By Byron Kaye

SYDNEY (Reuters) – A recent slump in sales means Sydney liquor store owner Louise Dowling is having to work an extra 40 hours a week to make up for the staff she has had to lay off as Australia’s prolonged cost-of-living crisis forces more people to drink less alcohol.

“Without foot traffic, without sales, you don’t have the money to hire more people,” Dowling said at her store, P&V Wine + Liquor Merchants, in Enmore, a popular suburban dining and nightlife hub.

“Everyone is trying to tighten their belts, including us.”

After a sales surge due to the pandemic lockdown and unused savings, Australia’s alcohol industry is facing its biggest crisis in years as more people cut discretionary spending and turn to healthier ways to unwind.

Alcohol sales rose by just 0.7 per cent in the year to June, the slowest growth in at least a quarter of a century, according to data from the Australian Bureau of Statistics (ABS), with even that small increase likely to have been due to rising prices, as alcohol sales fell by 3.9 per cent over the same period.

Australia is one of the richest countries in the world per capita and the country with the highest per capita spending on alcohol. The slowdown coincides with a decade of decline in global drinking, driven by health concerns or simply personal choice.

The effects of these declines were visible in alcohol retailers’ financial results released later this month.

The second-largest alcohol retailer by sales, supermarket giant Coles, said profits at its off-licence fell 21 per cent, mainly due to a fall in discretionary spending, while major wine producer Treasury Wine also saw a 7 per cent drop in profits at its mid-range segment, partly due to “weak consumption trends” in Australia and the UK.

Endeavour, the largest off-licence and pub owner by sales, bucked the trend with a modest 1.8% rise in pre-tax profit, but analysts downgraded it after they said retail sales rose just 0.6% in the first six weeks of the 2024/5 financial year.

Tom Kierath, an analyst at investment bank Barrenjoey, said that before the pandemic, alcohol companies benefited from selling more expensive products, and then, during some of the world’s longest lockdowns, those same companies saw a surge in people stocking their wine cellars.

But as inflation soared after the pandemic, two years of rising housing, energy and petrol bills caused consumers to spend less, he added.

“People are looking to save money now, and in many consumer categories, people are downgrading,” he said. “Alcoholic beverages are no different.”

Australia’s largest brewer by volume, Asahi, maker of fridge beers such as Victoria Bitter and Carlton Draught, said in a half-year update that its operating profit in Australia and New Zealand fell 11.7% and lowered its full-year profit forecast for the region from 9% to 1.7%.

HEALTHIER, CHEAPER

While alcohol remains an integral part of Australian social life and identity, researchers predict the trend towards abstinence will increase over the next few years.

According to data from research firm IWSR, the Australian alcohol market shrank by 3% from 2022 to 2023, the biggest decline among major markets such as China, the United States and the United Kingdom. The Australian market is forecast to grow by just 1% per year on average through 2028.

Costs certainly matter, says Sarah Campbell, Asia-Pacific research director at IWSR.

The government imposes twice-yearly inflation-indexed tax increases on alcohol producers, which, alongside rising labour and ingredient costs and other factors, means companies are no longer able to cover these increases and pass them on to consumers, she added.

“Australian consumers are still in a price-cutting phase,” Campbell added.

Health concerns that have intensified since the outbreak of the COVID-19 pandemic are also causing more people to avoid alcohol.

Data from the Australian Institute of Health and Welfare, a government agency, showed that while the number of people who drink frequently has fallen slightly, the number of people who do not drink at all is expected to rise from 16.4% in 2001 to 23.1% of the population in 2023.

Michael Livingston, an alcohol policy researcher at Curtin University, said the rise in abstinence began a decade ago with teenagers consumed by “the stress of the state of the world and their lives”.

“This generation is now entering its peak alcohol consumption period,” he said.

Alcohol producers and retailers have been combating the trend by marketing to different consumer groups, but “they don’t have many options at this point to maintain profitability at current levels,” Livingston added.

Melbourne blogger Natalie Battaglia, who started posting non-alcoholic drink recipes on Instagram’s The Mindful Mocktail in 2020, said her following has grown from 120,000 to 586,000 in the past 18 months due to an interest in “sober curiosity.” About a third of her followers are aged 18 to 25.

“The growing interest in health and well-being, as well as financial pressures resulting from the cost of living crisis, suggest that demand may not return to pre-crisis levels,” she said.

(Reporting by Byron Kaye, additional information by Wayne Cole; editing by Miral Fahmy)