A Quartet of Spirits Trends for 2025

From alcohol’s health halo dimming to a sales slowdown, there’s been no shortage of gloomy developments in spirits recently. But what are the overarching trends that will shape the industry in 2025, and what are the bright spots? Here are four drivers of change to look out for.

From Overstock to Optimization

The 2023 destocking hangover is lifting, but retailers are still recalibrating their inventory strategies as they respond to a larger problem. Excluding RTDs, spirits declined -1.1% in value and -2.3% volume in the 52-week period ending December 28, 2024 compared to the prior year,

That challenging sales landscape has changed how retailers are buying, said Amandra Hale, senior vice president of supplier business development for spirits at distributor Breakthru Beverage Group during the Wine & Spirit Daily Summit in January. Instead of taking the deepest deal with a large quantity that’s going to “hold them over for a couple of months,” retailers would rather buy moderate quantities more frequently, she said.

With SKU rationalization intensifying, retailers will also continue to be “direct about what they’re taking in from an innovation standpoint,” she added.

There are bright spots: expect convenience to continue to create opportunities for innovation in pack size and marketing, said Hale.

Another subchannel opportunity? Online sales in grocery chains are picking up, according to Emily Xu, senior vice president of e-commerce and marketing at Republic National Distributing Company (RNDC).

“Still a very low percentage, but definitely double digit growth compared to the rest of the industry,” she said.

Distributors like Breakthru Beverage still have high inventory levels, meaning that they’ll prioritize fast-growing categories this year. That includes adult non-alc (ANA) – which is now closing in on the $1 billion sales mark off-premise – as well as select premium spirits.

Total Beverage Ambitions Could Spark More M&A

Investment activity in 2024 centered on portfolio optimization, with major strategics picking up specialized subcategories such as RTDs and non-alc, while many global bev-alc companies divested from their non-core brands. Mid-size bev-alc companies have also begun to take on the role as acquirers: Uncle Nearest scooped up Square One Organic Spirits while Heritage Distilling Co expanded its reach with the purchase of Thinking Tree Spirits. Others, such as kombucha company JuneShine or wine group Charlie Wagner have made their way into spirits-based RTDs with purchases of Flying Embers and Dry Fly Distilling, respectively. As strategics look to make up low numbers for shareholders, they may also continue to turn to acquisitions that complete their total beverage aspirations.

“I do think that there are going to be a lot of interesting brands for sale, and just depending on what their performance has been like in the last 12-18 months, it will be interesting to see some of the price tags,” said Trevor Hague, founder of brand-building firm TBD Ventures. “I think the supplier is gonna realize that it’s an opportunity to go shopping and get some pretty good deals over the next year.”

Adult non-alc (ANA) RTD acquisitions may be on the list, said Hague – those products are easily added to current RTD distribution routes and make up the top growth segment in total RTDs (+167% in 2024 off-premise). Investors across the board may also continue to boost their total beverage portfolios with more functional wellness ANA and THC-related products.

After a run on premium-plus spirits deals, Hague expects to see more investment now in the mid-tier. Still, the latest NIQ numbers show premiumization is holding steady, with super premium spirits representing over a third of spirits dollar share most of the year.

Speaking of fancy, as the roster of celebrities without their own spirit brand dwindles, Samyr Laine, managing director and general partner of Freedom Trail Capital is bullish on more micro-influencers joining A-listers in the future of CPG.

“You get these people that have a really strong connectivity to the demographics you’re trying to reach, and sometimes those people transact and convert better than your typical movie stars,” he said.

Yet sustained success for any celebrity-backed venture will still hinge on the brand’s intrinsic appeal.

“What we like is a great product and a great company that’s investable on its own, that just so happens to have an authentic partnership with someone who can reach the masses and decrease customer acquisition costs and decrease marketing costs, and help you get a leg up as a consumer business,” said Laine.

Increasing Consolidation Across Tiers

Simmering tensions came to a boil in 2024 amidst an industry-wide slowdown and as closures of craft distillers accelerated. Smaller to medium-sized distillers have ascribed their struggles largely to the consolidation of distributors, who are reshaping the power dynamics in the industry.

Federal agencies have caught on to the power struggle too, and distributors are now under increased legal scrutiny. The Federal Trade Commission (FTC) ended last year with a bang by suing Southern Glazer’s Wine and Spirits (SGWS), the nation’s largest alcohol distributor, over its pricing practices. The suit argues that the distributor gave large chains drastically better prices in the form of steep discounts than those offered to small independent retailers.

