Second lockdown may leave breweries flat in Q4

Appearing languid during the first half, the prime minister’s Halloween announcement of a second lockdown will do little to boost the balance sheets of breweries in the closing stages of 2020. Speaking on COVID challenges and the outlook for the beer industry, Mark Lynch, Partner at Oghma Partners, said:

“Results from Carlsberg, Heineken, ABInBev for the third quarter overall reflect the hiatus in the March of Covid-19 after the Q1 and Q2 hit of earlier in the year. As a result, the quarter saw generally positive volume evolution from the brewers albeit some margin impact as business switched from eat out and drink out destinations to lower margin retail business. The outlook remains mixed with a general concern about the resurgence of Covid-19 being reflected in the outlook and passed dividends (ABinBev).”

Reflecting the uncertainty facing breweries, even a summer spike in drinking activity in non-retail outlets couldn’t save Carlsberg (CPH:CARL-B) revenues, down 2.1% during Q3 and falling over 8% during the year-to-date. Carlsberg’s CEO, Cees ’t Hart, said that, “The pandemic remains a concern for us, impacting our people, our customers and our businesses in many of our markets.”

Though the outlook remains shaky at best, Mr Lynch remains at least somewhat positive: “[It] seems as though with cost cutting being actioned and more coming down the pipe and with a better grasp of the likely overall sales performance, that the brewers will demonstrate the resilience in profits and sales that we would expect from the consumer staples universe for 2020 overall and looking further into 2021.”

Despite this optimism, breweries will now have to contend with a return to lockdown conditions, which will undoubtedly hamper their bottom lines as we venture further into the fourth quarter of the year.

France, Germany, Spain, and now the UK are in lockdown. If Biden wins the presidential election on Tuesday, the odds of the US entering a second lockdown increase greatly – though still not guaranteed.

For now, breweries will be concerned by the latest round of UK lockdown measures, which are more punitive on the alcoholic beverages sector than the first time around. The government has decided to ban alcohol takeaways from pubs, and this will see alcohol sales in bars, pubs and restaurants cancelled out in England and Wales, with the situation also bleak in Scotland with eateries in higher tiers banned from selling alcohol. Similarly, fewer grants being offered by the UK government will mean consumers will have less money at their disposal, to spend on non-essential goods such as booze.

Speaking to the Sun, CAMBRA‘s National Chairman, Nik Antona, said that second lockdown comes as a “devastating blow”.

“Pubs across the country have already invested thousands to reopen COVID-safe environments despite facing seriously reduced incomes.”

“We also need a clear route map out of lockdown which is based on evidence, otherwise we will see many pubs and breweries close their doors forever.”

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Jamie Gordon
Senior Journalist at the UK Investor Magazine. Also a contributing writer at the Investment Observer, UK Property Journal and UK Startup Magazine. Postgraduate of King's College London with a specialisation in Business Ethics. Interested in Development Economics and David Hume.