How CoronaVirus Will Change the Alcohol Industry
The problem with trying to predict the impact of the CoronaVirus on the Alcohol Universe is the same problem of predicting its impact on any industry: We don’t yet know the severity of the impact the Virus will have people and society and we don’t yet know the effective lifespan of the virus going unchecked by medical intervention such as a vaccine or effective treatment. But of course, predictions can be based on assumptions.
Let’s assume, for the sake of this post, that the current personal quarantining will continue unaltered through May. This is optimistic and reflective of my general disposition. Let’s assume further that science will develop a vaccine/effective treatment within a year. Again, optimistic, but not a dumb assumption.
Given these assumptions, I think we can say the following about the impact of the CoronaVirus on the Alcohol Universe.
1. DTC Law Changes. Alcohol producers (Distillers, Brewers, Wineries) will make a concerted and renewed effort to convince lawmakers to allow them to both deliver their products locally and use common carriers to deliver their products. This, in turn, will speed up the creation of a national DTC marketplace for all categories of alcohol products.
2. Digital Product Marketing. Some number of alcohol producers will keep their digital marketing and consumer outreach efforts ramped up even as the CoronaVirus threat wanes, having seen a real return on investment to those efforts. And as more states enact legal DTC shipping and delivery laws for all categories of alcohol, some larger percentage of producers who would otherwise not have engaged in significant digital marketing will engage in this marketing channel.
3. Consolidation. It’s hard to imagine that a number of producers, retailers, restaurants and even some wholesalers will be so hard hit by the economic impact of the CoronaVirus that they simply will not survive. This will lead to consolidation at every tier. Consolidation isn’t always a bad thing, particularly when the consolidation is a mutual decision between the consolidator and consolidated. In this case, however, it won’t be an intended outcome.
4. Recessionary Spending. America is in a recession now, if not a depression. The country was seemingly on the verge of some sort of economic slowdown even in advance of the CoronaVirus. The near term future has to be seen as a recessionary future, even as economic activity ramps back up. This means alcohol consumers trade down, spending less per product. It means, for wine, the rise of the $10-$15 per bottle of wine and a diminished market for wines $25 – $50 per bottle.
5. Higher Taxes. Given the historically low price of money, now is not the worst time for the Federal government to borrow money to fight the economic impact of the CoronaVirus. However, that money needs to be paid pack. It seems near impossible to make even the slightest attempt to begin to pay back the initial 2,000,000,000,000 that is in the recent “stimulus” package, let alone attack the additional 23,000,000,000,000 of federal debt that had accumulated before the CoronaVirus outbreak. Cutting spending to raise funds to attack the debt is a path to recession and pain. At the very least, expect the corporate tax rate to be restored to where it was prior to the Trump tax cuts and expect personal income tax, particularly on the wealthy, to increase. This means generally less spending on alcohol and lower revenue for producers, retailers, wholesalers and the rest of the alcohol industry. There are other paths to dealing with a national debt this large that don’t necessarily include increased corporate and personal tax rates. However, this path is the most direct.
6. A Move From Individualism to Communalism. I believe one of the most important impacts of the CoronaVirus outbreak will be a social move toward more communalism and less individualism. This, in turn, means a greater societal tolerance for preemptive action taken to mitigate potential health threats. If I am right this does not bode well for the alcohol industry. It means a greater tolerance for .05 blood alcohol limits for drivers. It means greater tolerance for and acceptance of dubious claims about alcohol’s impact on our health and therefore more tolerance for restrictions on alcohol use. It means more tolerance for arguments that use “the health of the children” to justify restrictions on alcohol use. Expect a more restrictive environment on alcohol use going forward particularly in the areas of impaired driving and advertising, if not others.
I’d remind readers that the above predictions assume a relatively optimistic outcome (quarantining through may and the eventual development of a treatment/vaccine for the CoronaVirus. If, on the other hand, the treatment/vaccine does not come and/or if the severity of the virus requires truly longterm quarantining and a continued contraction of the economy, well, all bets are off.
Still, the above predictions are something that everyone in the alcohol universe ought to think about, particularly in terms of how they will impact their business.