospitality and tourism can once again thrive.”

JOY AND CHALLENGES IN WINE

Perhaps the biggest positive to come from the past few months in the liquor industry is the exceptional vintage of 2020. While winemakers had to ensure social distance was upheld during harvest, winemaking was considered an essential service during Level 4 lockdown and Cameron Douglas MS is reporting the 2020 could be the best one since 2014 (see pg 14).

Philip Gregan, CEO of New Zealand Winegrowers, says the industry is acutely aware that they were in an incredibly privileged position to be allowed to complete harvest. “Throughout the entire lockdown, our number one priority remained – ensuring the safety of our people and our communities,” he says. “The fact that more than 400,000 tonnes of grapes were harvested, and no COVID-19 clusters developed in our industry, testifies to how our industry fully embraced the challenges to work safely during vintage 2020.”

Philip Gregan, CEO of New Zealand Winegrowers

However, following a successful harvest, Gregan says the biggest challenge was the major export markets going into lockdown.

“[With] international borders closed, and no gatherings permitted, many wine businesses have moved into virtual execution, creating digital initiatives to connect with the trade and consumers,” he says. “These initiatives included online wine tastings hosted by winemakers, and were virtually attended by New Zealand wine lovers all over the globe.”

In terms of impact on sales, Gregan says they are currently seeing two situations happening in markets. “There has been strong demand for New Zealand wine in supermarkets and online retail, which has benefited our industry. But, on the other hand, many wineries who are focused on cellar doors sales and especially hospitality, have been negatively impacted,” he says.

Looking forward, Gregan says the challenge will be when the borders reopen; how quickly wine businesses can get back into the market, and how long it takes for international tourists to return.

“This year has been full of uncertainties, and how the next year is going to play out is the big unknown,” he says.

“Encouragingly, the reputation of our wine remains strong both here in New Zealand and in our key international markets, and our wines continue to resonate with consumers and the trade.

“While the world has changed, what has not changed is the love that people have for New Zealand wine.”

THE RESILIENCE OF ON-PREMISE

The majority of on-premise liquor businesses in New Zealand could have never anticipated an imposed shutdown for a number of weeks, but experts say that bars, pubs and clubs have successfully responded and adapted to the restrictions placed on them.

“Hospitality operators are traditionally a creative bunch and most understand that you need to react early and adapt quickly or get left behind,” says Julie White, CEO of Hospitality New Zealand.

Many venues have adapted to COVID-19 restrictions by creating e-commerce platforms and offering takeaway menus – which is the only means of trade during Level 2 – or used the time to refurbish, renovate or alter the venue layout to allow for social distancing.

“By positioning TVs in new areas or making their outside space warmer and cosier, it enabled premises to expand for extra capacity – to abide by social distancing requirements during Level 2 – and create additional areas in winter and the rugby season,” says White.

Many bars are now using QR codes that allow customers to view the menu, order and pay. Bridget MacDonald, Executive Director of the New Zealand Alcohol Beverages Council, says this is a positive addition to the on-premise.

Bridget MacDonald, NZABC Executive Director

“Not only does it support swift ordering and service, it also means there are no menus or payment systems to handle, therefore easier to maintain hygiene standards,” she says. “Investing in this type of technology makes it easier for businesses to operate with restrictions.”

Rory Glass, Managing Director of Lion NZ, says that consumers are now more accepting about using technology in their hospitality experiences, especially when it speeds up convenience.

“Mobi2go, MNYou, ServeMe, ECQ services for in-venue ordering will become a way that venues can manage staff costs, whilst continuing to provide experiences,” he says.

While many of these innovative offerings were born out of necessity during lockdown, experts say many of these options will continue as they have performed well post lockdown.

“With businesses and customers alike embracing new ways and this type of innovation, we can expect more innovations to come,” says MacDonald.

Glass says the new initiatives created by the on-premise now contribute to between 3-10% of current revenue.

Going forward, all experts agree that venues must concentrate on providing great experiences, showcasing experiential offerings and push boundaries to encourage consumers to visit their venue and provide them what they can’t get at home.

“This is not about selling a product or experience for less, nor is it about undercutting your competitors,” says MacDonald. “It’s more about embracing what it is that you do best and understanding your unique proposition, then adding value through delivering quality service, products and experiences.”

Julie White says building good relationships with locals and neighbours - including neighbouring businesses - as it’ll will go a long way in building rapport. “Endorsement by word of mouth is still the greatest source of marketing,” she says.

So while COVID-19 has brought the “most extreme shock” to even the most resilient local businesses, Kiwi on-premise owners are proving how resilient they can be when faced with adversity. “They have been pulling out all stops to ensure they stay afloat, keep staff employed and deliver a quality experience to their customers,” says MacDonald.

However, she says it’s important not to most positive - cultural shift during and be complacent.

“There is much uncertainty in our economic embracingwith a dip anticipated in the next few months – particularly as unemployment increases. It would serve businesses well tospend time developing a plan for how to get through potential challenges,” she says.

“Our hospitality venues are a vital part of our community and culture and an essential part of our economy. our economy. By working together and playing our part to support one another, we will come back stronger than ever.”

SUPPORTING LOCAL

One of the biggest hits to the New Zealand liquor industry has been the loss of international tourism.

No inbound flights, cruise ships or duty-free have affected everything from retail sales to cellar doors, to on-premise.

“The domino effect from the drop in international tourism was felt by the sector,” says Julie White, CEO of Hospitality New Zealand. “From the likes of bus tours that always stop at the same hospitality locations or venues that cater to international students, such as karaoke bars.”

Julie White, Hospitality NZ CEO

But perhaps the biggest – and certainly most positive - cultural shift during and post lockdown has been New Zealanders embracing “support local” campaigns.

From initiatives such as “Cheers to Your Local” by Lion, which gave venues resources to help them get back up and operating, to encouraging Kiwis to explore their own back yard and buy New Zealand-made, “support local” campaigns are helping to boost the New Zealand economy.

“[There is an] appreciation in staying local, buying local, and buying New Zealand-made,” says White. “We’ve seen an uplift in people interested in where products are made and where they’re from, so we hope that trend continues.”

Sue James from Distilled Spirits Aotearoa says that post-lockdown, there has been an elevated interest in cellar doors and tours by New Zealanders.

“In some cases distilleries have reached Christmas-level daily trading as New Zealanders explore their home country,” she says.

Philip Gregan from NZ Winegrowers also says he has seen a shift towards buying and supporting local wineries.

“As people moved into lockdown, we saw a big increase in online sales, and since domestic tourism has opened back up, we have seen Kiwis exploring their own backyards, visiting our vines, and making the most of New Zealand wine tourism offerings,” he says.

Rory Glass, Managing Director of Lion NZ

Rory Glass says the hyperlocal trend is likely to continue for the foreseeable future. “If there is a retreat from the CBD, suburb town centres will become more vibrant like international cities,” he says. “Wider choices will be required, or suburban venues would be well placed to expand their offering.” ■