Wine brands urged to use COVID experience during cost of living crisis
Wine Intelligence suggested lessons from the pandemic can help brands weather the disruption as inflation and the cost of living affect consumer spending.
In analyzing the upcoming economic environment for wine brands, Wine Intelligence said, “at the moment, there are no simple answers.”
However, industry watchers have explained how the wine industry’s experience during the COVID-19 pandemic can help with decision-making as a consumer spending crisis looms.
Wine Intelligence highlighted the fact that when consumers are forced to make spending choices, non-negotiable necessities (food, shelter and transportation) obviously take priority.
The proportional costs of these basic needs (which can broadly be described as the “cost of living”) have been on a long-term decline until recently, generally averaging around 10% for most households living in developed economies such as the UK and the US, according to the US Department of Agriculture and the UK Office of National Statistics.
Yet, as Wine Intelligence explains, cost inflation in many of these markets is at a rate not seen in three decades – households around the world, including those in the middle and upper income brackets, should reassess their budgets. .
In response, Wine Intelligence recommended that wine brands focus on their target audience. At the height of the lockdown period, frequent wine drinkers continued and even increased their consumption of wine at home, while occasional wine drinkers ‘effectively left the wine category’. This latter group included a large group of young drinkers of legal age, whose relationship with was driven by the social occasion in the local, rather than the product itself.
According to Wine Intelligence, “The lesson has been that when external factors come into play, engaged drinkers will stay engaged and marginal drinkers will find substitutes.” Given that younger cohorts are also more likely to be in the less affluent demographic groups, it’s likely that increases in the cost of living could elicit a similar market reaction. Brands therefore need to commit resources to ensure that they recognize who their target audience is and focus their marketing efforts on them.
A similar “discovery” process is described by Wine Intelligence regarding brand equity. Here, analysts suggest that when external or economic factors put brand value to the test, the best definition is that used by accountants, who judge value by the difference in price that a brand can command over to a generic or own brand equivalent.
“In this regard, the wine category generally performs poorly – with a few notable exceptions. Developing a real brand in a market for relatively low-priced commodities dominated by supermarkets, such as wine, is hard work.
However, for the few brands that have true “equity” and the ability to command a price premium, the confidence and assurance they impart to drinkers will leave them better positioned in tough economic times.
Additionally, Wine Intelligence suggested that cross-channel presence can be almost as important to brand health as value.
In support of this argument, analysts pointed to the fact that the top 10 brands in the UK wine market in 2020 and early 2021 were strong in both convenience stores and online supermarket chains.
While Australian regulatory circumstances mean wine is less developed in the supermarket space, this performance is an indication of how important availability across multiple channels is for brands looking to weather uncertain times.
Finally, Wine Intelligence also highlighted the importance of behavior change awareness in other categories beyond the wine sector. Describing the COVID lockdowns as a “giant natural experiment”, Wine Intelligence said “how consumers have spent money that would otherwise have been allocated to prohibited or severely restricted activities” has been illustrated during this time.
In particular, the industry watcher pointed to the perhaps counterintuitive phenomenon of expanding luxury spending in markets such as China as consumers lost the opportunity to enjoy off-the-record activities. residence.
The suggestion then is that when consumers restrict one type of spending, they will compensate with affordable substitutes. It is therefore incumbent on wine brands to present themselves as viable alternatives to other forms of expenditure (Wine Intelligence giving as an example concert tickets, trips abroad or a new bicycle).
It remains to be seen whether these patterns will repeat themselves when the challenge ahead is purely economic (such as rising inflation and the cost of living) as opposed to a disruption in healthcare and legislation, as in the case of the pandemic.
The full Wine Intelligence report can be read here.