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E-commerce in alcohol is the new route to market strategy

22 June 2021 by Ambrosia Magazine

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Post Covid e-commerce could help the industry out of a crisis. But in the new normal the growth rate may not be high. A report.

The International Wine and Spirits Record, an industry research firm, reports that in the U.S., 44% of consumers only started buying alcohol online in 2020, compared to 19% in 2019. There is still a lot of opportunity, as the organisation predicts that the alcohol e-commerce market will still increase by 42% this year to reach $24 billion.

The 10 core markets included in IWSR’s new comprehensive Global E-commerce Strategic Study (Australia, Brazil, China, France, Germany, Italy, Japan, Spain, UK, and the US) collectively represent over 90% of total alcohol e-commerce value. The report also examined an additional 10 “markets to watch” (Mexico, Colombia, Argentina, Netherlands, Israel, Nigeria, Kenya, South Africa, Singapore, and the Philippines.) Across all of those 20 markets, IWSR expects the total value of alcohol e-commerce to exceed US$40 billion by 2024.

“Consumers’ increasing proclivity for online purchasing has been driven by necessity in recent months, but these purchasing behaviours are here to stay. As brand owners increasingly invest in the channel, markets must be assessed on their own merits with a bespoke strategy developed. This is especially important as government regulations for alcohol e-commerce may evolve as the channel continues to grow,” says Guy Wolfe, Strategic Insights Manager at IWSR Drinks Market Analysis.

Wolfe adds, “The forecast size and growth of e-commerce means it can no longer be viewed as merely an interesting niche. Online is now a market in its own right, and one that the IWSR forecasts to equal the Indian beverage alcohol market in value by 2024. The channel should therefore be given an equivalent level of focus and be fully integrated into route-to-market strategies.”

World’s Largest Beverage Alcohol Ecommerce Market, China, Grows at a Slower Pace than Other Markets; US will Overtake China by the End of 2021

Alcohol e-commerce has grown in almost all markets this year, but some have experienced more rapid increases than others. China is currently the largest online alcohol market in the world, however, its growth rate (23% value growth, 20192020) has been slower than that of the US, UK, Australia and Brazil. This is because alcohol e-commerce is already reasonably well developed in China, allowing for less room for growth. IWSR consumer research findings show that most (46%) Chinese consumers who buy alcohol online have done so for several years. The market is also heavily reliant on restaurants and bars, where about half of China’s alcoholic drinks are sold.

After witnessing a value growth of over 80% in 2019-2020, the US is poised to overtake China to become the largest alcohol e-commerce market in the world by the end of 2021. Between 2019 and 2024, US total alcohol e-commerce value will grow six-fold, from half that of China to nearly double. Growth, however, is coming from a low base: in 2019, ecommerce represented just 1% of off-trade retail alcohol volume in the US. By 2024, IWSR estimates that e-commerce will account for 7% of total off-trade beverage alcohol volume in the country, compared to 6% in China.

“This year, there has been a huge increase in awareness of alcohol e-commerce among US consumers, while some states have relaxed legislation to facilitate online sales and home deliveries. IWSR consumer research data shows that in the US, 44% of alcohol e-shoppers only started buying alcohol online in 2020, compared to 19% in
2019. Growth is largely being driven by the omnichannel segment as supermarkets and traditional retailers seek to rapidly enhance their online offering. On-demand players are also expected to gain significant share,” notes Wolfe.

Across the 10 core countries, marketplaces currently account for nearly half of total online alcohol sales by value, but the omnichannel and on-demand channels are predicted to gain share. The value of the Direct-to-Consumer (D2C) channel will also grow by almost US$3 billion between 2019 and 2024, at a value CAGR rate of 24% (2019 – 2024).

RTDs Set to Drive Ecommerce Value Growth Through to 2024

Though wine is the dominant e-commerce category in most countries, across the 10 core markets, e-commerce for ready-to-drink (RTD) products is predicted to represent 10% of total alcohol e-commerce value by 2024 – up from 2% in 2019.

