Out of spirits

Beirut’s alcohol distributors see decrease in consumption in 2013

Given Lebanon’s reputation as the liberal party capital of the Middle East, it is no wonder that alcohol consumption in the country increased by 6.3 percent from 2007 to 2012 and that around 942,000 liters of alcohol were consumed last year, according to figures from the International Wine and Spirits Research (IWSR).

Yet even this lucrative business is starting to feel the heat this year, and some distributors Executive spoke to are finding it hard to maintain their positivity in the face of dwindling tourist numbers and a tightening local market. Since spirits are not basic needs, they are among the first products people spend less on during difficult times.

Although the last three months of the year, and all the festivities associated with them, account for a significant chunk of annual spirits sales, distributors are nonetheless expecting a notable decrease in consumption from 2012.

“We are not having a very good year, meaning I doubt we are going to see any growth. Still, despite the difficult times we are being more aggressive and grabbing market share though this costs us more money and is impacting our net revenues,” says Naji Hmouda, business manager at Neo Comet, the spirits distribution company which is part of Fattal Holding and distributes Grey Goose and Martini among others. These tactics led to a 15 percent rise in their on-trade sales (spirits sold in hospitality venues), says Hmouda. However, the overall drop in tourism is having its own impact on this kind of distribution.

One of the early signs of trouble in the spirits industry, often described as having a high loyalty factor, is when consumers downgrade from their favorite brand to a cheaper one, something spirit distributors in Lebanon have noticed. “The premium or the mid-level range, usually the most consumed, is where we are having a tough time. This shift to the slightly lower cost ranges started last year and is worsening this year,” says Hmouda, adding that conversely in a typical “the rich get richer scenario” their $3,000 per bottle Louis XIII cognac is having a record year.

Free measures

Other overall challenges faced by the industry this year include the parallel economy in which brands are smuggled in tax free and sold at prices that undercut distributors who hold exclusivity.

Distribution company Nexti, owned by Fawaz Holding, was only able to maintain its on-trade numbers in 2013 because of the many bars frequented by Lebanese that were “mushrooming” in Mar Mkhayel neighborhood, Uruguay Street, and Jounieh.

The anti-smoking law which took effect in late 2012 also had a negative impact on the on-trade sector during the first quarter of 2013, as some smokers preferred to take their drinks at home where they could light a cigarette instead of having to smoke out in the cold. Ramzi Nohra, brand manager at Etablissements Antoine Massoud also adds that the closure of many food and beverage venues this year added to the drop in figures for the on-trade division.

This general decline in on-trade sales was offset somewhat by a shift toward off-trade sales as more consumers bought their liquor from wholesalers such as supermarkets or neighborhood grocery stores. Nohra explains this shift by saying that 2013 saw new chains enter the market — notably Carrefour — as well as expansions by the established supermarket chains into either more branches or different retail concepts.

Within the off-trade sector itself there was a shift in sales from the upper trade section of hypermarkets to the lower trade section of neighborhood grocery stores, according to distributors Executive spoke to. Carlo Vincenti, owner of G. Vincenti & Sons, believes this shift is due to people avoiding impulse buying and promotions common in hypermarkets. Hmouda points out that neighborhood grocery stores usually extend a credit line to their regular customers who can therefore pay for their shopping at the end of the month, a much needed perk that is not available in supermarkets where average purchases can reach up to $100 or more.

New contenders

Whiskey remains the most consumed spirit in Lebanon, representing more than 50 percent of the market. Since a lot of whiskey consumption happens at home, it is a major fuel for the off-trade sector, says Vincenti.

“A long time ago, before the civil war, there was a high tax on whiskey to encourage consumption of the locally made arak. When this was dropped, whiskey became affordable and people were eager to try it,” explains Nohra.

“Scottish whisky still dominates the market in terms of volume but there is heightened demand for both premium whiskeys — as mature drinkers develop an appreciation for quality — and for Irish whiskey [especially] among the younger generation who are embracing its smooth taste,” says Tarek Fawaz, CEO of Fawaz Holding.

Vodka is the fastest growing spirit in Lebanon and its consumption has doubled in the past seven years, though it still only accounts for half of whiskey’s numbers, according to the distributors Executive spoke to.

Early in its rise, says Vincenti, vodka growth was fueled by the development of the hospitality sector in the country and was adopted by the younger generation of partygoers who appreciated its neutrality and mixability.

“Vodka was perceived as an ingredient and did not have an independent image until recently when it developed the premium and super premium category and better production process in general. Today, vodka has evolved and is considered a pure spirit which can be consumed straight on ice,” says Vincenti giving the example of Chopin Vodka, which they distribute.

Nohra believes vodka’s growth in Lebanon is part of a global trend and says standard or regular vodka make up 70 percent of the market with the premium and super premium brands having a smaller share due to the low purchasing power of the Lebanese.

The ready to drink category (RTDs) is a surprisingly strong emerging contender in the spirits industry mainly due to its low price and its practicality factor ­— with spirit and mixer pre-mixed in the can. RTDs are popular among consumers between the ages of 18 and 25.

Nayef Kassatly, whose company Kassatly Chtaura produces the popular RTD Buzz, says quality and strong communication are important factors in the RTD business. “Buzz has been face-lifted four times so far because it is a trendy product in a category that is very new and fickle and so might have a short life span; it grew very rapidly but it might drop as fast as it grew,” he says.

The overall outlook of Lebanon’s spirits distributors for 2014 is one of survival in tough times. “In Lebanon we learn to survive despite everything; we have to go on no matter what as it’s been like this for more than 25 years,” says Vincenti.

“I don’t see any growth in this industry next year. The market is saturated and there is a lot of competition among the distributors for the narrow local market we have. If we can remain stable, that is positive enough to survive until better times,” concludes Fawaz.

Nabila Rahhal

Nabila is Executive's hospitality, tourism and retail editor. She also covers other topics she's interested in such as education and mental health. Prior to joining Executive, she worked as a teacher for eight years in Beirut. Nabila holds a Masters in Educational Psychology from the American University of Beirut.