Moderate and declining spirit trends continued over the first half of 2023, leaving the category slightly down against the backdrop of inflation-weary consumers looking for high quality deals, according to a new report.
The data comes from the Wine & Spirits Wholesalers of America (WSWA)’s SipSource, which analyzed data from hundreds of thousands of on- and off-premise accounts. The 2023 Mid-Year Report covers data over a 12-month period (July 2022 to June 2023).
Here are five key takeaways including a new shift in luxury spirit trends, where to find on-premise growth for RTDs, and how inflation may continue to impact shopping decisions.
Spirits Down Overall
Twelve-month rolling data places total spirits sales down just over one percentage point. However, numbers from the first six months of the year show even greater losses, with spirits dropping -4.2%.
“Volume declines have been spread pretty broadly across mainstream product segments, which points to a more overarching issue,” said analyst Danny Brager.
Brager attributed much of these losses to tough comparables in 2022 and the impact of inflation on consumer spending habits. Major spirits groups like Beam Suntory and Diageo have echoed a slowdown in U.S. sales on earnings calls recently.
Luxury Spirits Take a Hit
Pre-mixed cocktails and agave spirits continue to be growth leaders for spirits, up 20% and just under 3% respectively over the last 12 months. The report also found “good growth” from segments like tequila and flavored whiskey in between $17 and $50, cordials and gin in the $25 to $50 range, and bourbons between $17 and $100.
But luxury spirits priced $100-plus that were growing at almost +14% last year through May are now declining about -15% over the last six months.
RTDs Show Growth On-Premise
Pre-mixed cocktails also now represent approximately 10% of spirits sales on-premise and it’s growing even faster than in the off-premise relative to mainstream spirits, according to Brager. Poolside bars, movie theaters, stadiums, fast casual venues, country clubs, and concert venues were cited as primary or prime venues. It’s possible start-ups like Halfday are finding new ways to land arena accounts, while premium brands have opened up hospitality and travel channels.
“I think the key question is how long will the explosive growth of RTD cocktails continue?” asked Brager. “Will its growth curve mirror what we’ve seen for hard seltzers or will its growth curve be longer lasting?
Brager is betting on the latter, but time will tell.
On-Premise To Remain Challenging
On-premise trends continue to normalize, remaining positive for spirits, up about 5% for the 12 months ending in June. However, spirit depletions had been down in three of the last four months in the on-premise.
Market conditions are expected to remain challenging with higher commodity costs, increasing labor costs, as well as significantly higher inflation rates on-premise compared to the at home price indices— meaning it’s becoming relatively more expensive to go out to eat for consumers.
Data also pointed to on-premise operators having reduced their assortment across all categories as they continue to manage their inventories tightly.
As for the off-premise, analysts predicted a stronger recovery in the first half of 2023 as trends normalized, but that didn’t happen. Off-premise spirit depletions remained sluggish at the midpoint of the year.
Quality to Price Ratio Key
Brager predicted that spirits should return to growth, although in the low single digit range as those high comparables continue to ease from a year ago. Another reason for some improvement could be the continued stabilization of overall inflation levels. At the same time, he cautioned that the impact of inflation is still likely in the minds of consumers, leading them to become even savvier shoppers and more focused on finding good quality but at the best price.
“So quality to price ratios will be a key determinant of purchasing behavior,” he said.