By Byron Kay
SYDNEY (Reuters) – Recent sales declines have forced Sydney liquor store owner Louise Dowling to work 40 hours more a week to make up for staff she has had to let go, as Australia’s cost-of-living crisis prompts more people to drink less alcohol.
“Without foot traffic, without sales, you don’t have the money to hire extra people,” Dowling said at her store, B&V Wine & Liquor Merchants, in Enmore, a suburb popular for dining and nightlife.
“Everyone is trying to cut back, including us.”
After sales surged due to pandemic lockdowns and unused savings, Australia’s alcohol industry is experiencing its steepest decline in memory as more people cut back on discretionary spending and turn to healthier ways to unwind.
In the year to June, alcohol sales grew by just 0.7%, the slowest rate in at least a quarter of a century, according to data from the Australian Bureau of Statistics. Even that small increase was likely due to higher prices, as alcohol sales volumes fell by 3.9% in the same period.
Australia is one of the world’s richest countries per capita and has one of the highest per capita alcohol spending rates, and the slowdown coincides with a decade-long decline in the number of people drinking globally, due to health concerns or simply personal choice.
The effects of these downward trends were evident in the year-end earnings that alcohol retailers reported this month.
The second-largest alcohol retailer by sales, supermarket giant Coles, said its liquor store profits fell 21%, largely due to lower discretionary spending, while Treasury Wine, the largest wine producer, also reported a 7% fall in its mid-term unit profits, partly due to “weak consumption trends” in Australia and the UK.
Endeavour, the world’s largest liquor store and pub owner by sales, bucked the trend with a small 1.8% rise in pre-tax profits, but analysts downgraded it after it said retail sales rose just 0.6% in the first six weeks of the 2024/25 financial year.
Before the pandemic, alcohol companies benefited from marketing more expensive products, and then during some of the world’s longest lockdowns, the same companies saw an increase in people stocking up on alcohol in their cellars, said Tom Kirath, an analyst at investment bank Baringoe.
But with inflation rising after the pandemic, two years of higher housing, energy and gasoline bills have prompted consumers to look for less spending, he said.
“People are now looking for a way to save money, and across a range of consumer categories people are downgrading, and it’s no different with alcohol,” he said.
Asahi, Australia’s largest brewer by volume, which makes core beers including Victoria Bitter and Carlton Draught, said in a half-year update that its operating profit in Australia and New Zealand fell 11.7% and cut its full-year profit forecast for the region to 1.7% growth from 9%.
Healthier, cheaper
While alcohol remains a part of Australian social life and identity, researchers say they expect the trend towards abstinence to grow over the next few years.
The Australian alcohol market is set to shrink by 3% from 2022 to 2023, the largest among major markets such as China, the US and the UK, according to data published by industry research firm IWSR, which expects the Australian market to grow by just 1% annually, on average, until 2028.
Cost is definitely a factor, said Sarah Campbell, research director for the Asia-Pacific Water and Forestry Research Institute.
The government imposes inflation-linked tax increases on alcohol producers twice a year, and this, combined with rising labor and ingredient costs, among other things, means that companies are no longer in a position to absorb these increases and thus pass them on to the consumer, she said.
“Australian drinkers are still in a mode of cutting back,” Campbell added.
Health concerns, which have become more acute since the spread of Covid, are also pushing more people away from drinking.
Data released by the Australian Institute of Health and Welfare, a government body, showed that while the number of people who drink frequently has fallen slightly, the number of people who do not drink at all has jumped to 23.1% of the population in 2023 from 16.4% in 2001.
The rise in abstinence began a decade ago with teenagers consumed by “stress about the state of the world and their lives,” said Michael Livingstone, an alcohol policy researcher at Curtin University.
“This generation is now in its aging stage, where it has reached the peak of alcohol consumption,” he said.
Alcohol producers and retailers have combated this trend by targeting their marketing to different groups of drinkers, but “there aren’t many avenues open to them at this point to maintain profitability at the level they were,” Livingstone added.
Melbourne blogger Natalie Battaglia, who started posting non-alcoholic drink recipes on her Instagram account The Mindful Mocktail in 2020, said her followers have jumped from 120,000 to 586,000 in the past 18 months due to interest in “sober curiosity.” About a third of her followers are aged 18 to 25.
“This increased focus on health and wellness, coupled with the financial pressures caused by the cost of living crisis, suggests that demand may not return to pre-recession levels,” she said.