U.S. Spirits Industry Resilient Despite COVID-19

Amidst a worldwide COVID-19 pandemic, as the restaurants and bars shut down, Americans drank at home.

To wit: the spirits industry in the U.S. saw positive growth in 2020, with supplier sales up 7.7 percent to $31.2 billion and volume up 5.3 percent amounting to 251 million 9-liter cases, reported the Distilled Spirits Council of the United States (DISCUS) at its annual economic briefing. In all, the alcohol beverage market saw sales grow 3 percent by volume.

Also In 2020, spirits gained market share over beer and wine, with sales rising 1.3 points to 39.1 percent of the total beverage alcohol market, according to DISCUS. That marks the 11th straight year of market share gains for spirits.

This time, the gains can be understood by reviewing the shift in consumer buying habits with strong off-premise sales, which offset on-premise closures. In the U.S., spirits sales are already heavily weighted toward the home market, accounting for about 80 percent of the category, DISCUS Chief Economist David Ozgo reported. During the early stages of the pandemic, off-premise sales spiked even further, then decreased as the months went on, he said.

“The increase in spirits sales revenue reflects consumers’ willingness to spend a little extra on super-premium spirits during the past year since they were not traveling, going on vacations or dining out as often,” Ozgo said. DISCUS reported sales of super-premium spirits represented 40 percent of revenue growth.

“It also reflected consumers’ desire to bring that special restaurant and bar experience they were missing into their homes,” Ozgo adds. “We saw a renewed interest in home bartending as people stocked their bars with a range of spirits categories to experiment with new drink recipes and create craft cocktails at home.”

While spirits fared well, the impact of COVID-19 on the hospitality industry and craft spirits in the U.S. has been detrimental, with on-premise sales down 44 percent, according to Ozgo.

In April, U.S. restaurants and bars lost 5.8 million jobs—almost one out of every two jobs, according to the U.S. Bureau of Labor Statistics. Through December 2020, 2.3 million jobs have not been recovered.

According to NielsenIQ, total spirits in the U.S. off-premise were up 25.1 percent in dollar sales and 19.9 percent in volume sales year-over-year for the 52-week period ending Dec. 26, 2020.

But restaurants and bars remain key awareness channels for spirits, and the ongoing loss of those accounts is helping choke off the ability of new brands to reach consumers.

LOSING VENUES

For smaller players, the on-premise closures have had a significant impact on business. A new survey of COVID-19 impacts on craft distilleries by DISCUS and the American Distilling Institute found that 36 percent of craft distilleries reported a total revenue decline of 25 percent or more in 2020.

Dr. Sonat Birnecker Hart, President and Founder, KOVAL Distillery based in Chicago spoke at the economic briefing for the spirits body and offered a snapshot of the pandemic’s impact on craft distillers. Those companies can rely on anywhere from 20 to 80 percent of sales being generated from their tasting rooms and bars. Tourism also plays a critical role: in 2019 KOVAL welcomed 15,000 visitors on its distillery tour; in 2020 that number was reduced to zero.

“Spirit brands are reeling from the loss of on-premise sales, and consumers facing economic hardships prioritize known, familiar brands over experimentation,” says Caleb Bryant, associate director of Food and Drink Reports, Mintel in a report published in December. Still, he noted, “opportunities within the market exist despite these challenges,”

DISCUS President and CEO Chris Swonger points to new marketplace modernizations that can aid the recovery of restaurants, bars and craft distilleries. Governors across the country, for example, issued temporary measures such as cocktails-to-go and expanded delivery options in a quick response to COVID-19. This effort continues as state legislatures are pressing forward to make many of these effective relief measures permanent. In fact, 18 states have filed legislation to make cocktails-to-go permanent and more bills are expected.

Legislation has also been filed in some states to permit direct-to-consumer shipping of spirits, which was expanded in eight states during the pandemic to support craft distillers forced to shut. These innovative relief measures can boost economic recovery, Swonger says. “Permanently enacting marketplace modernizations introduced in response to COVID-19, from online delivery to cocktails-to-go, will aid in the recovery of restaurants, bars and craft distilleries,” he said.

Throughout the pandemic companies have been launching campaigns for support. DISCUS recently introduced DISCUS Academy offering courses for the Spirits Industry in five key areas: leadership, laws and regulations, safety and risk management and business and finance. This is just one of the ways the industry is putting efforts forward to help progress businesses to provide the best outcome for the future in unstable times.

Nevertheless, the recovery trajectory is very much dependent on the longevity of the pandemic and the state of the economy.

NEW OPPORTUNITIES

Spirits companies have pivoted from on-premise to the off-premise marketing and e-commerce to take advantage of other sales opportunities to salvage lost chances to reach consumers. That’s happening at the craft level and the big company level as well, where brands see an opportunity to innovate and provide consumers with products and services that may not have been as desirable pre-pandemic.

The RTD trend, for example, has accelerated as a result of the pandemic, according to Mintel, as ready-made cocktails to consume at home are appealing to consumers looking for a convenient option. In addition, reducing package size to drive trial has become another way for brands to engage with consumers at home. In the same way eCommerce offers no-hassle delivery service, some companies have also operated cocktail to-go services.

“We’ve seen unexpected opportunities as demand has shifted from out of home to in-home consumption,” says a Beam Suntory spokesperson, pointing out that the company recently scooped up RTD cocktail maker On The Rocks. “We are excited about the long-term opportunity in eCommerce and are working to ensure we are capturing our share of this growth during COVID-19 and beyond.”