29 December 2020, Austin, Texas: With 2020 nearing its end, here is our review of the Texas on-premise.
2020 was off to a good start with January and February being record-setting months. As we approach the end of the year, it should be no surprise that 2020 will likely hold the record for the worst performing year in the history of the on-premise trade. By measure of case volume, we estimate the year will close at 1/3 less of its 2019 shipments. In terms of accounts, we’ve seen the number ordering spirits at about 12-15% less than in 2019.
During the month of April all on-premise dining throughout the state was not allowed. However, small bottle sales were. Using the month as a gauge for months since, we estimate that shipments of spirits into the on trade for off premise consumption represent roughly 55,000 nine-liter cases a month.
Since April there has been a liberalization through our Governor’s executive orders on alcohol take away from an on-premise account. This subsequently increased consumption of take-away spirits, but made tracking the subsegment more difficult. At present, our best-guess is that take-away alcohol represents 1 out of every 5 to 6 bottles of spirits sold into the Texas on-premise during the past several months.
During the initial phases of the pandemic, we saw a decrease in dollars below corresponding case volume decreases. Over the past several weeks, we’ve seen dollars decrease at a much lower rate than the reduction on volume; suggesting an increase in average price of a drink in the last two quarters of 2020. Several hypotheses are at play to suggest why this may be; (1) Consumers are dining out less frequently, and so when they do they go “big”, (2) consumers dining are simply looking for a more premium offering, (3) a segment of the industry that decreased the average/cost per drink has been more severely affected than other segments of the on-trade, (4) certain establishments that relied on cheap drinks to bring in lots of people to make up the difference had to rethink that strategy this year.
For the year, margaritas did very well and lifted the Tequila and Triple Sec categories above the average category decrease for the year. Brands that are popular in mixed drinks did well, whereas sipping liquors and shooters performed worse in the on-premise.
Several trends we’d like to highlight that may end up playing larger roles in 2021:
Take-away alcohol is now legal through Executive Order. With 2021 being a legislative session, it will be interesting to see if this becomes a larger legislative issue. With 15-20% of all on-premise alcohol presently being sold as Take- Away this will be important to accounts. Additionally, the tax implications to the State are significant, although amendments might be made on the current taxing structure of these drinks. Currently, consumers are taxed up to 8.25% if they take a Margarita home, but 14% if they chose to take a sip on-premise, creating a financial incentive for an activity that is deemed from a public safety standpoint, at least historically, as less desirable.
If Take-Away is here to stay then it may provide an additional growth channel to the on-premise over the coming years. It will also require amendments to many strategies at play and will likely make the prize of a choice/signature drink more important at successful operators if brand recognition is preserved.
In combination with Take- Away, we’ve seen the growth of RTD spirits increase from virtually non-existent in the start of the year to climbing over 0.5% of total spirit volume shipped to the on-trade in the past few months.
3) Survivability, PPP, & Corporate Dining
It is still uncertain which way the attitudes and realities of the pandemic will take us into 2021. Despite the current increase in cases, views are optimistic thanks to the rollout of vaccines. However, as the tone is being set masks, social distancing, etc. will be here to stay for a longer period of 2021 effecting the on-premise. There have been many notable closures over the past year and these will continue into 2021: Austin’s SXSW will be online only again in 2021, international air travel has been severely reduced and conventions seem to be on hold indefinitely. Government funding in terms of PPP allowed many restaurants to survive what we all thought or hoped would be only a few months. A second round which was just approved this Sunday has special carve out for restaurants and hospitality that should help more of these accounts survive the coming months.
Additionally, as of this Sunday, business meals are now 100% deductible for years 2021 and 2022 (from 50% historically) which allows you, our wonderful clients, to invite me and my team to a fine steak dinner to sample your select spirit offerings, at a fully deductible expense rate (you have our email). I don’t believe I can be more subtle.
We've found the following reference on large Federal changes effecting restaurants from the new stimulus (c/o TRA) quite helpful.
Let’s toast to a Happier and Healthier 2021 for our industry and everyone.
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