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Impact of the COVID-19 pandemic on the global sake market

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Sake exports reached a record high for the tenth consecutive year on a value basis in 2019, at about 23.4 billion yen, representing 2.48 million 8.64L cases. Although the export ratio on a volume basis is as low as 4.6% of the entire sales of sake, domestic sales are shrinking.  As a result, exports will attract attention for future growth, not only for sake breweries but also for importers and media that have not dealt with sake until now.

However, despite these records, this growth is also strongly influenced by the impacts of COVID-19. Although the number of shipments to some countries from January to March 2020 had not yet reflected the influence of the Coronavirus vortex, overall, the total of shipments in that period was down about 18.4% on the previous year. For more insight, with the help of Mr. Masayuki Fujimoto, Director of the Japan External Trade Organization (JETRO) Shizuoka office, we interviewed each major office by email.

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-Summary
The gradual easing of restrictions on retail stores and restaurants after the lockdown demonstrates the various governments’ willingness to encourage consumption behavior that underpins economic activities as soon as possible. In some countries, detailed instructions at this stage are being given, and retailers and restaurants have begun to resume business accordingly.

In Japan, aside from the Tokyo area and Hokkaido, the emergency declaration has been lifted and restriction requests have been phased out in metropolitan areas such as Osaka, Nagoya, and Fukuoka. However, customers (both domestic and internationally) have not returned immediately, and businesses are far from recovering to the original service level because of various regulations limiting the number of customers and securing a social distance between customers.

-United States
According to the JETRO New York office, sales of alcoholic beverages and foods in all licensed facilities (restaurants, bars, taverns, clubs, arenas, catering facilities, etc.), were discontinued on 16th March according to the orders of the Governor. In addition, all licensed manufacturers with on-premises privileges were required to discontinue commercial sales of alcoholic beverages and foods to the venue. Only permitted manufacturers were allowed to continue all manufacturing operations. This limitation will continue until May 28th.

According to local importers, some importers have lost about 80% of their sales, and they said that at least 4% of New York’s 25,000 restaurants in New York had closed permanently, including well-known Gotham Grill.

According to the JETRO San Francisco office, California has been moving toward gradual resumption since the March 19 home evacuation order was issued. Restaurants in the Bay Area are basically open for take-out and delivery to their populations of around 7 million residents and supermarkets can be open with restrictions. However, many restaurants and cafes are not offering take-out or delivery and have instead closed. San Francisco City / County has supported restaurants since April 10th by temporarily limiting the fees charged to restaurants by a third-party food delivery service company (for example, a maximum of 15% of the purchase price of each online order). Due to the business restrictions on restaurants, Japanese restaurants that handle sake are greatly affected, and it is also reported that as of last month, restaurant sales in many cities were down 80% from the same period last year. As a result, there are numerous reports of employee layoffs and temporary leave.

Despite January to March exports to the United States are down only 3% on the same period of the previous year, the lockdown has dramatically reduced sales, contributing to many importers having excess inventory. Considering the current sales volume, some importers estimate that they have inventory for a year or more. Therefore, a sharper decrease in future exports is expected.

-Canada
According to the JETRO Toronto Office, restaurants are classified as non-essential business, so only take-out and delivery are possible, while mass retailers are classified as an essential business. In Ontario, only take-away and delivery of restaurants are permitted, and eating and drinking are prohibited inside the restaurant. The restaurant industry as a whole is struggling, but while Japanese food is not available at home, it seems to be doing relatively better than other cuisines. However, at restaurants, although bottled and canned sake is allowed for delivery, it is difficult to promote sales because the price is higher than that sold through the Liquor Control Board of Ontario. Importers are now creating a new demand for 720ml bottles because the more common 1800ml is generally consumed in social gatherings, which are not currently permitted. This smaller format and focusing on e-commerce is expected to help recover sales.

-France
According to the JETRO Paris Office, from March 15th (Sun), facilities that accept the public (including restaurants), and facilities that are not essential for living except for food stores, have been closed. Restaurants can only be opened for takeout and delivery. From May 11th, facilities with infection control measures have been able to be opened except for restaurants, hotels, movie theaters, theaters, and museums. According to some reports, it is expected that from June 2nd, restaurants in the low infection risk “green zone” will be able to reopen. It will be officially announced on May 25th. Île-de-France, including Paris, is a high infection risk “red zone”, so it is likely that the restart of restaurants in this area will be delayed.

