With Covid-19 now firmly behind us, 2023 can feel like the pandemic hangover year for beverage alcohol retailers. Gone are those boom years spurred by on-premise lockdowns and panicked consumer buying. Bottom lines have retreated. Are we in a recession? Tough to tell. Depends on who you ask. (Politics.)
What we can know for certain is that a number of trends remain strong, or have emerged, in 2023. These are instances of customer behavior or successful branding that have transcended a single category to capture consumer dollars across the store. Below we explore five examples.
The dominant alcohol trend of our modern era remains premiumization. Pre-Covid, during the pandemic and now afterwards in uncertain financial times, consumers continue to trade up for better alcohol.
“While premiumization has been an ongoing trend for some time, the Covid-19 pandemic further enhanced it,” explains John Bilello, CEO of Sweet Amber Distilling Co., whose lineup includes the premium whiskey line Blackened. “Not only did consumers have more time to learn about the nuances and complexities of different spirits and categories, but they were also hosting more intimate gatherings and purchasing higher-quality brands to celebrate the time together.”
“This penchant isn’t likely to change anytime soon, as consumers want products made from high-quality ingredients that are exceptionally made,” he adds. “The perception of quality enhances the overall drinking experience, and satisfies consumers’ desire for something special and unique.”
Agreeing with Bilello is Melissa Rift, Master Taster at Old Forester.
“The last few years, consumers are drinking less — especially younger LDA drinkers — so they really prioritize what they’re drinking,” she says. “They want higher-quality spirits. They want something that’s higher age, higher proof. They’re drinking less, but better.”
That last point seems key in defining the modern, younger, LDA consumer.
“The idea of ‘drinking less, but drinking better’ has been happening for years, but most recently, particularly coming out of the pandemic, this theory was cemented,” says Mike Montgomery, CEO and Cofounder, Blue Run Spirits. “The modern consumer prioritizes quality over quantity. They choose craftsmanship over mass produced.”
This remains true despite inflation hampering our economy.
“33% of Americans said they spent $50 and above on a bottle of alcohol in 2022 vs. only 24% in 2021, which shows that even as inflation became more pronounced, consumers continued to seek out higher-priced alcohol products,” says Chris Williams, Executive Vice President, National Accounts, Southern Glazer’s Wine & Spirits.
Where is this most pronounced? Tequila, says Williams: “Over the last three years, tequila was primarily trading up into the price tier above $40. This price tier grew high double digits for nearly three straight years. While that has slowed recently, what we have seen is premiumization in the $30-$40 range remains extremely strong, as consumers that had been drinking tequila priced below $20 trade up into this, and some consumers trade down from the $40 and above tequila space.”
Looking ahead, he sees room for premiumization growth in wine: “Particularly in the space between $15 and $24.99, which is the only segment of the wine market that is really growing,” Williams observes. “It only represents 20% of the category, which compares to the under-$10 space, which is 40%, and the $10-$15 space, which is about 30%. We will likely continue to see this price tier continue to take share at the expense of those price tiers below it, as the quality here is a great value for the price.”
All of a sudden in 2023, nearly every celebrity owns or backs an alcohol brand. What gives?
“The nature of entertainment pairs seamlessly with the alcohol industry, and just like your typical consumer, many celebrities go through a discovery phase of learning about different types of wines and spirits, and diving deeper into the quality of their favorite alcoholic beverage,” explains James Morrissey, Founder of Global Brand Equities, whose portfolio includes Kevin Hart’s Gran Coramino, A$AP Rocky’s Mercer + Prince and Post Malone’s Maison No. 9. “Depending on the celebrity, their lives typically complement where you would consume these beverages, and with social media, it is usually something that they already integrate seamlessly into their content.”
As with any celebrity-endorsed product, it’s also about tapping into existing consumer trust.
“Celebrity culture holds significant influence worldwide, particularly in the United States. People have a keen interest in the lives of celebrities and the brands they use,” says Richard Black, CEO of Teremana Tequila, the fast-growing tequila brand co-owned by Dwayne “The Rock” Johnson. “This curiosity extends to the spirits industry, where consumers often face a daunting task of choosing from a wide range of tequila brands. Consequently, consumers often rely on the recommendations of trusted individuals, including celebrities.”
