The alcohol industry you never knew – and why you should

by | Apr 1, 2022 | Opinion

We’re soaking in it but do we realise just how important the alcohol sector is in New Zealand.?

I’ll be honest – I didn’t.

Last week the Alcohol Beverages Council published a report by NZIER taking a comprehensive look into the sector – as an employer, tax payer, exporter and innovator.

It’s the first snapshot of its kind. “We really wanted to get a grip on the scope and significance of this sector,” says Bridget McDonald, chief executive of the Council. “Even we were surprised at how big it is and how much of an economic contributor it is – I mean, a $2 billion contribution to GDP is significant. This is the first time anyone has really quantified it.”

The top line numbers are summarised in this graphic and show an industry in rude health.

 

 

Two numbers stand out for special attention. The first is the continued decline in total consumption.  This is not news. Along with the rest of the world we’re drinking less by volume. What is new is how the industry has responded.

Volume to value

In any other sector, a decline of 23% over 34 years would be a cause for much angst. White papers would ensue, chins stroked and someone would ride a tractor up Parliament’s steps in protest. The decline in volume however has been met by a stoic realisation that this is what consumers want. Rather than defend the indefensible the sector focused its efforts on a shift from volume to value. The industry calls it premiumisation (such an ugly word) and it’s marked by the increase in price per unit, slower drinking, more frequent drinking occasions, and the growth in the low alcohol alternatives – the so-called, ‘no, low and slow’.

As a result, the industry has exploded. I’m not very old yet even I can still recall the days of two brewers slugging it out to sell same-same lagers. Now we have 199 breweries, 731 wineries and 134 distilleries not just competing locally but exporting $2.1 billion. Locally made premium spirits have grown 300% since 2015.

The alcohol industry’s shift from volume to value is a good story and should provide great encouragement to the rest of the primary sector which sometimes struggles with the idea. Indeed, they could look to alcohol’s cousin horticulture to lead the way. The graph below shows the remarkable story of apples and kiwifruit which, following years of hardship, have turned to innovation and smarter marketing to get more value from less volume. Grapes are the biggest hero, getting more from more.

 

Source: Coriolis Research

 

For many years the volume to value story has sounded like a klaxon – loud to the point of being annoying. Well, the good news is this: it’s working. The primary sector has grown value four times greater than volume in the last 20 years. But it could be so much bigger and the journey could be faster.  We need exemplars to show the way: step up booze.

Tourism’s lesson

The second interesting point in the alcohol report is contained in Figures 8 and 10, showing the correlation between tourism spend and wine. It turns out that wine drinkers stay longer and spend more. And the longer the stay, the more the difference is between wine tourists and all tourists. I remember seeing a similar correlation (also by NZIER) between tourists who take a ferry in Auckland and total spend per visit. The tourists who visited Waiheke Island to eat, shop and stay, spent $1340 more than those who didn’t. That added up to billions in additional spending over the last decade.

 

 

It turns out that food and beverage are strong pulls for a premium tourist. Who knew!

I think we all did and now we have the numbers. Yet Tourism New Zealand notoriously under-cooks food promotion, opting for the cliches of lakes, mountains and adventure. That’s a mistake. Unlike food and beverage, tourism has languished as a low-margin, volume-driven business for decades. Hospitality, its sometimes ugly twin sister, is the same, with a shocking record of poor labour practices, shoddy service and horrible returns on investment. The poor state of hospo was revealed in the survey published by AUT’s David Willaimson (read the story here) and should provide a wake-up call for the industry.

Both sectors need a new fresh look.

For advice, tourism bosses should visit Bridget and her betters at the Alcohol Beverage Council. They should ask her just how alcohol is flourishing despite decades-long decline. They should ask how such a tightly regulated sector has become a cause celeb of innovation. They should ask how it has transformed from an inwards-focused, domestic duopoly to a $2b export earner. And they should ask her how sustainability and consumer responsibility are at the heart of its strategy.

We’ve been told for a long time that alcohol is a problematic drug. It is. But for a lesson in industry transformation, we could do worse than look at our friends in the booze trade.

Sometimes alcohol is the answer.

About the Author

Vincent Heeringa

Vincent Heeringa is a communications strategist, writer, marketer and PR expert specialising in tech, investment, and sustainability. He was co-founder of Idealog, Stoppress and Good magazines and helped establish the Science Media Centre. He is the host of a podcast ‘This Climate Business’, co-founder of The Feed.co.nz, and a trustee of the Adventure Specialties Trust. And there's nothing he loves more than a good story. vincentheeringa.com

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