In France, sake is consumed mainly at restaurants, so sake sales have fallen sharply while the restaurants that handle sake are closed. While the export value from January to March was favorable (133% year-on-year), April results are expected to be significantly reduced. In addition, major European sake event Salon du Sake 2020 has been postponed from September 2020 to the end of October. As a result, the adoption of sake by new importers and businesses is expected to be delayed.

-Thailand
According to the JETRO Bangkok office, each region implemented bans on the sale of alcohol from the end of March. Sales were banned all over the country, in time for Songkran (Thai New Year) in mid-April. Due to the deregulation on May 3, all restaurants could be opened under certain conditions, but a proportion has elected to monitor the situation until the end of May before reopening. In addition, although the retail sale of alcohol has resumed, it is still banned from being offered at restaurants. It seems that this will not be alleviated even in the second phase of restriction easing. The export value to Thailand from January-March results had already been significantly affected, showing a 22% drop from the previous year. A new big importer was considering entering the market but has delayed the decision due to the pandemic.

-Russia
According to the JETRO St. Petersburg office, bars and restaurants have basically stopped their store operations and only deliver. It seems that supermarkets are open and alcohol sales are not nationally regulated. However, some Russian states seem to have restrictions on alcohol sales. Although not directly related to the influence of COVID-19, Russia is currently debating in Parliament to raise the age of alcohol purchases to 21. In recent years, restrictions on alcohol have become stronger, such as the prohibition of TV commercials, the prohibition of alcohol sales at sports venues, and the time period when alcohol sales are prohibited at retail stores, and it is predicted that this trend will accelerate. Luding, one of Russia’s largest wine importer, recently entered the sake business, and the market was actively moving. However, the results from January to March were greatly affected by these recent changes, showing a 63% drop compared to the previous year.

-Spain
According to the JETRO Madrid Office, from May 18 retail commercial facilities and service industries, which had been closed due to the state of emergency, can open provided they met the requirements, such as limiting the capacity of admission to 30%, ability to maintain a distance of 2m between visitors or larger facilities operating with a limited area, etc. During restrictions, restaurants could only be used for takeout and delivery, but now it is possible to restart operations on a restaurant’s terrace under certain conditions. The whole country is scheduled to end the mitigation phase in July, but it is expected that infection prevention measures such as securing interpersonal distance at restaurants will remain thereafter. Spain was a market expected to grow and revitalize after having new divisions of sake and shochu at el Concurso Internacional de Vinos y Espirituosos (the International Competition of Wines and Spirits) in 2019. The export value for January-March 2020 was up 24.1% year-on-year, but due to the restrictions, a reduction is expected from April.

-Indonesia
According to the JETRO Jakarta Office, the Special Capital Territory of Jakarta announced the state of emergency on March 20, and nightclubs and bars were closed from March 23. From April 10th, large-scale social restrictions have continued and during this time only the business fields specified by the government can operate. Although the food and beverage industry is open for business, many food and beverage stores are closed due to the shopping malls being closed. While restaurants are allowed to provide takeout and delivery, in-store consumption is prohibited. Although mass retailers such as supermarkets are open, alcohol dealers are sometimes closed voluntarily. Since more than 90% of sake sales are at restaurants, sales have been greatly affected.

Jakarta Special State has decided to implement Large-scale social restriction until June 4, however, the situation after that time is undecided. Sales of sake are expected to return when the restaurant industry is restarted, but since the number of people infected with COVID-19 has not yet decreased across the country, this restarting will likely be delayed. According to local reports, the Indonesian government is considering phased deregulation after June aiming at normalization of economic activity in August.

-UAE(Dubai)
According to the JETRO Dubai Office, Dubai originally only permitted the sale of alcoholic beverages only at hotels and within a designated area at the higher end for restaurants. When the pandemic started, all restaurants (except for delivery) were closed due to the lockdown. The constraints have been partially lifted by restricting entrance to the store, however, the provision of alcoholic beverages is still prohibited. Alcoholic beverage consumers in Dubai are mainly foreign residents and travelers, so the resurgence of alcohol sales generally will depend on the travel patterns of overseas travelers, and sales of sake will primarily depend on the recovery of customers at Japanese restaurants.

 

While no direct information is available from JETRO offices in China to the best of our knowledge, China and Taiwan are returning to business as usual. China is especially booming in the online market, with some importers at the latest significant e-commerce event, the 618, saying that it’s already very strong. In the sake export market, it is necessary to analyze countries and markets which are on the move and take firm action on the basis of consumer behavior.

It is expected that it will take a considerable amount of time before the export of sake rebounds fully. In the future, it will be necessary for each brewery to actively take measures to narrow down its focus and strategically consider the deregulation trends in each country to export sake to countries that will resume their economic activities.

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