“In any industry, the celebrity endorsement of a product will help drive awareness and first-time trial,” Black adds, “but the product quality is what drives consumer loyalty.”
This is critical for celebrity alcohol brands in 2023. A familiar, popular face is no longer enough. Not with today’s consumers researching everything, and preferring premium, authentic, unique products.
“At Global Brand Equities, the quality of the product is just as important, if not more important, than the celebrity association,” says Morrissey. “We, as well as our celebrity partners, want to look up in a decade and see the brand transcend the celebrity and become a part of our culture. In order to do that, you need a quality product that can stand alone and keep the consumer wanting more.”
This goal is more realistic thanks to a parallel trend: the rise of genuine entrepreneurship in celebrities. Movie stars, athletes, musicians and other famous people now participate more actively in product creation and marketing, leading to a higher-quality outcome.
“Dwayne’s dedication extends far beyond mere endorsement; he actively involves himself in the ongoing strategy and decision-making of the company,” says Black. “This level of commitment has resonated with the public and played a significant role in the resounding success of Teremana.”
RTDs Remain Popular
Recently, hoping to pare down my embarrassingly large whiskey collection, I brought two superb bottles (Compass Box No Name No 2, Remus Repeal Reserve VI) on their final pours to a friend’s birthday party. Ten people attended, all Millennials, mostly lawyers. But only one other person drank whiskey. Everyone else had canned cocktails or hard seltzers (between many, many cigarettes, of course; lawyers.)
Which is to say that the trend of convenient, canned alcoholic beverages is still strong in 2023. Often at the expense of wine and beer.
“RTDs, spirit-based in particular, allow for varied flavor combinations, product stability and ingredient quality that can’t be matched with a fermented product like wine or beer,” says Bobby Rohla, Insights, Innovations & Distillery Manager, Devils Backbone Brewing Company. “For example, an orange sparkling RTD will taste like orange without having to mask or complement some underlying flavor profile, while offering greater shelf stability over time. This makes it much easier to focus on developing thoughtful brands, purpose-built for variety, to address consumer preferences and key occasions.”
Try as we may in the media, enough cannot be said about the convenience of RTDs.
“RTDs are great when you want ease-of-use options. The beach is one of these places, which is why Fourth of July weekend, Memorial Day and Labor Day are top-performing weeks for RTDs in the off-premise channel,” says Scott Moore, Southern Glazer’s SVP National Accounts Off Premise. “Regardless of holidays and special occasions, 73% of RTD drinkers consume at home, and of those, 24% prefer RTDs over making cocktails from scratch.”
As elsewhere, premiumization and younger LDA consumer trends shape the RTD category.
“I think like anything else in the alcoholic beverage world, consumers are choosing quality products and brands that they can relate to,” says Bryce Morrison, Co-founder and CEO of RTD brands Mom Water and Dad Water. “The consistent trend over the past few years has been towards cleaner options without a lot of additives and sweeteners. Lower ABVs seem to be growing in popularity as well, so people can enjoy a few drinks.”
But with the continued growth of RTDs comes an awkward fit on the retail floor.
“The primary importance is cold box space for RTDs,” says Moore of Southern Glazer’s. “Wine and spirits-based products need to have their proper share of space, specifically in what has been previously dominated by beer, which will be important to ensure our retailers maximize their financial potential.”
How much growth is left for this category?
“Over the next five years, a 10% CAGR in value is plausible for the U.S. spirit-based RTD segment,” suggests Rohla of Devils Backbone. “This will be driven by flavor quality, variety, and demographic shifts. RTDs over-index with women, Millennials and Gen Z consumers, and more importantly, the category resonates with a more racially and ethnically diverse consumer base relative to conventional beverage alcohol, especially wine and beer.”
What’s clear is that RTDs are here to stay, thanks, in part, to a Covid-caused shift in consumer perception.
