Premium offerings and ready-to-drink packaged cocktails propelled the spirits category to $35.8 billion in sales in 2021, a +12% increase from 2020, the Distilled Spirits Council of the U.S. (DISCUS) announced this week.
“This represents the 12th straight year of market share gains for the distilled spirits industry in the United States,” DISCUS president and CEO Chris Swonger said during a media briefing. “Certainly, growth was driven by gradual reopenings of restaurants and consumers trading up to super premium spirits [in] at-home occasions.”
Spirits’ volume sales increased as well, growing +9.3%, to 291.1 million 9-liter cases. The category again stole share from both beer and wine. In 2021, spirits accounted for 41.3% of all beverage-alcohol dollar sales; beer accounted for 42.5%, and wine 16.1%. Spirits’ growth was the continuation of a “multi-decade secular trend,” Jefferies equity analyst Kevin Grundy wrote in a report following the briefing.
In 1999, beer accounted for 56% of all bev-alc dollars, according to Jefferies. Its share has declined -13.5% since then, and its losses are accelerating. Meanwhile, the spirits category’s annual growth rate has been +5.5% over the last two decades, and accelerated to +7.3% in the last five years.
Much of the bev-alc growth in recent years has been driven by the rise of sugar- and spirits-based RTDs, which includes hard seltzers. In 2021, the segment posted double-digit, year-over-year increases in dollar sales (+42.3%, to $1.6 billion) and volume (+55.9%, to 36.6 million 9-liter cases).
The RTD segment is still largely driven by (91%) malt- and sugar-based offerings, which fall under the beer category. Spirits-based versions account for 8%, while wine-based offerings are just 1%.
Pre-mixed cocktails and RTDs posted the most spirits category growth last year in revenue (+42.3%, to $489 million) and volume (+55.9%, to 13.1 million 9-liter cases), followed by tequila/mezcal, which increased revenue by +30.1%, to $5.2 billion. Tequiza/mezcal is now the second-largest spirits segment, behind vodka, which increased dollar sales +4.9%, to $7.3 billion.
Tax rates and market access for RTDs vary by base alcohol, and the fight for parity with wine and beer is a legislative priority for DISCUS in 2022. Swonger pointed to Arizona’s tax code as an example, which taxes 5% ABV offerings differently according to base liquid. Consumers pay 1.5 cents for a 12 oz. can of malt- or sugar-based RTD, 7.9 cents for a 12 oz. can of wine-based RTD and 28.1 cents for a 12 oz. can of spirited-based RTD.
“We’re on the side of consumers and we’re on the side of fairness,” Swonger said. “I wouldn’t use the term ‘equivalence.’ We just want fair tax rates for these products. And at the end of the day, we are guided by our consumers and this presents a great opportunity to drive revenue for the states, because the demand for spirits-based RTDs are great.”
Swonger noted the similarities in package format and ABV but differences in price between RTD offerings in the beer, wine and spirits categories can be perplexing to consumers.
“It’s confusing for a consumer to go into a store and see the price differential between a malt-based RTD and a spirits-based RTD,” he said. “As this is a growing, emerging category, educating consumers that alcohol is alcohol when a malt-based RTD is at 5% and there’s a spirits-based RTD at 5% ABV. It is important to educate consumers so they understand and know what they are consuming.”
Several brewers and beer industry trade groups have pushed back against this, arguing that beer is the beverage of moderation and should be taxed accordingly. In April 2021, Boston Beer Company founder and chairman Jim Koch penned a letter urging leaders of the Brewers Association (BA), Beer Institute (BI) and National Beer Wholesalers Association (NBWA) to coordinate a response to DISCUS’ efforts “to change the fundamental tax and regulatory structures of alcoholic beverages to tilt the current playing field in their favor.”
However, other items on DISCUS’ legislative agenda align with those of some beer trade groups, such as expanded direct-to-consumer shipping and allowing the U.S. Postal Service to carry alcoholic beverages, which the BA supports. DISCUS is also advocating for permanence of pandemic-driven cocktails to-go laws. Thus far, 16 states and Washington, D.C., have passed laws making the privilege permanent, while 19 states still allow it on a temporary basis.
DISCUS also supports continued funding of the Restaurant Revitalization Act to aid restaurants, bars and distilleries affected by the pandemic, and the immediate suspension of United Kingdom tariffs on American whiskeys.