Tendencies within the spirits business as spirits take away market share from beer

A bartender creates special cocktails featuring Casamigos at the opening party of Alo Miami in Miami December 16, 2021.

Jason Koerner | Getty Images

CHICAGO — The spirits industry is overcoming economic headwinds to meet changing consumer preferences while eroding the dominance of beer.

According to the Distilled Spirits Council of the United States, spirits’ sales market share rose from 28.7% in 2000 to 42.1% in 2022, surpassing that of beer for the first time ever. Beer has a market share of 41.9 percent, it said.

The trade organization, which is celebrating its 50th anniversary, held its annual conference in Chicago this week. The event brought together spirits executives, industry leaders, distilling experts and industry representatives to reflect on the key trends driving, but also slowing, growth across the industry this year.

Despite supply chain issues and high inflation, the beverage alcohol industry has a lot to drink these days, said Chris Swonger, President and CEO of DISCUS.

“This is a great American success story,” Swonger said of the industry’s market share dominance. “We are focused on continuing to stay at the forefront through perseverance and ensuring that any positive trends we see continue.”

As the spirits industry works to maintain its top spot this year despite fears of a recession, here are some key trends industry leaders who spoke to CNBC see that will shape the business today.

1. Celebrity brands are stealing the limelight

More and more celebrities are investing their time — and money — in the liquor store.

From movie stars to athletes, models and musicians, celebrities of all kinds endorse brands, get involved in distillation, decide on flavor profiles or forge partnerships within the industry.

These deals have proven lucrative. In 2017, actor George Clooney and his co-owners sold the fast-growing tequila brand Casamigos to Diageo for $1 billion, spurring others to get involved in the campaign.

“I saw that there was great success in the celebrity tequila space, and that intrigued me,” said actor Mark Wahlberg during a panel discussion at the Chicago conference.

Wahlberg co-founded tequila brand Flecha Azul earlier this year with Mexican co-founder Aron Marquez. The couple traveled across the country to promote the brand, which Wahlberg called “the drink of the summer.”

“I have some friends who are successful in this business and I want to beat them at everything I do,” Wahlberg said.

“But it’s more than just the name,” he added. “Everything we’ve done from the beginning has been about the quality of the product.”

Wahlberg joins other high-profile figures leveraging their fame in the spirits industry, including Ryan Reynolds, Sean “Diddy” Combs, Kendall Jenner, Dwayne Johnson, Michael Jordan and David Beckham.

2. Premiumization drives luxury spirits and RTDs

During the Covid-19 pandemic, consumers developed a taste for higher quality spirits and became more accustomed to drinking outside of the bar in the form of ready-to-drink cocktails.

According to DISCUS, luxury brands increased by 4% in 2022 compared to 2021. The group’s data does not capture the overall share of luxury brands in the spirits market.

The trend, characterized by consumers’ willingness to spend more on premium bottles, has led to booming sales of tequila, American whiskey and other spirits.

According to DISCUS, tequila sales grew 21% in 2022, while American whiskey grew 19%.

Meanwhile, pre-mixed cocktails, including spirit-based RTD drinks, have risen in the wake of this trend. In 2022, category revenue grew 35.8% to $2.2 billion.

Brands are quenching the thirst for spiritual RTD by diversifying their product offerings.

Holla Spirits is a Pennsylvania-based vodka company that entered the RTD space last year with a line of vodka-based cocktail pouches blended with organic vodka and coconut water. Their flavors include lime, watermelon, and papaya.

“This has been an excellent addition to our portfolio as this has become such a common expectation from brands,” said Holla President Patrick Shorb.

3. Non-alcoholic and low-alcohol beverages are popular alternatives

In recent years, large alcohol companies such as Heineken, Anheuser-Busch InBev And Molson Coors have joined the craze for non-alcoholic and low-alcohol beverages.

Demand for these alternatives has increased among consumers who want to drink less or avoid drinking for health or personal reasons.

According to the IWSR Drinks Market Analysis, non- and low-alcohol beers and ciders, wines, spirits and RTD products experienced volume growth of more than 7% in 10 major global markets in 2022.

“The younger generation in particular is drinking less and then drinking with more intention,” said Tobin Ludwig, co-founder of Hella Cocktail Co.

The company uses botanical flavors and spices to give its line of soft drinks the needed kick.

“You no longer need alcohol to socialize and have fun. In fact, for many, alcohol was seen or felt as hostile, and choosing non-alcoholic alternatives is now socially acceptable and, in some parts of the sobriety movement, is no longer the norm but the exception,” he added.

4. Conscious consumers want a story

Today’s consumers increasingly want to feel connected to brands that share their values. Companies seize this opportunity by highlighting their sustainability efforts, their contribution to local communities and their commitment to diversity.

The trend will continue as consumers become more vocal about their priorities and begin to hold companies accountable for their practices.

More brands than ever are using eco-friendly packaging for their products to limit their environmental footprint. Craft spirits, typically made by small distilleries using locally sourced ingredients and materials, have also grown in popularity in recent years.

In addition, brands are increasing their diversity-related initiatives.

Jomaree Pinkard, CEO and General Manager of Pronghorn, said this is “not just a social good, it’s good business for everyone.”

The company runs incubator and accelerator programs to nurture black talent in the spirits industry. His research finds that while black Americans account for 12% of alcohol consumers across all categories, they make up just 7.8% of the sector’s workforce and 2% of industry executives.

Pinkard said this “should be alarming to shareholders” as consumers become more aware of the way brands engage with marginalized communities.

5. Supply chain and inflation issues persist

Rising costs for glass bottles, the oil used to ship freight, and other parts of the spirits industry’s complex ecosystem pose challenges for some companies. In certain cases, supply chain disruptions have resulted in price increases that consumers have absorbed.

The industry felt some relief after the EU and UK lifted retaliatory tariffs on American whiskeys. This has allowed distillers to regain a foothold in these important international markets, but some of the safeguards may soon be phased out.

Lisa Hawkins, director of communications and public affairs at DISCUS, said it was “vital that these tariffs are permanently eliminated” to maintain momentum in the spirits industry.

If no agreement is reached later this year, an EU tariff of 50% will be imposed on all American whiskeys from January.

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