“The pandemic took our whole industry and put it in a box, shook it up, and then poured it back out, and the pieces are now everywhere, but that caused all of us to question some things that we took for granted,” says Nicole Austin, General Manager and Distiller, George Dickel. “Like, that you have to go to a cocktail bar and pay $25 to enjoy a good cocktail. Covid created a rethink opportunity. RTDs are for sure poised to take advantage of that.”
Moore of Southern Glazer’s urges retailers to be nimble and mindful of younger consumers here.
“Capturing current and hot trends (like espresso martini) will be important in the RTD category,” he says. “Retailers need to be able to move products in and out as consumers’ flavors and drink preferences changes, or as the season changes. We are finding that 24% of Gen Z would like to see more fun displays such as interactive displays in-store to provide a fun shopping experience. Alternative package sizes and types such as biodegradable bottles could also make some significant inroads, just as consumers look to reduce their carbon footprint.”
The numbers tell the tale for this trend. In 2022, U.S. distilled spirits reached a record market share in our country, according to the Distilled Spirits Council of the United States (DISCUS). Sales were up 5.1% last year to an all-time-high total of $37.6 billion, while volumes rose 4.8% to 305 million 9-liter cases.
Driving this incredible growth is whiskey and tequila. The former was up 10.5% in sales in 2022 to $5.1 billion, while the latter increased 17.2% to $3.1 billion.
Truly, it’s tequila’s time, thanks to surging consumer curiosity.
“Consumers have really taken an interest in the education that goes into the craft and dedication that goes into producing the spirit, and in turn, have really gained a better appreciation for tequila,” says Lalo González, Co-founder of the rapidly growing tequila brand Lalo.
Another large part of the growth in premium spirits comes as the base of high-end RTDs. Premixed cocktails were up 35.8% to $2.2 billion in 2022, according to DISCUS. Gone are the days of sugary, bottom-shelf stuff. Now, consumers expect, and look, for more — the way they would in a cocktail bar.
“When someone walks into [world-class Brooklyn bar] Clover Club, all the cues of the bar really help explain to them the experience they’re about to have,” explains Austin of George Dickel, who recently released an RTD collab with Social Hour. “They walk in past these beautiful glass windows, they see this beautifully tiled floor, and this oak bar . . . before they’ve even encountered the drink there’s all these cues that help people understand the experience they’re about to have. But standing in a liquor store, looking at a very crowded shelf of a million different cans, it’s so overwhelming. It’s hard to tell the difference between the crappy flavored one and a really nice drink.”
“We’ve thought a lot about how to explain to people, when you don’t have those other cues, that this is a really nice cocktail,” she continues. “I think the choice of having an age statement [on the George Dickel/Social Hour RTD], and using a quality whisky, and having the brand, the artful label, all those things hopefully help explain that to people, in that context, when they’re standing under the fluorescent lights.”
One minor trend worth monitoring in 2023 is the rise of nostalgia-based products. These are alcoholic versions of popular beverages from our childhoods. For instance, Twisted Tea Rocket Pop and SunnyD Vodka Seltzer, which both launched around spring of 2023; Hard Mountain Dew, which came out in early 2022; and Mike’s Hard Freeze, which reached market in March of last year.
“New Mike’s Hard Freeze delivers all the flavor without the brain freeze,” says John Shea, chief marketing officer, Mike’s Hard Lemonade Co. “Mike’s Hard Freeze was inspired by ’90s nostalgia with throwback flavors, colors and packaging. As a first for Mike’s Hard Lemonade, we crafted four refreshing, delicious and sessionable flavors to create a taste experience that brings back that ’90s nostalgia.”
Note, of course, the repeated references to the ’90s. In other words, the childhoods of Millennials, currently the largest generational block of U.S. consumers. Expect more SKUs that appeal to the simpler, adolescent times of customers now in the 30s and 40s.
And keep your eye out for the next inevitable iteration of these products. Which is: nostalgia for the 2000s, as more of Gen Z reaches legal drinking age. Hard Capri Sun, anyone?
Kyle Swartz is editor of Beverage Dynamics. Reach him at firstname.lastname@example.org. Read his recent piece, Downtown Spirits: An Alcohol Retailer Goes Checkout-free.