COVID-19 Beverage Industry Impact

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COVID-19 Beverage Industry Impact

The beverage industry faces a number of challenges due to the COVID-19 situation. Companies who rely on products from outside the US are seeing disruptions in the supply chain, while companies who source ingredients and materials locally are still feeling less impact. Keeping high-demand and shelf-stable beverages stocked is becoming a challenge for grocery stores as people shop out of panic, while also forcing producers to change their production to focus on high-demand products. Manufacturing and production is being impacted due to emergency measures to limit contact between employees, in an effort to mitigate the spread of COVID-19. The overall uncertainty of the COVID-19 situation is creating a challenge for retail stores and restaurants, as they attempt to address decreased foot traffic and changes in consumer needs. Travel bans and social distancing regulations are forcing establishments to close or limit their activity, resulting in loss of sales, and forcing changes in sales options to curbside pickup and delivery. The shortage of hand sanitizer has presented an opportunity for distilleries to switch production to sanitizer in an effort to address the shortage and find alternate revenue sources.

Supply Chain and Distribution Disruption

  • Some companies are suffering from disruptions in their supply chains. For example, Coca Cola has indicated delays in sucralose shipments from China due to the COVID-19 outbreak. While Coca Cola has indicated that there will be no immediate shortage of products due to the company's contingency plan, there may be some shortages long-term depending on the Chinese ability to produce and export ingredients.
  • Companies who use locally sourced ingredients may have less supply chain disruptions.
  • Nestlé indicated that Nestlé US sources the majority of ingredients locally, and the company currently does not anticipate any disruptions in US production.
  • Coca Cola has implemented social distancing amongst its delivery drivers, in an effort to keep drivers safe and continue distribution.
  • 75% of U.S. companies have experienced some sort of supply chain disruption due to COVID-19, according to a survey done by the Institute of Supply Management.

Increased Demand for Shelf-Stable Beverages

  • Califia Farms founder and CEO indicated a 323% increase in the demand for shelf-stable plant-based milk products in February. The company has increased manufacturing of these products, and is communicating with key suppliers to ensure the demand can be met. The company has been able to have enough inventory to be ahead by three or four weeks.
  • Retailers face the challenges of being able to stock beverages, such as bottled water, that are in high demand, even though authorities claim that drinking tap water remains safe.
  • According to research done by the Consumer Brands Association, Americans are more concerned about food and beverage shortages than any other category, which could lead to panic in purchasing and stocking shortages. 54% of Americans are purchasing more bottled water, and 43% are stocking canned and bottled beverages.

Manufacturing and Production Challenges

  • A significant challenge for beverage producers is to maintain production during a time when the government is calling for social distancing and reduced contact between individuals. Tarik Gamay, vice president of sales and marketing for Dreampak, indicates that maintaining the functionality of employees at the manufacturing level will be the most significant challenge.
  • Beverage companies are developing emergency plans should an outbreak occur at a plant, in order to mitigate the impact and return to operations as quickly as possible.
  • Companies are limiting who has access to production facilities, as well as limiting contact between employees.
  • Companies are expected to see negative impacts due to employee illness and availability at the production level.
  • Companies like Coca Cola are implementing staggered production shifts, and alternating employees working from home to help mitigate the spread of COVID-19.

Overall Demand Uncertainty

  • The uncertain consumer demand across retail and restaurant outlets may pose a challenge to the beverage industry.
  • As consumers stay at home, restaurants and small food retailers face uncertainty in sales volume, and likely may see a decline in beverage sales.
  • While alcohol consumption on-site will dramatically decrease due to forced restaurant and bar closures, prepackaged alcohol sales should rise, making it important for stores to remain stocked.

Travel Bans and Social Distancing Restrictions

  • Travel bans may impact the efficiency and ability of key executives to fulfill their roles for beverage companies.
  • As bars and restaurants are forced to close to dine-in customers, companies are altering their sales channels. Pontoon Brewing in Georgia has closed its taproom, and is offering curbside service to its customers in an effort to maintain sales and continue to serve their customers. Pontoon Brewing is additionally encouraging customers to donate to Bottleshare, which supports employees of the craft beverage industry that are experiencing hardship due to the COVID-19 situation.
  • In an effort to counteract the financial impact of social distancing restrictions on bars and restaurants, the New York State Liquor Authority is now allowing establishments to sell alcohol to go.
  • Distilleries are closing their tasting rooms and tours in an effort to safeguard their production facilities, which will mean a decline in sales.
  • The decrease in social events and gatherings will mean a decline in alcohol sales, according to Stephen Rannekleiv, responsible for reporting on the beverage industry for RaboResearch Food and Agribusiness.

Product Changes from Spirits to Hand Sanitizer

  • A number of distilleries have switched to producing hand sanitizer at a time when this item has become largely unavailable. In an effort to help during the emergency, and also to combat the rising prices of hand sanitizer, Eight Oaks Farm Distillery is now producing sanitizer at its production facility based on a recipe of the World Health Organization. The distillery has been donating the sanitizer to charities, as well as selling it themselves for whatever people wish to donate.
  • The Distilled Spirits Council of the United States has been negotiating with federal authorities to approve hand sanitizers made by distilleries.
  • Many other distilleries are considering converting some of their production to hand sanitizer, according to American Distilling Institute spokesperson Brad Plummer.