Spirits sales rose in 2020, but the pandemic and tariffs drag on future prospects
Dive Brief:
- U.S. spirits sales rose in 2020 despite the double whammy of the pandemic and tariffs. In its 2020 Economic Briefing, the Distilled Spirits Council of the United States (DISCUS) credited a combination of consumers upgrading to super-premium spirits as “affordable luxuries” as they sheltered in place and creative approaches in states and cities to support the hospitality business.
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Supplier sales of spirits rose 7.7% in 2020 to $31.2 billion, with volumes up 5.3%, according to DISCUS. Total beverage alcohol sales by volume increased 3%. Spirits were able to gain 1.3 percentage points in market share over beer and wine in 2020, commanding 39.1% of total beverage alcohol sales. This marks the 11th consecutive year of market share gains for spirits, according to DISCUS. Each point in market share represents an additional $800 million in revenue for suppliers, the group said.
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This growth came despite a series of retaliatory tariffs slapped on U.S. alcohol segments, including spirits, by the European Union that were triggered by an escalating trade dispute. An early spike in off-premise consumption helped offset revenues lost from restaurant and bar closures. DISCUS applauded new legislation in 18 states that allowed to-go cocktails on a permanent basis, for a total of 33 states legalizing the service. President and CEO Chris Swonger also hailed the passage of the Craft Beverage Modernization and Tax Reform Act, which made federal excise tax cuts for distillers permanent. And the group also cited the benefits of curbside delivery and direct-to-consumer shipping of spirits, which eight states expanded during the pandemic — a move that especially helped craft distillers.
Dive Insight:
Despite assumptions that alcohol was a clear winner during the past year, all of the segments have dealt with trade-offs from consumption shifts and on-premise restrictions during the pandemic. Wine saw positive year-over-year growth in 2020, but will struggle to repeat the feat as the category laps a 60% sales spike from last March, when sheltering restrictions ramped up in many states. Stagnating beer sales as millennials look elsewhere for a drink have pushed companies such as Boston Beer and Molson Coors to dabble in nonalcoholic varieties and hard seltzers.
Spirits have also not emerged unscathed. The pantry stocking that typified the early months of the pandemic has since eased, with the growth rate for off-premise sales falling as the year advanced, according to DISCUS’ analysis. Premiumization helped balance the decline, according to the group’s chief economist, David Ozgo. Super-premium spirits contributed 40% of revenue growth.
“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,” said Ozgo. “It also reflected consumers’ desire to bring that special restaurant and bar experience they were missing into their homes. 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.”
Spirits across the board saw sales increases, including American whiskey, up 8.2% to $4.3 billion, with a nearly 17% jump in rye sales providing the momentum. Tequila and mezcal sales grew more than 17% to $4 billion, and cognac gained more than 21% to hit $2.4 billion.
Sales of premixed cocktails, buoyed by ready-to-drink products, spiked 39.1% to $489 million. This segment’s explosive growth during the past few years has encouraged manufacturers to expand their RTD cocktail presence. This includes Molson Coors, which recently forged a partnership with Casa Komos Beverage Group to distribute Superbird, a 100% blue agave tequila-based cocktail. And in September, Beam Suntory acquired On The Rocks, with which it collaborated on a series of premium RTD cocktails.
However, the premiumization trend may not maintain its momentum for much longer. In a recent report, IRI predicted that consumers would increasingly shift toward value brands and private label across much of CPG as their greater mobility begins eating into their household budgets. The data firm said retail sales of premixed cocktails and coolers rose 59% in 2020, with younger adult consumers providing the demand. Hard seltzers like White Claw and Truly were the big drivers for them.
It’s clear that alcohol, including spirits, will see a reorientation as restaurants and bars reopen and consumers shift their spending back to on-premise. For distillers, the opportunity will be forging partnerships that create offerings meeting both at-home and on-the-town occasions. That way they can take advantage of new service models, such as home delivery and subscriptions, that were tested during the pandemic, while reintroducing diners to the pleasure of an expertly poured spirit or a custom-mixed cocktail.