The on-trade channel will be virtually unrecognisable post lockdowns, and this is c. 50% of global Spirits sales. More than half of establishments are reportedly at risk of going under, and those that remain will be able to service a more limited number of consumers. Bar and nightclub culture may be gone for several years, and festivals, concerts and other “3rd spaces” will also suffer from ongoing social distancing measures; these channels are important for Spirits. Governments are worried about a second spike of cases in the autumn, so we expect a very slow and measured re-opening across markets. Inventories in the channel are high. The economic repercussions of the lockdowns will be job losses and lower consumer disposable income. We believe this will lead to trading down across many categories, including in Spirits, a reversal of the 1-3% mix tailwind the industry has enjoyed in recent years. Prices on mainstream premium Spirits, a highly competitive category, are likely to come down in order to maintain market share. We have already adjusted our forecasts for Diageo and Pernod, and are more bearish than consensus. We do not expect sharp cost cutting from either company in response to the crisis, so there will be operating de-leverage. Our FY21E adj EPS is 16% below consensus for Diageo and 20% below consensus for Pernod, and we see further downside risk to our numbers. We currently assume the lockdowns impact less than 3 whole months of 2020, followed by a slow recovery, but the impact could be much more negative. A sensitivity table to lockdown durations is on page 12, having analysed the cost base. On the positive side, balance sheets are in reasonable shape, and even our more bearish forecasts result in net debt/EBITDA of only about 3x over the next 2 years assuming no major change to dividend policy. We do not expect any meaningful alteration here – unless trends worsen substantially. We prefer the more defensive areas of Consumer Goods; these include the highly resilient Tobacco companies, and HPC and Food names that are beneficiaries of social distancing. These companies are still growing, and dividends look relatively safe.