Questions. Answers, not so much.

Thomas Friedman, the NYTimes columnist, said in March he was asking businesses what their future looked like with customers in masks and two metres away from each other. For the on-trade the answer is clearly bad as we we know now, with only 1 in 5 patrons returning to bars in places that have reopened. 

Rather than make predictions - which will surely prove to be wrong - I had questions about the evolution of business models and the impact on M&A in bev-alc in, say, two years time. Linked to that is brand-building without access to the physical (on-trade) world. 

So instead of trying to use my own brain while also administering home schooling, I organised the obligatory Zoom call with a clutch of newish companies (you know who you are) and bring you a distillation of just one aspect of what will be facing our industry. By taking this approach I will be seen by some as intellectually lazy (and no doubt a leader by others). 

On the plus side, brands have realised that with access to funding cut off or the remaining sources asking for unappetising terms, the alternative is to focus on building a profitable business -- either through direct-to-consumer (more on that below) and/or an increased reliance on the off-trade. In my limited, and admittedly skewed portfolio, most (but not all) brands were well placed in Jan/Feb both with funding and relationships in the higher end of the off-trade. As a result, the founders have welcomed owning more of their business -- some consolation given the context of sales lost forever. 

Almost all of them have seen DTC take off and are scrambling to put the stack in place to support it at a higher scale. Social media and customer acquisition costs have fallen and engagement has risen (as has virtual engagement with the on-trade community). Perhaps the trade down to [known] value brands will come as it did in '08 but it isn't exactly happening right now; consumers are fine to experiment. Another positive is that the size of shopping baskets is rising, which makes a big difference to those unit economics. 

Looking beyond the horizon, especially for those brands aiming to exit to a strategic major, it is not clear to me whether the acquisition multiple in a few years will credit the vendors for this shift -- both to DTC and the off-trade as a place for building the brand.

Not only might the cohort of buyers in this time frame continue to be of 'the brand = on-trade' mindset, it is always going to be expensive to ship 1kg of glass individually to consumers. Taken together, how do you fit a DTC business in a system predicated on shipping millions of cases through consolidators (something I don't see changing even in the US where temporary loosening of three-tier has led to questions of its longer-term survival).  

The upshot is that unless there is a dedicated effort from prospective buyers to recognise and address the incongruence of the routes-to-market, the bid/ask spread for future M&A will likely increase. That's about as close to a prediction as I am willing to stick my neck out for in these times.