Will 2025 be "an opportunity to reset after years of disruption” for Australia's liquor sector?

Yesterday, Circana hosted its annual State of the Industry webinar event, offering insight into Australia’s retail and FMCG sectors and delivering an economic outlook for the year ahead.

“We think that 2025 is really an opportunity to reset after years of disruption from some pretty significant external forces,” said Daniel Bone, Circana's Insights Director for Australia.

“Competitive pricing winning value perception, that's going to remain really important for the foreseeable future; but we can [also] start changing the conversation beyond just price and affordability. That's partly because household incomes are improving and [because of] the prospect of these two additional rate reductions in 2025 that're going to lead to a significant pickup in household confidence.”

Circana’s advice to brands and retailers is to insulate against price sensitivity by providing permissibility platforms such as:

• Indulgent Insperiences – bringing out-of-home experiences into the home
• Amplifying affordability & inspiration – showcasing value with inspiring benefits; evolve the conversation beyond price
• Currency-of-convenience – finding the sweet spot between creativity & convenience for home-cooks
• Appealing (non) attributes – leveraging the trends resonating with a sufficient consumer audience e.g. sugar-free or high protein
• Blurring boundaries – blurring category and channel boundaries to create excitement
• Social sensations – social media currency contributing to outsized growth for brands

Daniel Bone said, “when we talk about changing the conversation, we’re talking about value, and moving the dial towards benefit-incentives rather than only price incentives. That’s how Australians determine value for money. It’s about price, but equally about benefits that signify quality.”

For Australia’s liquor industry specifically, the top factor consumers would like to see changed in store is better value for money, followed by more products with low/no sugar, and more products with low calories.

Jarna McLean, Director of Health & Lifestyle at Circana, said: “If we actually turn our attention to the liquor space, the thing that people would like to change is better value for money at the till; and the interesting thing here is that this got number one, and we're showing the other two key decisions in the hierarchy as well, [but] number one is actually three times greater of importance to what number two is in that space.”

According to Circana, one of the areas in which brands and retailers should be cautious about seeking value is in promotions and ticket-price reductions, of which were recently attributed to the reduced Q1 profits of Endeavour Group and Coles Liquor.

“In the industry at the moment, high levels of promotional activity are keeping a lid on prices; [but] the good news is that high promotional participation is actually boosting sales as well,” said Bone.

“The problem right now is that price moderation becomes margin dilution… Talking to our head of Analytics yesterday, we're getting so many questions right now about promo because shoppers’ usual budgeting anchors and their pricing reference points have changed. Knowing where to focus promotional efforts is so important right now, especially when you've got that backdrop of high activity.”

In yesterday’s webinar, Daniel Bone outlined three key ranging decisions that can help retailers navigate consumer desire for low prices and broad ranges.

“Australian shoppers Place considerable importance on both low prices and accessing a broad range constantly,” he said.

“We know from our experience that the best ranging decisions are made when you're using analytics to answer three fundamental questions and the first one is just knowing what is the importance of a given product. I want you to know what is the interaction between specific products; and if it had a redesign, especially when you start changing the range within it, what volume shifts occur.”

Circana believes that Australian consumers are showing signs of increasing their consumption of FMCG goods after a period of reduced spending over the past couple of years.

“Australians are shopping a little bit with the handbrake on and certainly have been over the last 12 months… [but] we also saw in the September quarter that we had the strongest quarterly value in over a year,” he said.

“From a liquor perspective, this is a channel that is a part of our consumption that's really been constrained by weak consumer sentiment. We’ve observed a normalisation of alcohol consumption after that significant pandemic spike, and that lost momentum was made all the worse by the cost of living [pressures]... We've seen premiumisation soften and that's not helped of course by a product category that generally has higher entry level prices.”

“In terms of retail sales and just a moment you've got consuming confidence picking up household incomes picking up we take into account the expected increase in GDP and household consumption that's going to amount to an estimated $24 billion in terms of consumption expenditure.

“It is going to create additional competition for share of wallet because you're going to see a bit of a fight back from discretionary retail… but fmcg is very much world placed to compete for share of spoils.”