Margie A.S. Lehrman, CEO of the American Craft Spirits Association, welcomed the crackdown on anticompetitive pricing practices “that hurt small independent retailers who are invaluable partners for craft distillers.” The wholesale market is now not designed for low-volume brands that are not national in scope, she argues. Some antitrust lawyers agree, and predict that the drive for market share is consolidating the spirits industry across all three tiers.

“It’s not in Total Wine’s [Total Wine & More] interest to do single barrel picks and allocated bourbons and small runs like that – that’s not where they’re going to make their money,” said Ethan E. Litwin, antitrust partner at Shinder Cantor Lerner. “They’re going to make their money on things that they can buy in huge volume, and that’s going to put pressure on these smaller distillers, and they’ll be gobbled up.”

The fate of the case is unclear: it’s unusual for a change in administration to result in active litigations being voluntarily dismissed, but it may not be pursued with vigor by the new Republican-led FTC chair. But the larger question behind the FTC’s move points to how an industry that has flourished over the last decade – largely thanks to the innovation of smaller and craft distillers – will change under increased pressure.

Small to mid-size distillers have complained they aren’t able to access distributors, are dropped with low sales, or given insufficient attention. All this is happening as the largest distributors are facing “tighter margins, higher costs and shifting consumer preferences,” read a statement from RNDC in response to its January layoffs in California.

The result of the FTC’s lawsuit may have major repercussions that bleed into the larger grocery sector. Regardless, as bev-alc chains aim to raise their market share and gain more concessions from distributors, the pressure on smaller distillers is likely to continue.

“You’ll just get more and more consolidation at the distiller level again, and that will lead to less consumer choice, which could lead to lower quality, but will certainly lead to less choice,” said Litwin.

Health and Wellness Fuels Policy Debates, And Gen Z

A new era of alcohol consumption has arrived: as the bev-alc industry grapples with anti-alcohol headlines and Gen Z’s moderation, suppliers are also facing changes in the positioning from federal agencies on alcohol and health.

Trade groups are paying close attention to a controversial process for the Dietary Guidelines for Americans (DGA), which will be updated this year. The DGA will serve as the federal government’s official word on alcohol consumption, which could potentially lead to a shift in thinking around tax and marketing policy for the industry in the future.

The U.S. Surgeon General Dr. Vivek Murthy also issued an advisory calling for the addition of warning labels of the risk of cancer to be added to alcoholic beverages. That pronouncement would engage the U.S. Treasury Department’s Alcohol and Tobacco Tax and Trade Bureau (TTB) and isn’t likely to come to fruition anytime soon.

“As of now, not only are they [the TTB] not requiring or even suggesting or intimating that there will be any type of additional warnings, they said ‘if you try to do something like that, we’re going to reject your COLA [Certificate of Label Approval] application,’” said Larry Waks, a partner in the Entertainment and Media Industry Group at global law firm Reed Smith who advises domestic and international bev-alc clients.

Waks is watching California and New York, often on the forefront of regulatory development, in case there is any federal preemption.

However, the TTB has answered calls for more transparency by proposing new rules in January for nutrient and alcohol content labeling on wine, beer, and spirits. Separate rulemaking projects will soon address allergen and ingredient labeling as well.

The changes point to the expectations of a new generation of consumers. Right now Gen Z represents 9% of buyers and only 5% of bev-alc dollar sales, as compared to all other generations whose dollar spend ratio is equal or higher.

One of the main reasons for Gen Z’s reduced alcohol consumption is an increased awareness of their own health and well-being. But nearly 30% also just don’t like the taste of alcohol, according to a survey by consumer research platform Attest. That’s not an impossible challenge for brands to overcome.

“An opportunity for brands is through flavor innovation and offering products which perhaps introduce consumers to the category a little bit more,” said Ben Attenborough, lead spokesperson for Attest.

Price remains a key factor for about 30% of Gen Z, as do expectations for brand values to align with their own – from transparency to quality ingredients to social responsibility. But how do brands check all those premium boxes for a budget-conscious generation? It’s less about hitting all the markers, said Attenborough, and more about speaking to a generation that is particularly sensitive to transparency.

“It’s a difficult thing to be a value brand with great, premium ingredients, that also stands for something,” he said. “But what really annoys these consumers is if you are ingenuine about one of those things and you’re pretending to be something that you’re not – that’s the key,” he said.