Circana’s annual State of Beverage Alcohol Industry Report surveys the top trends in beverage alcohol, but what are the market opportunities hidden within that data?
To find out, we chatted with Scott Scanlon, executive vice president of beverage alcohol at Circana, about some of the bigger trends for producers that emerged from this year’s report including who is drinking RTDs, how the stalled on-premise rebound impacts trial and why premiumization has staying power.
Younger Drinkers Are More “Promiscuous”
After a meteoric rise from 2018 ($3.2 billion) to 2021 ($8.9 billion), sales of ready-to-drink (RTD) cocktails and hard seltzers leveled off in 2022. The latter category in particular has struggled to keep momentum, dipping from $4.7 billion in sales in 2021 to $4.4 billion towards the end of last year.
Still, seltzers and canned cocktails have secured their place as the gateway to beverage alcohol: younger generations, including Gen X consumers (36% of buyers) and Millennials (35%), buy nearly two-thirds of all RTDs, according to the report. A rapid spike in innovations within the fourth category has also encouraged a new level of trial among younger drinkers.
“Younger consumers historically entered either through beer mostly, or through wine or spirits,” Scanlon said. “So if they’re entering in through the RTD category, what does that mean for their future purchases?”
The impetus for suppliers is to create products that are appealing not only for those consumers at their initial entry point, but that also appeal for the next group coming of age.
“What we’re seeing is that the younger consumers are much more promiscuous,” he said. “They’ll jump around, they want to try different things to a higher degree, and it’s very much about trying the latest products.”
When seltzer brands like Mark Anthony Brands’ White Claw and Boston Beer Company’s Truly Hard Seltzer launched, they were among a limited set of options which helped jump sales. Now, the influx of RTD options makes it difficult for consumers to stick to one option, as evidenced in seltzer’s vulnerability to spirit-based cocktails.
“The challenge now is retaining that consumer,” he said.
On-Premise Stall Could Create Trial Innovations
On-premise bev-alc sales continue to fall below pre-pandemic levels, with inflation and labor continuing to present challenges. Sales in 2022 averaged $374,000 per venue, a -3.7% decline year-over-year.
“We have not seen it get back to that level that it was prior to the pandemic, and I’m not sure when we will see that,” said Scanlon.
One factor contributing to the numbers: while consumers want to resume on-premise visits, 90,000 restaurant locations are temporarily or permanently closed, as the industry in general struggles with staffing and supply. More than half of restaurant operators surveyed by the National Restaurant Association said it would be a year or more before business conditions return to normal. The concern for suppliers is that restaurants and bars traditionally provide opportunities for consumers to try new products.
“If on-premise is not to the degree that it was, what is going to happen? What are those trial occasions? Are people going to be trying a smaller form perhaps in the off-premise? Are we going to see more single-serve?” Scanlon asked.
The situation creates an opportunity for suppliers to think about new ways to influence consumers, he added, whether it’s targeting convenience stores, as they are largely single-serve destinations, or continuing to experiment with small formats.
RTDs Driving Value Spirits Sales, Premiumization Could Shift With Employment Data
Premium beer, wine and spirits have all experienced an uptick in recent years, with premium beer and wine up +2% in sales compared to the prior two years. Meanwhile, spirit sales in the value segment are up by +2% compared to the same period, but with a caveat.
“We saw a little bit of an uptick in spirits to value from premium, but part of that is the increase in some of those RTDs that are residing there because they’re spirit based,” he said.
The data doesn’t indicate that consumers are pulling back on high-end tequila, just that spirit-based RTDs across price mix are driving sales.
While other CPG categories are experiencing consumers buy into more value oriented segments, bev-alc is not.
“I don’t see that shifting,” Scanlon said. “If and or when we see a change in the employment data, that is when I think we could see that shift, and we could see a pivot towards some of the value oriented brands.”
U.S. job growth remained strong in April: last month the unemployment rate was 3.4%, down from 3.5% in March, and matched the level in January, which was the lowest since 1969, according to the Labor Department.