The drinks industry has been hard hit by the coronavirus, with the hospitality sector reeling from the lockdown and suppliers struggling with both distribution and sales.
And analysts are predicting it's going to get worse.
“A global recession is likely if COVID-19 becomes a pandemic, and the odds of that are uncomfortably high and rising with infections surging in Italy and Korea,” said Mark Zandi, chief economist at Moody’s Analytics.
Overnight, Diageo announced it estimates the negative impact in fiscal 2020 on the group’s organic net sales and organic operating profit to be in a range of £225million to £325million and £140million to £200million, respectively.
The drinks giant reported that bars and restaurants have largely been closed and there has been a substantial reduction in banqueting.
“As the majority of consumption is in the on-trade, we have seen significant disruption since the end of January which we expect to last at least into March,” the company added.
The coronavirus outbreak in several other Asian countries, especially South Korea, Japan and Thailand, has also led to events being postponed, a reduction in conferences and banquets, and a drop in tourism which have all impacted on-trade consumption for Diageo.
The coronavirus outbreak has caused a significant reduction in international passenger traffic, especially in Asia.
“Recovery of passenger traffic is assumed to be gradual, resulting in weaker performance for the remainder of fiscal 2020,” Diageo said.
Profit downgrade for TWE
Earlier this week, Treasury Wine Estates downgraded its full-year profit forecasts for the second time in a month.
“Whilst the full operating and financial impacts of the outbreak are yet to be fully determined, TWE now has sufficient information in its possession that would indicate consumption across discretionary categories in China has been significantly impacted through February, and that this impact on consumption is expected to be sustained to at least through March,” the company stated in an ASX announcement.
“As a result, TWE no longer believes that it will achieve the previously provided guidance for F20 reported EBITS growth of between 5% and 10%.
As a result of the continuation of infection containment controls from the central government and provincial authorities throughout China, TWE’s staff have not yet returned to the office and continue to work from home.
The same situation is being experienced by TWE’s partnership network, including wholesalers, retailers and logistics providers.
Pernod Ricard counts the cost
Pernod Ricard has admitted there are challenges ahead for its business in China.
Chairman Alexandre Ricard said: “Looking to H2 FY20, the environment remains particularly uncertain from a geopolitical standpoint, with the additional pressure related to the COVID-19 outbreak.
“Assuming a severe impact of COVID-19, mainly on Q3 FY20, we are at this stage providing a guidance of organic growth in profit from recurring operations for full-year FY20 of +2% to +4% and will continue to closely monitor our environment.
“Nightclubs and night bars are all closed in China and those bars and restaurants that are not closed are empty.”
Meanwhile, Remy Cointreau has abandoned any profits forecast following the political unrest in Hong Kong and slowdown in the Chinese market.
Coca-Cola could be in tight supply
Coca-Cola says the coronavirus has disrupted its supply chain in the United States, and artificial sweeteners from China could be in short supply if the outbreak continues to spread.
Production and exports have been delayed for Coke's suppliers of sugar alternatives used in the company's diet and zero-sugar drinks, Coca-Cola disclosed Monday as part of its annual report.
"We have initiated contingency supply plans and do not foresee a short-term impact due to these delays," Coca-Cola wrote in the filing.
"However, we may see tighter supplies of some of these ingredients in the longer term should production or export operations in China deteriorate."
Fortunately, Australia should not be affected. A spokesperson said: “We are confident in our supply chain as we have limited sourcing from China and there will not be any impact on Australian consumers.”
“As matter of routine, we maintain business continuity plans throughout the world including maintaining alternative procurement sources in other regions of the world.”
Brewers face turmoil
Carlsberg, the world’s third-largest brewer, this month said the virus would cut into its earnings growth and that it would extend the shutdown of some of its Chinese breweries.
“Assuming a three month disruption from coronavirus, we model a -10% impact on APAC volumes in the first half of FY20," the company said. "Given the slow re-opening of nightlife establishments prior to the outbreak, we see risk of gradual recovery creating a drag into the second half.”
CEO Cees ‘t Hart said the outbreak is a “very sad situation for China and its people, and the virus will affect our business negatively.”
During an earnings call on Thursday, AB InBev executives outlined the negative impact the virus is having on its larger beer business in China. CEO Carlos Brito also revealed the brewer has established a "crisis room" in China.
“The outbreak has led to a significant decline in demand in China in both on-premise and in-home channels,” the company said.
The outbreak led to lost revenue of $285 million in the first two months of 2020, the brewer reported.
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