Retail rally tipped to flow on to liquor
It's called the Harvey Norman test. When consumers start spending again on large whitegoods, it is a good indicator that there is a healthy pick-up in spending that will flow into other retail businesses - such as bottle shops.
So, according to consumer analyst company Nielsen, the bubbly should be popping at last week's news that Harvey Norman is returning to sales growth in its core Australian business.
"This supports our view that the cycle is improving and the worst is behind us," said retail analysts from Morgan Stanley of the retailer's March quarter sales report.
Nielsen Pacific's executive director of consumer and business intelligence, Michael Walton, said of the change in spending behaviour: "We're now comfortable to spend again but we are more likely to spend within our means."
The ripple of spending is expected to drive growth in off-premise liquor outlets back to healthy levels and add $1.7 billion in sales over the next three years, according to Nielsen figures. But the growth will be driven by people spending more money on higher-priced liquor rather than filling their fridges with VB, which has just returned to being the nation's favourite brew.
"Our prediction is the single biggest factor for driving growth the next three years will be 'trading up' behaviour, followed by price increases," Mr Walton said.
Volume growth for off-premise liquor sales will be negligible but it will still be a welcome respite from the declines recorded over the previous five years.
Nielsen said there were too many deep-seated trends against volume growth in bottle shop sales, like the slow decline of cask wine. Australia's most popular beer brands, such as VB and XXXX, are also struggling as people spend more money on smaller volumes of craft beer and international beer brands.
It is showing up in the numbers. Of the $1.7 billion growth in sales expected over the next three years, about $500 million of this increase will be spent on beer - most of it on craft brews and premium imported beers.
Nielsen is forecasting that $1 of every $6 spent on packaged liquor will go on premium imported beer alone.
Cider will also continue its ascendancy, adding $400 million in sales over the next three years, which means imported beers and cider will make up more than half the sales growth.
While the international liquor groups are trying to keep abreast of these trends and buy into growth areas - the most recent example being Japanese brewer Asahi acquiring the Cricketers Arms beer brand this week - they are expected to lose out to smaller, Australian operators such as Coopers.
"We keep making this assumption that all of our industries are consolidating but, in this industry, it is actually fragmenting," Mr Walton said.
Frequently Asked Questions about this Article…
The 'Harvey Norman test' is the idea that when consumers start buying big-ticket whitegoods again (like fridges and washing machines), it signals a broader pick-up in spending that often flows into other retail categories — including bottle shops. For investors, stronger Harvey Norman-style retail sales can be an early sign that off‑premise liquor sales may recover.
Nielsen is forecasting about $1.7 billion in additional sales for off‑premise liquor outlets over the next three years, driven mainly by people 'trading up' to higher‑priced liquor and some price increases rather than big increases in volume.
Nielsen expects most growth to come from premium imported beer, craft brews and cider. Of the $1.7 billion, roughly $500 million is expected to be spent on beer (mainly craft and premium imports) and about $400 million on cider, with imported beer and cider together making up more than half of the growth.
Volume growth is expected to be negligible. Nielsen says the recovery will be driven by 'trading up' — consumers paying more for smaller volumes of premium or imported products — and by price increases, rather than a big rise in total litres sold.
The article highlights deep‑seated trends working against volume growth, such as the slow decline of cask wine and consumers shifting away from large‑volume mainstream beers to smaller volumes of craft and international brands, which reduces overall volume even as spending rises.
According to the article, smaller Australian operators like Coopers are well placed to benefit from the fragmentation and growth in craft and premium segments, while international groups (for example Asahi buying a beer brand) are trying to buy into growth areas but may not capture all the upside.
Improving retail sales — as flagged by Harvey Norman’s return to growth — supports the view that consumer spending is recovering, which can signal better prospects for off‑premise liquor sales. Investors should focus on how companies are positioned for 'trading up' trends and premium product demand, rather than expecting large volume gains.
'Trading up' means consumers spend more on higher‑priced, premium or imported beverages instead of buying larger volumes of lower‑priced products. For the liquor industry this typically raises average selling prices and can improve margins, so investors looking for growth should consider retailers and producers exposed to premium, craft and imported categories.
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