uk market wiw 180x180 - What’s the damage for UK on-trade?

A smooth re-opening of UK pubs, bars and restaurants following lockdown will mean on-trade wine sales volumes will be down nearly a third in 2020, so long as there is no second wave of the virus

Come Saturday the 4th of July, there are likely to be plenty of crowds, and high spirits, in evidence when the UK’s 130,000 pubs, bars and restaurants get to reopen their doors following nearly 4 months of legally-enforced closure thanks to the coronavirus. If the weather holds – the long-range forecast is for cool but sunny conditions in most parts – the tills will no doubt register a welcome influx of cash for businesses that have been experiencing unprecedented hardship since March.

Opening day trading figures will provide a welcome relief for the sector’s cashflow. The next challenge will be to determine the extent of the damage to the sector, where will it leave the on-trade’s prospects for 2020. By now most operators’ business plans for the year have thrown in the recycling bin, along with those of the wine trade that supplies the UK on-trade sector. As businesses reconstruct forecasts for the remainder of the year, three big unknowns remain: how fast will people return to their old going-out habits? What happens if there is a second wave of the virus and another period of government-mandated closure? And what if the UK economy dives into a long and deep recession?

The question of how quickly people will return to pre-virus patterns, and how to reassure them, is addressed by this week’s other article. As for on-trade wine sales volumes with or without a second wave, we have been modelling some outcomes based on our COVID-19 Impact Report data for the UK. The best-case scenario, factoring in no more disruptions and a ‘V shaped’ recovery in economic activity, shows wine volumes 30% down in on-trade for 2020 as a whole.

In any other era, losing 30% of wine sales from one year to the next would be a calamity. In the current context, many businesses will view that with some relief. However, should there be more disruption, for instance a second wave of virus spread and a further lockdown, the model suggests that year on year sales volumes could be down by 45% or more in the UK on-trade.

Our model primarily bases its predictions on the stated and intended behaviour of consumers from our UK COVID-19 Impact Report survey, findings of which were published last month. However, our model doesn’t factor in any major change in personal economic circumstances among UK consumers. This is a trickier factor to assess than one might think – but one which will need to be accounted for once more data is available.

The UK economy is in recession, and 2020 will likely record the steepest decline in annual GDP since the Depression of the 1930s – possibly even greater. We know that recessions lead to significant declines in on-trade spending as consumers opt for cheaper dining options and switch to more at-home eating. For instance, during the Great Recession of 2008-10, the UK Institute for Fiscal Studies estimated that leisure spending by UK households fell by 10%. In the US, restaurant sales value fell by 18%, according to the US Department of Agriculture, and took until 2016 to recover its 2005 sales level.

However, this recession has different qualities to the one precipitated by the financial crisis of 12 years ago. In the UK, government has stepped in quickly to support the wages and retain the jobs of workers who would otherwise have faced unemployment. Additionally, with so few opportunities to spend money and mortgage interest rates at historic lows, UK households have had fewer outgoings over the past 4 months. The bounce in spending post-lockdown may actually be larger than expected, and more sustained, than economic forecasts currently estimate. A hint of this could be found in last week’s UK retail sales data for May, which showed a strong increase following the unprecedented declines in April.

All of which suggests that it is too soon to introduce an economic factor into our model. We will also be using July’s Vinitrac® UK survey to track consumer confidence and sentiment following the planned reopening of the UK on-trade early next month. We will be measuring who has gone out to eat or drink, what they did, and – crucially – how they feel about going out again.

 

Richard 180x180 - What’s the damage for UK on-trade?Author: Richard Halstead

Email: Richard@wineintelligence.com

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