The turbulence of the last few years has left the on-trade in a precarious state. The rise of retail was already underway in alcoholic drinks prior to the pandemic, but the shift is becoming increasingly entrenched in much of the world.
With 2022 global volume growth at 5%, the on-trade demonstrated a far more dynamic performance than the off-trade, which recorded an increase of less than 1% for the year
Source: Euromonitor International
However, that statistic does not give the full picture of the balance between the two. On-trade volumes stand around 10% below 2019 levels, while retail continues to climb. That partly reflects still-incomplete pandemic recovery, but also likely indicates a more structural adjustment. What do the changing patterns mean for on-trade engagement?
The macroeconomic environment remains an unfavourable backdrop. Recession, or even just the prospect, could see more consumers cutting back on visits to bars, pubs and restaurants in favour of lower retail prices. While labour markets are still robust in many key economies, early signs of rising unemployment indicate a future risk to disposable incomes. At the same time, input costs related to supply chains or commodity prices are vulnerable to further geopolitical disruption.
Finding ways to add value will therefore be vital for the on-trade. That could take various forms, from updating product ranges or addressing sustainability concerns, to exploring digital outreach. The familiar advice of providing an experience or activity rather than just a setting is becoming ever more consequential, given the need to overcome the financial benefits of staying at home.
Conscious consumption for health and the planet
Changing consumer requirements present complications for the on-trade but can also provide a means of strengthening relationships.
Rising demand for sophisticated non-alcoholic offers is a case in point. Alcohol-free bars and pop-up locations are starting to appear in cities across the world. Such venues are particularly geared towards younger legal drinking age cohorts who hold different socialising priorities to previous generations at the same age. Beyond dedicated settings, a well-balanced non-alcoholic range can help to broaden appeal as moderation trends take hold across demographic groups year-round.
Moderation in alcohol consumption will be one of the most significant trends shaping the industry over the next five years: it is deemed extremely or very influential by 57% of industry professionals
Source: Euromonitor’s Voice of the Industry: Alcoholic Drinks 2022 Survey
While sustainability concerns may not yet be among the main factors governing alcoholic drinks choices, action on environmental and social issues is increasingly expected. In addition to offering efficiency savings in certain cases, sustainable initiatives can add value in the eyes of consumers. Zero waste cocktail menus or local sourcing are among the possibilities. Even starting with achievable small steps can demonstrate a move in the right direction.
Embracing technology holds potential – within limits
Technology that reduces the need for human input and simplifies processes is gaining importance in view of the ongoing burden of inflated costs. Such considerations will be intensified by unfolding developments in the global economy. Transformation was accelerated by necessary adaptation during the pandemic, and consumers became far more accepting of digital interaction – QR code menus and ordering through apps, for example. As markets have returned more or less to normal operation, where and how technology fits into the picture (beyond basic applications) is the subject of renewed debate.
Integrating real-life experiences with digital engagement through loyalty schemes, content or extended reality presents a clear opportunity for strengthening connections with consumers. However, finding the right balance is key, as in-person interaction remains a core expectation. With some exceptions that place innovative digital features at the heart of the offer, such as self-service tap rooms, an overreliance on technology can prove off-putting. Care should be taken not to sacrifice too many important elements of the out-of-home experience in search of novelty or improved efficiency.
Less but better: Consumers demand more
If there was ever any doubt about the intrinsic importance of bars, pubs and restaurants, it has been indisputably dispelled over the past few years. Yet, the severity of the challenges facing on-trade alcoholic drinks in many markets should not be downplayed. So, what does the future hold? The fundamental needs are unchanged; connections, communities and experiences lie at the heart of on-trade appeal. But versatility will be crucial to future success. The risks of not responding to shifts in demand are now greater than ever.
Read our report, Where Consumers Shop for Alcoholic Drinks, for more analysis on channel shifts in the industry.