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' refers to watching sales of large whitegoods (like fridges and washing machines) as an indicator of broader consumer spending. The article says Harvey Norman has returned to sales growth in its core Australian business, which analysts view as a sign the retail cycle is improving — a pick-up that Nielsen expects will flow into other retailers, including bottle shops.
Nielsen is forecasting about $1.7 billion in additional sales for off‑premise liquor outlets over the next three years, driven mainly by consumers spending more on higher‑priced products rather than large increases in volume.
According to Nielsen and the article, growth will be driven primarily by 'trading up' to higher‑priced liquor and by price increases. Volume growth for off‑premise liquor sales is expected to be negligible, so value growth (premium products and higher prices) is the main driver.
The article highlights craft beer and premium imported beers as key beneficiaries — roughly $500 million of the $1.7 billion growth is expected to be spent on beer (mostly craft and imported). Cider is also expected to grow, adding about $400 million over the next three years.
The article reports Nielsen's forecast that $1 out of every $6 spent on packaged liquor will be on premium imported beer alone, reflecting a meaningful shift in consumer spending toward higher‑priced, imported beer labels.
The article notes international groups are trying to buy into growth areas (for example, Asahi acquiring the Cricketers Arms brand), but Nielsen suggests smaller Australian operators — such as Coopers — may win market share as the industry fragments rather than consolidates.
Nielsen points to several deep‑seated trends working against volume growth, including the slow decline of cask wine and consumers moving away from big‑volume brands like VB and XXXX toward smaller volumes of craft beer and international brands.
Investors should monitor retail sales signals (like Harvey Norman's recovery), forecasts from data firms such as Nielsen, signs of 'trading up' to premium products, category performance (craft beer, imported beer, cider), and M&A activity (for example, Asahi's acquisition). The article suggests these indicators will show whether the predicted $1.7 billion lift in off‑premise liquor sales is materialising.
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