So what happens next? Five areas to monitor over the coming months
The new normal promises to be anything but. It’s clear that a slow return to work, ongoing social distancing and a depressed economy amounts to a stark reality for some gin makers. So how will it play out and what can we expect for the gin industry? Is the writing really on the wall when it comes to gin’s future?
We’ve been looking for signs to guide us along as we ponder the future of the category… Here are a five of the most probable scenarios that we think will play out over the next 12 months for British gin makers.
Time to trim the fat
The most obvious consequence is that distilleries will consolidate their primary routes to market around their flagship propositions, reducing the expressions that deliver little for their brand proposition or the distillery’s turnover. Some will jettison them entirely, while others will reserve the limited editions and other variants for direct to consumer channels (more on that later).
The extra trimmings of the category have been a delightful feast to gorge on in recent years, but without the exuberance surrounding consumer purchasing, smaller shelf space to compete over, fewer pounds being spent on luxuries, fewer opportunities in bars and restaurants (both because of some bars having to close and less volume needed for those who are open) – it’s time to reduce.
Even if the maker’s themselves don’t, expect these half dozen wide lines to be rejected in the trade as they will refuse to carry so many expressions per brand. Many are already curating their offerings towards more streamlined, cash efficient selections (fewer products means less inventory to carry and less overall liabilities) while others will simply not be able to sit on that much slow moving stock (the need for optimised cashflow will be paramount to survive potential future lockdowns).
Even if distillers simply stopped making them it will not be big loss for the category though – if we’re all being honest so few truly warrant existence in the first place. No distillery needs six gins and outside of Tarquin’s, Hayman’s and Warner’s could you really name an independent British distillery that has three or more truly exceptional, world class gins? There are some, sure, but it’s a surprisingly difficult task given statistically almost 60% of them make four or five.
Our assessment is that there is less than a dozen of names who have the range calibre to join them and even if one extends that to a global selection of distilleries, the list is still fewer than twenty. Some have a couple, many have the one exceptional flagship, but you could easily argue that the majority of British gin makers (over 400 of them) do not have an offering that would ever break into anyone’s “top 100 gins in the world” list – let alone three.
With fewer gins to make, label or market, more of that finite budget can go into building better trade customer retention and repeat purchases. The time saved could be reallocated to building brand identity, marketing strategies and an improved digital presence which would also result far more effective direct to consumer routes.
The long sleep goodnight…
Unfortunately, it is difficult to accurately forecast the determining factors needed to survive and therefore asses which distilleries are most at risk. There are so many factors hidden from outside view; investor debt, overexposed exports to certain countries struggling in different ways, over-reliance on certain routes to market domestically and disproportionate overheads compared to current size could all play a fatal role in bankrupting a company. Despite this, they could be unbeknown to anyone outside its directors until they announce their closure.
For those who have been involved in or on the coal face of the industry, the coronavirus has not suddenly illuminated an unknown fragility in the sector or the precarious risk some were placing themselves into in order to reach the next level of growth. The risks have always been there. What it has done however, is expose both general weakness and temporary vulnerability to extreme pressures that would never have been foreseen.
Collapsing distilleries are inevitable over the twelve months ahead as it’s clear that some will not be able to make ends meet with less income coming in. The real question is who will take this moment to head for the exit out and attribute it to Covid 19 even if they didn’t suffer a fatal blow because of it…
Will we really be able to tell which distilleries stopped flowing because of the virus or would they be the same ones that would have failed within the next 18 months anyway? There was a correction looming for the category and numerous businesses close to the brink due to a lack of wherewithal or experience. In this light, Covid 19 merely accelerated their demise.
A severe reality check…
A lesser spoken about reality is that these forced closures will no doubt be joined by others who had much higher aspirations for their financial returns, were struggling to reach it at the best of times and who now see that this will be impossible to achieve in the economy and market we are about to enter into.
There are many distillery owners who operate good businesses that would be able to survive but whose thirst for fame and fiscal return far exceeds the capacity of the products they have created. Will they have the humility to adjust expectations to account for where they actually are and what they have actually made? If they do understand that they are a mid tear offering (and that in the conditions ahead will remain so for a while), will they take the a perfectly reasonable view that replicating the same forecast – a small profit but a decent living – is far easier to achieve in other industries?
It’s always been unrealistic for so many to achieve the numbers everyone projects, and now the vivid reality of the long slog for a humble return ahead will burst many a daydream for the passion projects that have come to market since 2017.
Only time will tell if Covid annihilates the ego as much as it ravages the immune system and this factor will greatly impact the real number of distilleries closing their doors in the months to come (or third party made brands simply disappearing).
The rise of the side-distillery…
In all the doom and gloom mentioned above, it’s comforting to think that every economic depression gives rise to entrepreneurship. While a reality check for the gin only distilleries in existence will lower the number of established makers, expect that to be more than countered by a rise in hobby distilling and nano-operations born out of individuals and business looking to diversify in order to help create new revenue streams.
We predict that side hustle culture will further permeate into gin on an individual level with hobbyists continuing on increasing in numbers each year, but with costs of stills, easier licensing and far better production knowledge available, so too will the ‘side-distillery’.
Destination venues looking for different experiences to offer, restaurants and bars looking to add unique offerings to their menus, event spaces wanting to be able to offer bespoke services – there are many such side-distilleries already out there and the business case for them is compelling. Many showcase very humble aspirations for the products they make as a standalone brands, yet make enough return for the time and initial investment required and add great value to the core business (be that a hotel, a venue, a botanical garden etc.). With the need to diversify income (and increase it to account for areas that will take years to return to previous levels), bolting on a Nano-distillery will become even more normalised.
Direct to consumer
With traditional routes to market under threat of temporary closure due to repeat lockdowns, the On-trade under pressure due to distancing protocols and forecasting lower consumption levels, a Highstreet that may never return having had its demise accelerated by a decade – a different way of selling goods is imperative for gin makers looking to keep their volumes anywhere near what they were at the end of 2019.
Add to that list the pervasive nature of social media today, not one but two generations of consumers who are digital natives and the proliferation of e-commerce, ‘Direct to Consumer’ will be words at the top of every producers Marketing ambitions.
The benefits are clear and savvy brand owners have already embraced it already, reaping the rewards since March. When done well, direct to consumer sales help brands gain a better understanding of their customer, more control over their brand, earn a higher margin and have direct access to their consumers and their data.
In the great culling and category curation we predicted earlier – Direct to Consumer models are the only thing that allows for the limited editions and the weird and wonderful line extensions to continue to exist. Going direct means there are less volume pressures and politics to navigate, there’s no need to deal with the longer lead times to ensure it reaches shelves or the costs associated with training, sampling, stock support and all the small games involved in placing a new product on shelves via traditional trade routes.
Put bluntly when it comes to NPD – direct to consumer involves far less risk, time or even cost per project with far greater margins to be made. For core expressions, brands who go direct to consumer take ownership over their most important asset, the perception and relationship with the end consumer.
Of course distillers will still be working with distributors, bars and retailers as they have done for decades, but expect far more baskets on websites, brand-owned channel exclusives and greater effort placed in building brand presence in digital channels as distillers diversify to take matters into their own hands…
Turbulent times lie ahead. It’s not all bad news though, and while much of what we’ve said implies many a livelihood is at risk while others will be in for a tough time may seem depressing, those who survive this temporary blip (and it is just that, temporary) will have stronger more resilient structures that will make gin as a category far more quality driven and durable for the decade ahead.
Besides, it’s possible that if distillers are as quick to adapt to the new landscape as they have been in helping the public – the vast majority will emerge on the other side.
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