Although it is commonly believed that in hard times people turn to alcohol to ease or forget their problems, this does not seem to have been the case this past year in Lebanon. Despite all the issues the country has faced, 2018 did not translate into greatly increased sales for the country’s spirit distributors.
In fact, Lebanese spirit distributors mainly complained about the same challenges that were affecting many industries in 2018, namely low purchasing power among local consumers and a decrease in high-spending tourists.
Growth in spite of everything
While all distributors Executive spoke to reported some growth in revenues from their spirits portfolio, this gain was not achieved without struggle. For Ziad Nacouzi, head of the spirits distribution division at Neo Comet KFF Food and Beverage, 2018 was a difficult year. “We invested a lot [in marketing the brands] to reach only a slight increase from 2017—a 2 to 5 percent increase, depending on the spirit brand,” he says.
Some distributors acquired brands or portfolios in 2018, and so were able to achieve growth through new avenues. Carlo Vincenti, the owner of G. Vincenti & Sons, explains that his company acquired the distribution of several brands of premium mixers (non-alcoholic drinks that are added to spirits) and of Mancino, a premium artisanal brand of vermouth (a type of aged dry wine, typically mixed with gin). He explains that these beverages strengthened his company’s premium spirit brands, as consumers wanted to enjoy their high-quality spirits with a mixer of the same caliber, rather than ruin the taste with low-quality mixers.
The business manager ofEtablissements Antoine Massoud (EAM), Joe Atik, says the company acquired the Monin portfolio of beverages in August 2018. The portfolio’s products are used as flavor enhancers in many cocktails, which helped increase EAM’s margins for the year. Atik adds that since Aperol, which is distributed by EAM, was both a global and local trend in 2018, the company benefited in terms of growth in its spirits division.
EAM’s The Malt Gallery, a specialized liquor shop, opened a branch in Fakra in August 2018. Atik says the new Malt Gallery has been a successful experience that they plan to expand further. “We have a very good relationship with specialists, such as cigar or liquor sellers, and we didn’t come as competition, but to widen the consumer base. Clients of The Malt Gallery are limited in number, but they are regular customers, and they drive value,” he explains.
Meanwhile, Vincenti’s Cask and Barrel, a showcase store for the company’s spirits brands with an extensive portfolio of single malt whisky, opened in Kfardebian in August. “It is a great alternative because a lot of the chalet owners or people who spend time there struggle to source premium spirits, whether for their consumption or for gifting at the many dinners and house parties that happen there,” Vincenti says. These expansions helped both distributors’ growth despite the difficult year.
Empty stools at the bar
As Vincenti explains, the spirits industry is dependent on the on-trade (consumption of spirits in bars, restaurants, and clubs) and the off-trade (purchasing of spirits from retailers), both of which suffered in 2018.
In the on-trade, Vincenti says they are witnessing an unprecedented level of payment defaults. “We’ve had some accounts that we’ve been working with for 20 years who have never defaulted on a payment the way they are now. This is really a big problem, and it will be a bigger problem in 2019 if we don’t get back the tourists with high purchasing power and those who go out and spend,” he explains.
In fact, all spirit distributors told Executive that they have been suffering from defaulted payments, which has made them much more cautious in choosing which hospitality operators to work with. “Because of the many defaults, we have limited distribution by choice. You need to know where and who to sell to, so you know if you will be able to collect your money or not,” Atik says.
Nacouzi, citing feedback from pub and club owners, says that there was a 20 to 22 percent decrease in sales in the on-trade in 2018, as compared to 2017, which makes the struggle to keep up with payments less surprising.
According to Samer Nassar, head of marketing at beverage company Diageo, high-spending tourists are no longer coming to Lebanon in the same numbers as before, which is negatively affecting the on-trade. “You see that the expensive Monaco style clubs with the big formats are fading away because of the decrease in the number of high-spending tourists—the Lebanese cannot alone keep such clubs operational year round,” he says, referencing, for example, $1000 bottles of champagne that came with fireworks and a team of waiters when ordered.
Nassar also explains that the nature of clubbing in Lebanon is changing. “Millennials prefer clubs with DJs as the main focus. These clubs [often] have no minimum charge, so you only pay for what you consume, which may be one glass at the bar,” he says. Both types of clubs generate profit, but in different ways, he says. The luxurious clubs have more turnover on premium brands and spirits like champagne, which bring more value, while the DJ style clubs have a higher turnover in terms of volume, where the more accessible items, such as beer or straight drinks are in demand.
Nacouzi says consumption in bars and clubs among locals has decreased, which also contributed to the downward spiral of the on-trade in 2018. “The number of new clubs that opened in the last few months of 2018 is not an indicator, because the consumption per person in clubs and bars has decreased from say, three years ago. These days a group consumes one bottle per table at a club, and then opts for an additional individual drink before they leave the party,” he says.
“What we hear from our on-trade clients is complaints about less turnover of their spirits, meaning that while it seems people are still going out, they are consuming less in bars and restaurants,” Jeanine Ghosn, managing director of Gabriel Bocti says, echoing the views of other distributors.
When less is more
Meanwhile, the closure of major supermarket chains (such as TSC and several outlets of BouKhalil) in the past 18 months shook up the off-trade spirits distribution. “We are still waiting to see how we can get our money. Collecting receivables is what is most difficult for us in this situation,” Ghosn explains.
The tough economic situation led to what distributors called “price-cutting wars” in the spirits sector, driven by the country’s top supermarket chains during the holiday period. Atik explains that traditionally during December spirit distributors develop gift boxes with added-value items, such as free glasses or carafes, to encourage sales of their bottles. However, in the past two years, as purchasing power has been low, consumers have been opting for tactical promotions—discounts—to save money. Price cuts are most attractive when applied to premium spirits brands and Vincenti says some brands of premium Scotch whiskies were discounted up to 40 percent this past December.
Nacouzi says supermarkets still benefit despite the price cuts. “If you visited supermarkets during December, you would have seen 30 to 40 percent price reductions on major spirits brands,” he says. For supermarkets, it attracts traffic because people come to buy the discounted premium brands of alcohol and end up buying other products; the higher the traffic in a supermarket, the higher the probability that people will buy other items, thereby benefiting the supermarket.”
Although distributors say such price reductions negatively impact a premium brand’s image, consumers are unwilling to fork out big bucks for their liquor anymore. “Price cutting is harmful to our brands, but this is a reality forced upon us by the consumer that we have to deal with. People don’t have money anymore, and they are choosing accessible brands. Distributors and supermarkets also have their bills to pay, and so they are forced to do those price cuts,” Nassar explains.
No money for booze
Some spirit distributors say that as on-trade consumption decreases, off-trade consumption is increasing, as more people are now drinking at home. “Home consumption in the form of house parties is growing, and we can feel that in our figures. Bar catering at private functions and weddings is becoming a trend and that helps grow off-trade consumption,” Ghosn explains.
However, Vincenti notes that from his experience, people are opting for cheaper spirit brands for their home consumption. “Domestic consumers were very affected by a lowered purchasing power—[in 2018] it was felt more because the economic crisis continued and so purchasing power was even lower. We see that across all FMCG divisions, not only spirits. They are shopping more toward promotions and are less loyal to brands. If we take the whisky category, for example, there was a big shift back toward the value-for-money brands, which are the lower-end brands, and their market share increased,” he explains.
The way 2019 has been going so far, it seems the problems of low domestic purchasing power and the decrease in the numbers of high spending tourists visiting Lebanon will continue to plague the country’s spirits distributors. They will have to adapt and innovate to keep growing their businesses.