Estimated reading time: 7 minutes
Without studying statistics and merely driving around, one can witness the devastating effects of the alcohol bans on the hospitality and retail sectors. Where restaurants and pubs once stood, now empty buildings with “To Rent” signs stuck on the window, litter shopping malls and centres. Like a shattered dream, the once-powerful and influential alcohol industry now holds on for dear life.
When speaking to two companies in the industry, one an up and comer and the other, the market leader, just what is the reality and changes within their worlds? Talking with SA Breweries (SAB)and Newcastle Brewing Company, the Newcastillian – Online News gives you insight into their worlds post three alcohol bans.
Looking at growth and development, SAB’s Vice President of Corporate Affairs, Zoleka Lisa says, “The effect has been substantial and unstainable on both the economy and the industry. Whilst we support appropriate and sustainable measures taken to curb the spread of the Covid-19 and ease the pressure placed on the public health system, we do not believe that banning alcohol is an appropriate or sustainable approach for the economy nor employment rates. The abrupt ban on alcohol has put 1 million livelihoods at risk across the industry’s value chain.”
Moreover, during the three bans, she declares SAB lost over 19 weeks of trade and incurred a 30% production loss thus far.
In total, the alcohol industry value chain collectively lost over 200 000 jobs due to the three bans. “Since the first ban in March 2020, SAB has been navigating a very uncertain operating environment. This has led to the decision to reduce SAB’s capital expenditure and consequently its cash flow requirements. SAB has had to cancel R5bn in capital expenditure in South Africa since alcohol sales bans were introduced in 2020.”
The CAPEX investments’ overall cancellation for 2020 and 2021 negatively impacted upgrades to operating facilities, product innovation, operating systems, and the installation of new equipment at selected plants. “This was a difficult decision to come to as an organisation and it will ultimately impact the profitability of a number of jobs created by the companies that would have worked with SAB to execute the capital investment plans,” states Lisa.
Managing Director of Newcastle Brewing Company, Vuyo Valashiya adds, “The ban negatively affected us as our profitable sales come from events, last year we would have sold our beer at all major events in Newcastle, including the Newcastle Winter Festival, Newcastle Airshow and Amcor Dam music festival to mention a few. The ban on alcohol and events meant that we lost thousands on missed sales.”
Additionally, he says that a few cases of beer had to be destroyed when looking at restaurants and pubs because they had reached their sale by date. Valashiya continues by saying, “We were growing our footprint locally, but unfortunately, some restaurants had to cancel their orders due to financial strain and the sales commitment they have with other brands.”
However, now post the wreckage, what does the future hold for these two companies?
“We want every experience with beer to be a positive one and have been committed for years to be part of the solution. Responsible (smart) drinking is very important to us; before, during and after the Covid-19 pandemic. That is why we take our responsibility to help reduce and prevent the harmful use of alcohol across the world seriously. Together with our industry, we look to partner and work closely with our government in being the catalyst for improved consumer behaviour and responsible consumption,” says Lisa.
Additionally, one of the SAB’s requests to National Treasury will be to keep Excise Tax flat in 2021/22. “Excise tax directly affects every part of the value chain of the local alcohol industry, which is suffering, as a result of recent alcohol sales bans. This is over and above the burden of excessive and consistent above inflationary increases which the industry has been carrying for many years. A further increase will affect the ability of the industry and its value chain to recover from over 19 weeks of no trade. We know that the alcohol value chain outperforms the South African industry average in job creation and economic contribution, and that is why it is imperative that it be given the space to make a meaningful recovery.”
Lisa admits the request for no increase in excise is not one to help the business grow, but rather to help it recover and bring a sense of stability to an industry that has been hard hit. “It will help retain jobs and give employees an increased sense of security during these uncertain times. Furthermore, it will foster an environment where the business can start to reconsider investments in the future.”
Valashiya explains Newcastle Brewing Company is focussed on sourcing funding to build a brewery and beer taproom around the CBD. “By having our own brewing facility, we will reduce our selling price and have more customers afford our beers. We are also looking at increasing our range to at least 6 beer styles.”
Addressing how the alcohol industry has changed, post the ban on alcohol, Valashiya explains “We cannot generate enough revenue to keep the industry afloat. Industry giants such as Heineken and ABinBev have cancelled huge investments, and a few craft breweries have closed shop due to the lockdown. I also understand that some 200 000 jobs have been lost within the industry directly and indirectly.”
Lisa and Valashiya agree that the industry has negatively changed, “Even with the ban lifted, the industry faces long-standing consequences across multiple sectors upstream and downstream of our production line – from farmers and agricultural labourers to glass and mould manufacturers, restaurateurs, tavern owners, hoteliers and entertainment entrepreneurs. Our internal data suggests that upwards of 40% of bars and restaurants have temporarily or permanently ceased to trade. This would equate to more than a thousand establishments who would have been providing income for a significant amount of people. In an industry commissioned report, FTI Consulting estimates the total job losses to be upwards of 200 000,” states Lisa.
Looking to the future, she elucidates, “Further alcohol bans are unsustainable and will decimate the industry. It will take the industry – and the economy – years to recover from the effects of the previous three bans. At SAB, we are fully committed to being active participants in driving a solution in rebuilding the economy; however, any solution agreed on should not provide a short-term fix. It will take years to get this industry back on track as a key economic stimulator.”
As trade in the alcohol sector slowly resumes, one can’t help but wonder, has the constant bans resulted in an increase or decrease in the demand for alcohol?
Lisa asserts, “We do not think there has been a decrease in the demand of alcohol. As previous bans have shown that prohibiting the legal sale of alcohol and beer led to the growth of illicit alcohol trade with dire public health consequences. The SARS Commissioner has made a note that it is clear that the illicit economy thrived in the periods of the ban of alcohol.”
In addition, she says SAB have noted a growth in their NABLAB (Non-alcoholic Bev &Low Alcoholic Bev) products sales, namely Castle FREE. “This has been a positive growth of our NABLAB vision, but plays a small role in overall revenue we look to generate with our full portfolio.”
Moreover, Lisa emphasises, “What is evident, is that across the retail and consumer channels there is a growing mistrust in government due to the sudden nature of the blanket prohibitions. There are numerous reports of consumers, and retailers who have increased their stockholding in anticipation of future bans.” And when looking at further changes in consumer behaviour: based on the FTI report released 11 Feb 21; the following was noted:
- Increased illicit activity.
- Consumer perspective: consumers are looking for more affordable alternatives – but they still look for brands they trust.
- Stockpiling due to uncertainty on the availability of alcohol sales.
- Stock out due to erratic marketplace due to the bans
With the alcohol industry focussing on the future, and regenerating a rocked industry, share your thoughts with us in the comment section below.