Reducer christmas 180x180 - Welcome to the Reducer’s Christmas

The surge in UK off-premise wine sales we observed during lockdown has been sustained, but our latest consumer intentions modelling suggests that the traditional Christmas cheer may be absent from the wine sector in 2020

Back in June we – along with many others in the UK wine industry – were taking a more optimistic stance about the prospects for wine in the UK in 2020. Volumes had held up nicely in off-trade, almost making up for the closure of on-trade from March. We anticipated that the on-trade would see a quick boost from those consumers who fitted the Hedonist behavioural segment (based on our April data) accounted for 16% of UK consumers. This Hedonist segment archetype is a younger, urban, educated, relatively affluent, and mostly characterised by a general relaxed attitude to the dangers of the pandemic, and an enthusiasm to go out and socialise with friends as if Covid didn’t really exist.

The re-opening of UK on-trade was also accompanied by the Eat Out to Help Out government subsidy scheme, which paid up to £10 of a person’s food bill in a restaurant. This was lapped up by the Hedonists – who would have gone out anyway but got to pocket an incentive at the same time. It was also appreciated by the much larger Moderator segment, accounting for 56% of UK wine drinkers, who might be best described as middle aged, middle class, suburban households – the backbone of the UK wine category in other words.

What has happened since is a mixture of good news, and bad news. Our latest survey of consumer sentiment in the UK (published as part of our global Wine Consumer Trends in the Covid-19 Era last week), suggests that the summer was generally good for the wine category. British consumers have increased their wine drinking moments, from an average of 9.5 to 10.6 occasions. More good news emanates from the tracking data that suggests that the decline in price per bottle paid in off-trade from earlier in the year appears to have been reversed, and spending levels are almost back to where they were pre-Covid. If we assume that growth in wine occasions is accompanied by more or less the same volume per occasion, it suggests that 2020 won’t be quite the washout it could have been.

However there is also plenty of bad news – and increasing amounts of it lately. Our consumer intentions tracking data, collected in August, showed a marked decline in future intentions to visit bars, pubs and restaurants, as well as a decline in motivations to splash out on something luxurious. At the same time, we have seen the Hedonist component of our UK wine consumer shrink, from 16% to 11%. Perhaps most serious is the decline in the size of the Moderator segment – that wine market backbone – from 56% to 36%. Where have the Moderators gone? They have become more pessimistic and less likely to go out and spend money, characteristics of the group we have dubbed the Reducers, a segment which has grown from only 10% of UK wine drinkers in April to 35% as of a few weeks’ ago.

And this was before the latest government restrictions were announced, more of which came into force today following dire warnings from the science community that the UK’s Covid-19 case rate was once again running out of control.

So what does a Reducer’s Christmas look like? At a micro level, Reducers are not obsessed with doomsday scenarios and stopping all normal activities – that attitude is more characteristic of the Halters, who account for 18% of wine drinkers, the same proportion as in April. Instead, the Reducer attitude is to try to enjoy life as best they can, though with more limited means and limited ambitions. They might have gone to a restaurant during Eat Out to Help Out, but won’t do so now that the government scheme has finished. They may still have a job (though this is the group that is most likely to be furloughed) but are saving money in anticipation of a tough employment market in 2021. In short, they are anticipating a modest Christmas, devoid of the usual large-scale socialising and indulgence.

This change in the size of our segments has had an impact on our UK market volumes model, which uses the segment behaviours as one of its input variables. Depending on the scenario, the model is now predicting that off premise wine volumes generally will be between +1% and +3% year on year. The variance comes from how generously one treats the last two trading weeks of December pre-Christmas, which normally account for around 6-8 weeks’ worth of normal consumption.

Of course, this down-scaled Christmas may be the rule for all drinkers, not just the Reducers. The increasingly downbeat assessments from the UK government suggest that restrictions on socialising will become more, not less, onerous, as we come to the traditional festive season. Plugging this scenario into the model gives us a -2% off-premise volume change compared with 2019, with the uplift in wine occasions in the middle of the year off-set by a smaller number of occasions and therefore lower volumes relative to previous years during the run-up to Christmas.

And what of the on-trade? Here the falls were far steeper in the second quarter of the year, and the return slower, even before the recent restrictions started to be reimposed. Back in June we predicted that – with no second wave – on-trade volumes would be down around 30% for the year. Now the model is giving scenarios where on-trade in 2020 is down more like 40% year on year, with increased restrictions but no full lockdown. Even that would be an acceptable result for some businesses, as it doesn’t factor in the wholesale closure of pubs, bars and restaurants during the crucial November-December trading period, which remains a real possibility at time of writing.

Then, there is the big question of 2021. As well as the classic post-Christmas headwinds for alcoholic beverages such as Dry January, there is a well-established connection between economic hardship and lack of leisure spending. During the Great Recession of 2008-10, the UK Institute for Fiscal Studies estimated that leisure spending by UK households fell by 10%. We will cover our predictions for 2021 in more detail when we update our modelling towards the end of the year, though for the moment the signs are not positive. GDP for the UK is expected to be around 10% lower in 2020 compared with the previous year, an unprecedented decline in modern history. The reduction and removal of government job support schemes will mean a tough New Year for many wine drinkers – and therefore the wine trade.

 

Richard 180x180 - Welcome to the Reducer’s Christmasjuan 1 180x180 - Welcome to the Reducer’s ChristmasAuthors: Richard Halstead & Juan Park

Emails: Richard@wineintelligence.com & Juan@wineintelligence.com

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