At-home drinking is here to stay, according to a new report from IRI Beverage Alcohol Research. With inflation concerns and on-premise challenges, consumers are opting to indulge at home – and these conditions are impacting growth opportunities, putting a premium on innovation and affecting everything from e-commerce strategy to packaging and premiumization.
“I ended the presentation with ‘innovate like your life depends on it,’” said Scott Scanlon, executive vice president of the Beverage Alcohol Vertical at IRI.
It’s a revision to Scanlon’s previous prediction, when he called 2022 as “the year of on-premise.” Instead, the report shows that labor shortages and higher food and gas prices, along with the unpredictability of COVID-19 variants, are influencing consumers’ decisions to spend less on drinking and dining at restaurants and bars. According to the report, 78% of meals are being prepared at home vs. 48% pre-pandemic. The anticipation of summer activities doesn’t include big gains for on-premise, with only 8% of adults planning to dine out more and 3% planning to go to bars or clubs more often.
“I think it means that the at-home mixologist, that trend that started really prior to COVID and then was fueled by it, is going to continue,” Scanlon said.
That means spirits companies should be looking at opportunities to enhance the at-home drinking experience, and finding strategies to stand out among the growing diversity of options in the grocery aisle, according to the report. Brands are now competing with other spirits, but also with ready-to-drink (RTD) cocktails and no- and low-alcohol beverages, according to Scanlon. Vodka-based hard seltzer High Noon, which first hit shelves in 2019, is clipping at the heels of the top selling three spirit brands, and may surpass Crown Royal at the third spot soon, he noted as an example.
The report confirms that over the past four years consumers have shifted more dollars to RTD cocktails and seltzers. And while the growth of hard seltzers is leveling off, the category got a large boost from the pandemic and now follows a similar pattern to sparkling water, cold brew and sports drinks.
“RTDs had higher dollars, but when you just overlay the graphs without the dollars, these are very similar trends,” Scanlon said.
But it’s not all incremental to the top line, Scanlon said, noting that as spirit makers start selling RTDs, cannibalization is a natural occurrence – and it has already been reported among top brands.
“We’re going to continue to see that churn, where products are going to come in, attract the attention of consumers, they’re going to want to try them and it’s going to pull from others,” he said.
Another continuing trend is premiumization, which has brought a small surge of new consumers into high-end spirits purchases. Thus far, spirit prices have remained steady compared to other consumer packaged goods, so shoppers are finding inherent value in spirit purchases and viewing those buys as affordable luxury indulgences, according to the report. Suppliers can find some opportunity offering even more value as well— Scanlon expects that may look like different package forms or larger sizes that can offer a greater value to the consumer. In RTDs, offering variety is another way to give at-home drinkers an opportunity to experiment. Hard seltzer variety packs were the top flavor for RTDs, with brands’ second ranked SKU coming in 9 to 10 times less in sales than the variety pack.
Better-for-you beverage alcohol products offering benefits such as lower calories or lower alcohol are also gaining traction across all segments, with Scanlon specifically pointing to low-and no-alcohol sales, which are up about 20% in the previous two years and up 6% since 2021.
“That is an opportunity area because when you look at the growth, [the category of] low-and no-alc is still small, but the percentage growth numbers are huge,” he said. “So that’s an area where there’s an opportunity for those up-and-coming brands to think how they could come up with a product that consumers feel is a healthier product.”
As for where consumers are shopping, e-commerce gains are most notable in wine and spirits with spirits making up 2.4% of aggregate beer, wine and spirit sales at participating retailers in the last 52 weeks compared to 0.2% in 2018. Direct fulfillment options are the key – the segment of e-commerce shoppers that continues to make purchases online most are those who, for example, find a local grocery store with delivery, as opposed to direct-to-consumer sales. Brands that are savvy will leverage the power of those retailers with targeted messaging and deals.
“The opportunity area really is with those different retailers to highlight the beverage alcohol space, especially for spirits and for wine in particular, to show that they can offer these products to consumers,” said Scanlon.