OPINION: What lies ahead for struggling alcohol industry

OPINION

The COVID-19 crisis has been a tumultuous time for the liquor industry, with job losses impacting thousands throughout the alcohol value chain. During the 9-week lockdown, the alcohol industry lost R18 billion in revenue and R3.4 billion in excise tax.

The unbanning could not have come soon enough for stakeholders in the industry. A number of players have been able to retain staff because of loans and UIF grants, but these have run out from mid-August, so without trade, many retrenchments are anticipated to happen now.

Frankly, the government support is wholly inadequate in supporting the industry and maintaining the jobs at stake - given the scale of the losses resulting from no trading.

SURVIVING AS A BANNED PRODUCT

This has been an incredibly stressful time for the alcohol industry. During this time many alcohol outlets focused on non-alcoholic products like Riedel glassware, an assortment of tableware and other products from farms like Babylonstoren and Spier as well as alcohol-free gin, wine and beer.

Companies that have pivoted into the digital arena have survived better than those who have played only in the physical space. Innovation has been a necessity in order to remain viable as a business and as a channel to connect with customers.

Prior to lockdown, we did most of our trading in-store. However, the COVID-19 crisis has totally transformed us into a predominantly online platform with a national footprint, due to needing to remain viable during restrictions of trade of lockdown levels 3 to 5.

The pandemic has fast-tracked online adoption. According to a recent report by McKinsey, consumers expect a relative shift to online shopping in most categories in the short term, driven primarily by a sharp decrease in in-store shopping. In the longer term, 40% of consumers plan to increase online shopping once the crisis is over.

We have introduced innovations such as virtual tasting events, e-hailing motorcycle couriers and drive-through collections to help support customers through this unprecedented time.

This preference for online shopping has continued into lockdown level 2. Many people who moved to the convenience of online shopping through necessity are now realising that the ease of use and time saved compensates for some of what is lost with the in-store experience.

There will be a natural restocking as customers' usual stock levels will have been depleted over the lockdown. This will happen regardless of any fear of a future curfew or banning.

Having said that, given two back-to-back lockdowns, we think customers are bound to keep bigger stocks at home then they have done prior to the pandemic.

This has led to online orders with larger basket sizes of R3,600 on average as opposed to the pre-COVID-19 R600 per basket, increasing six times the size of the pre-COVID basket size and 25% more than that of lockdown 3.

We expect customers to stock up again. Our online store has seen purchasing volumes increase consistently as a result, but not to the extent of the spike in sales which we saw when the move to level 3 was announced.

The reason for this is that the prohibition during this lockdown was shorter than the previous one, and because customers anticipated a possible second trading restriction, they had more stock at home as a result.

LESSONS LEARNED

The supply chain took a few weeks to settle into a regular routine after the first opening up of sales in lockdown 3, partly because of overwhelming consumer demand and from having to accommodate suppliers and producers who had not been operating for over two months. Even diesel fuel was in short supply in the middle of the country, which caused issues for logistics companies moving product from Cape Town to Johannesburg.

From our interaction with suppliers and distributors, it appears that the supply chain and logistics are better prepared for a move to level 2. There were significant lessons learnt from the last alcohol unbanning, and much of the confusion created by the complicated rules around the transporting of alcohol have been resolved.

With the restrictions lifted on the movement of alcohol between distribution centres, suppliers are better placed to support the industry in getting back to business.

We don't expect delays in fulfilling orders this time round for most products. However, getting stock of beer may be delayed initially. Breweries have stopped brewing over this time which means a time delay for the first few days in getting stock. However, customers will be able to buy something, it may just not be their preferred brand of choice. We expect stock levels to normalise by next week and then it will be business as usual (within the restricted trading times).

With lessons learned from previous challenges of the 1 June reopening, the industry is more prepared this time round, needing urgently to get back to business as quickly as possible to mitigate further losses.

FUTURE PROSPECTS

The move to online has created new opportunities for the industry. Where previously producers had to move around physically to meet their customers, now video calls are a comfortable way to connect and discuss business.

This has broadened the scope of what a winemaker or craft producer can do. For example, it has now become an acceptable norm for a winemaker sitting in Cape Town to entertain customers in Johannesburg or anywhere else in the world for that matter, using a video call.

The main challenge for the industry is to normalise the supply chains after the stop-start experience since the start of the lockdowns. Industry also needs to encourage consumers to buy from South African producers to help them regain a firm footing to see them through this time.

The possibility of pandemic numbers surging once more is still a potential threat both to people and in terms of what this could possibly mean again for the industry. As more sectors and places open at level 2, more people are interacting, shopping and sitting at restaurants, which in turn increases the chances of infections rising.

People will need to stock up in order to be prepared for the possibility of future restrictions.

As the world is moving online, we need to make sure we’re still differentiated in the online environment like we were in the physical space. This means recreating events such as getting to know the winemakers, gin distillers and other producers and transforming these into an exciting online medium.

THE NEW NORMAL

We are all relieved to be trading again and particularly because we thought that there might be additional restrictions, for example, further reducing the number of trading days or limiting the quantity that any one customer could buy.

The infection rate may be dropping, but the crisis is not over yet. For the balance of the year, at least, strict protocols will need to be kept in place to protect clients and staff in brick and mortar stores.

Despite these challenges, the alcohol industry is breathing a sigh of relief, hoping that President Ramaphosa’s sanctioning of alcohol sales will help salvage the industry and that it is not too late for many players in the field.

These lockdowns have been devastating for a sector that employs hundreds of thousands of people. We will do everything in our ability to support local and small businesses in assisting them to trade their way out of the crisis.

Jonah Naidoo is co-owner of boutique liquor store and e-commerce platform Dry Dock Liquor.