The US is the main market driving RTD category growth, and ready-to-drink products are set to represent 20% of US alcohol e-commerce value by 2024, compared to 5% in 2019. This would make RTDs a bigger online business than beer in the US.

“Spurred by the trend for the category in the market as a whole, the expansion of the US omnichannel and the prevalence of younger legal drinking age consumers in e-commerce, online sales of RTDs are expected to soar in the coming years,” notes Wolfe.

Outside of RTDs, agave-based spirits (tequila and mezcal) and US whiskey are also seeing growth across ecommerce.

Markets to Watch: Mexico, Argentina, South Africa and the Netherlands

Among the “markets to watch,” the Netherlands is currently the largest for online alcohol sales. But countries such as Mexico, Argentina, and South Africa are also expected to post high value growth this year. Over the next five years, Mexico is projected to generate the greatest incremental value in online sales, at over 60% CAGR, 2019 to 2024.

In the 10 “markets to watch,” beer is expected to grow the fastest overall, but trends vary by market. In Mexico, for instance, e-commerce wine is forecast to increase by more than 80% CAGR 2019-2024, while spirits are on track for 50% online growth in the Philippines.

After Amazon, now Flipkart has partnered with Hipbar last year, an alcohol home delivery mobile app to deliver alcohol in two Indian cities, according to government letters seen by Reuters.

According to CIABC, there was rush outside liquor vends in Delhi after the announcement of a weeklong lockdown. “What we saw today was the panic reaction from the public, driven by their memory of llockdown extensions last year. For lakhs of people all over India, alcohol is part of regular consumption basket that they do not wish to be deprived of,” said CIABC Director-General Vinod Giri.

Apps like Living Liquidz delivering in Mumbai, Navi Mumbai, Thane, and Palghar. HipBar launched in 2015, HipBar claims to be India’s first legal alcohol home delivery service provider. It is currently operational in Cuttack and Kolkata. Zomato is Delivering alcohol in Bhubaneshwar, Kolkata, Ranchi, and Siliguri; Zomato recently started delivery in Jharkhand, Odissa, and West Bengal as well.

Kerala State Beverages Corporation (BEVCO) is offering an android to manage overcrowding at liquor stores. Swiggy is also delivering alcohol in the same regions as Zomato.

The immense surge in online wine purchasing in the past year across multiple markets offers the global wine industry an unprecedented growth opportunity – but one that might fade when lockdowns end.

Back in this Covid-ridden world, it is now widely understood that wine e-commerce has had a giant jolt of adrenaline since the start of 2020. The apparatus for selecting interesting wines and delivering them safely to a consumer’s front door has been deployed with remarkable speed and effect to fill a sudden and mass-market need for home delivery of alcohol across multiple markets. The closure of many on-premise establishments across the world, combined with restrictions on physical shopping as well as worries about catching the virus, have driven many consumers who would not consider using the online channel in normal times to try it for the first time. And with everyone stuck at home, the last mile problem of being home when your wine is delivered has suddenly been solved.

The post-Covid online wine buyers tend to be younger, high spending, and – mainly – as interested in discovery as they are a good deal. There are also some warning lights for business planners. In most markets, those using wine e-commerce are doing so in addition to their use of physical stores. Their motivations for using online are largely convenience-led. Should post-Covid normality return, and with it the lack of a reason to be at home waiting for a delivery or the fact that the bars and restaurants are open, will the reasons to use e-commerce for wine fade?

For the moment, there are a large number of consumers who are using the internet to buy wine, and they appear to be happy doing so – a remarkable silver lining to the disruption of the Covid era. The global wine business has an unprecedented opportunity in 2021 to build a stronger relationship with its consumers on the back of this relative good fortune – and possibly cultivate more engaged wine drinkers as a result.

This report was contributed by knowledge partner:

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