Leveraging learnings from the last 50 years was the theme of the Distilled Spirits Council of the U.S. (DISCUS) annual conference held in Chicago this week.
After spirits sales barely surpassed beer in 2022, the focus of day one of the conference dove deep into alcoholic beverage trend cycles in the years since DISCUS was founded in the 1970s. Industry leaders shared forecasts for the overall spirits category and styles peaking in popularity such as tequila, whiskey and ready-to-drink (RTD) cocktails.
Industry leaders also shared their views on the regulation of crossover products and legislative priorities.
Whiskey Back on Top
It’s been a full cycle for whiskey since the 1970s, after the spirit generated high volumes due to the hey-day of advertising in the 1950s and 1960s, positioning the spirit as a premium product. After consumption declined across beverage alcohol in the 1980s, whiskey distillers capitalized on the stock sitting in barrels by turning their losses into premium aged products, finally backing up their marketing claims. Vodka took the reins as the best selling spirits product in the 1990s but has now ceded the top spot back to tequila with American whiskey close behind. In 2022, American whiskey grew 10.5%, to $5.1 billion.
“To use a cocktail analogy, it’s the perfect mix of ingredients,” said Ugo Fiorenzo, Campari managing director of U.S. and Canada.
Whiskey’s rise has been fueled by a few factors, including suppliers producing better products, the increased availability of distillery experiences to engage consumers, and mixologists creating more premium whiskey cocktails, according to Fiorenzo.
The growth of American whiskey has also elevated the category as a whole, according to Paul Basford, president and managing director for William Grant & Sons, which primarily produces Scotch whisky.
“The increased marketing of American whiskey has made us sharper,” he said. “On flavor or packaging you probably would have never heard from the Scotch industry 10 years ago, and I think now the whole game is open for people to innovate, and adapt our marketing plans to become more relevant to the consumer.”
Still, there is one demographic whose consumption of whiskey lags compared to vodka, tequila and RTDs: women. But Marten Lodewijks, director of consulting of the Americas for the IWSR, cautioned against generalizing and targeting certain demographics, which the whiskey industry made the mistake of doing during its 1980s decline.
“No one likes being put into a general bucket,” he said. Lodewijks echoed other industry analysts and stakeholders who say “marketing to the occasion is the way out.”
Sustainability Top of Mind for Tequila
Panelists agreed that sustainability is one of tequila’s leading attributes, and a reason for its popularity among younger audiences.
“That consumer is much, much more sensible to the sustainability subjects,” Fiorenzo said.
Coming to the spirits from bottled water industry, Basford argued the importance of staying ahead of consumer trends and spirits companies working together on sustainability initiatives. The portfolios of Campari and William Grant include tequila brands, Mayenda and Milagro, respectively, but neither commented on any specific sustainability commitments.
RTDs to Contract
Following explosive growth over the past few years, RTDs are expected to plateau, but are firmly ingrained in drinking culture now.
“Through the pandemic, consumers’ repertoire expanded,” Lodewijks said. “So in a world where that variety is the norm, I can’t imagine RTDs going the way of previous iterations.”
Successful RTDs will be the ones that focus on innovation, flavors, lower calories and sustainable packaging, predicted Basford, who added that he expects the number of brands to contract.
Crossover Products a Threat to Industry Safety
As soft drink companies also make plays for the RTD market, the regulation of crossover brands was a frequent topic throughout the DISCUS conference. Recent regulations in Virginia and Illinois have restricted placement of those products on retail floors.
“We are at a crossroads, if we do not police ourselves, someone else is going to,” said Matt Dinsmore, managing partner of Wilbur’s Total Beverage and Wyatt’s Wet Goods in Colorado.
Last year, DISCUS developed guidance for advertisers and retailers in order to responsibly market products to consumers. The board reviewed a complaint earlier this month regarding Sunny D’s vodka RTD and recommended changing the label and packaging to differentiate from its non-alcoholic counterpart.
“It’s some concern that new entrants into this space need to understand that we hold ourselves to a higher standard when it comes to advertising and make sure that they know what their responsibility is in this space,” said Courtney Armour, DISCUS chief legal officer.
Legislative Efforts Heating Up
After decades of legislation aimed at providing tax relief and increased market access for spirits, DISCUS has its sights set on continuing to open more market opportunities for its members through shifting regulations. While RTDs have accelerated tax parity conversations, DISCUS members acknowledged that educating consumers to advocate for more channel access is key to suppliers.
“To them, it is a sessionable product that they feel like they should have access to, but it’s a challenge to talk to them about how to advocate, and most of us don’t want to tie our brands to fights,” said Les Fugate, vice president and director of state and local government relations of Brown-Forman.
DISCUS’ legislative priorities include:
- Sunday sales: Montana recently allowed Sunday sales, North Carolina faces active legislation. The organization is focused on six states where Sunday sales are prohibited.
- Spirit-based RTDs accessibility and tax relief: The membership organization will continue the state-level fight to increase channel access or lower taxes for spirit-based RTDs. State-level advocacy groups are pushing legislation in California, Alabama, North Carolina, Ohio and Pennsylvania. The organization also plans to pick up the fight in states where previous bills have been stalled or defeated.
- Cocktails to-go are now permanent in 22 states, including recent additions Connecticut, Louisiana, Maine and Washington. Extensions have been passed in three states this year.
- Tax reduction efforts made progress through a vetoed excise tax increase in alcohol in New Mexico, a defeated surcharge threat in Oregon, and the Kentucky barrel tax phaseout.
DISCUS leadership is also watching several pending rules from the Alcohol and Tobacco Tax and Trade Bureau (TTB), including a new standard for American single malt whiskey expected by the fall, possible expansion of bottle fill sizes available to distilled spirits, and new serving facts label regulations for spirits. DISCUS is also advocating to maintain the trade agreement allowing zero duties for American whiskeys exported to the European Union, which faces expiration in January 2024.