The festive cheer might be muted for the US spirits industry this holiday season. While bars and restaurants appear bustling, a closer look reveals a concerning trend: consumers are spending less on alcohol due to economic pressures. This shift in consumer behavior presents challenges for major spirits producers like Diageo and Pernod Ricard, who heavily rely on the holiday season to drive annual sales.
High inflation and economic uncertainty have led many Americans, particularly middle-income earners, to tighten their belts and reduce discretionary spending. This includes cutting back on expensive nights out and opting for more affordable alcoholic beverages. Meaghan Dorman, bar director and partner of popular New York City bars Raines Law Room and Dear Irving, observed this firsthand. While her establishments remain full, customers are increasingly choosing wine or less expensive drinks over premium craft cocktails, impacting overall revenue.
Three of the largest US spirits distributors—Southern Glazer’s Wine & Spirits, Republic National Distributing Company, and Breakthru Beverage Group—confirmed this trend, noting that consumers are not only buying less but also switching to cheaper brands or reducing the frequency of their outings.
Data from the Wine and Spirits Wholesalers of America paints a stark picture. Wholesale spirits sales are projected to decline by 5.65% annually, with potential for significant volume decreases during the crucial holiday period. Francis Creighton, CEO of the wholesalers’ group, attributed this slowdown to increased competition for consumers’ discretionary income, as necessities like rent and car payments take priority.
This trend challenges the core strategy of major spirits producers, who have focused on premiumization—encouraging consumers to trade up to higher-priced liquors. The industry is already grappling with a significant sales downturn following a post-pandemic boom, and a weaker-than-expected holiday season could exacerbate the situation.
However, the situation isn’t uniform across all markets. In the UK, for instance, pub group Marstons reported a significant increase in Christmas Day bookings, indicating a recovery in consumer spending. In the US, while acknowledging the challenges, the three major distributors remain cautiously optimistic, anticipating a challenging but not disastrous holiday season.
Sales of spirits for home consumption, although less profitable, have seen an uptick compared to last year. High-income consumers continue to spend, and more affordable restaurants are benefiting from consumers seeking value. Casual dining chains like Chili’s and Applebee’s, for example, are offering holiday cocktails at significantly lower price points than upscale bars.
While consumers might still indulge in an occasional craft cocktail, the days of multiple premium drinks per outing seem to be waning. This trend coincides with longer-term shifts toward moderate drinking and the exploration of alternatives like THC-infused beverages.
Joseph Gabelli, a portfolio manager at spirits investor Gabelli Funds, raises a crucial question: can spirits makers sustain their premiumization strategy and achieve the same sales growth as in the past, given the current economic climate and evolving consumer preferences? The answer likely lies in adapting to the changing landscape and finding innovative ways to cater to more budget-conscious consumers without sacrificing brand integrity. The performance of the spirits industry this holiday season could offer valuable insights into the long-term viability of current market strategies.
