“Stronger Together” was the theme of the Distilled Spirits Council of the United States’ (DISCUS’) annual conference, held last week in New Orleans.
With supply chain constraints, inflation, changing consumer habits and the continuing COVID-19 pandemic, the message from DISCUS to its members was that the spirits industry is not only resilient, but thriving, despite hurdles.
The energy was encapsulated when, during the Day 2 opening panel on the state of spirits, the conference room erupted with cheers and applause after Brandy Rand, COO, Americas for market research firm IWSR, announced that in 2023, “for the first time in American history,” spirits will overtake beer by value and volume share.
It should be noted, IWSR places ready-to-drink adult beverages (RTDs) such as canned cocktails and hard seltzers in a category separate from beer. Rand added that volume is calculated through “share of throat analysis,” in which volume share is determined by share of servings.
‘Total Beverage Company’ Trend Will Continue
While the room was filled with spirits-pride, there was a general understanding across panelists throughout the conference that the overall beverage-alcohol industry is evolving to a “total beverage” focus.
Matt Deegan, chief sales officer for Constellation Brands’ wine and spirits division, discussed the topic with Rand, as well as Ugo Fiorenzo, managing director of Campari, America; Alva Mather, partner at McDermott Will & Emery; and Dia Simms, CEO of Lobos 1707 Tequila & Mezcal.
“I think the concept of total beverage is here to stay,” Mather said, noting that the idea of being just “a spirit company, a beer company, or a beverage company” will likely fold in the next five years.
The conversation followed the last couple years of carbonated soft drink giants PepsiCo and Coca-Cola forged several partnerships to launch offerings with alcoholic beverage providers, including PepsiCo partnering with Boston Beer Company on Hard MTN Dew, and Coca-Cola and Molson Coors Beverage Company teaming up on Simply Spiked Lemonade and Topo Chico Hard Seltzer.
This convergence trend is not only expected to continue, but traditional alcoholic beverage producers will continue to diversify their own offerings, according to Mather. The most popular segment for exploration: RTDs.
“This is simply a reflection of what’s happening in adjacent beverage categories,” Rand said of the growing RTD segment.
RTDs, including hard seltzers and hard teas/lemonades, have recorded nearly $9 billion in sales over the last 52 weeks (ending June 5) in IRI-tracked off-premise channels (multi-outlet plus convenience), according to the market research firm. In that same period, dollar sales have increased +6.25% year-over-year, led by single-serve premixed cocktails and spirits-based hard seltzers.
Rand said the explosion in both sales and the diversity of offerings in the segment is simply bev-alc catching up with other food and beverage categories.
“Look at younger [legal-drinking-age] consumers coming into the category,” Rand said. “They have grown up drinking La Croix and other sparkling waters, and they’re coming into a category that’s underinvested in flavor and choice and they’re suffering. So a lot of this [RTD growth] has been very much consumer led.”
The panelists also agreed that consumers are “drinking differently,” noting five key themes:
- Pace: consumers are mixing in low- and non-alcoholic offerings while drinking;
- More educated: consumers had time during the pandemic to learn about types of alcohol at home, and learn about what they do and don’t want from their beverages;
- Sophistication: consumers are leaning more toward premium brands, particularly in spirits;
- Unapologetic ideas: consumers are open about what they do and do not want from bev-alc companies, including philanthropic work and environmental impact;
- Drinking across occasions: consumers are reaching for different categories within bev-alc depending on the occasion, rather than having a go-to drink everywhere, all the time.
“Consumers are not just drinking their father’s beer,” Mather said. “So [look for] where are there opportunities to take your brand forward – whether it’s through M&A, or whether that’s collaboration – to continue to provide first experiences for consumers, with all of the restrictions that are inherent to the industry.”
E-Commerce Not Something to be Feared
E-commerce was also a hot topic throughout the conference. Mather noted during her panel that whether the bev-alc industry wants to participate in e-commerce or not, consumers are pushing for access.
“That’s going to be another major space that I see regulators really trying to look at is how can you do alcohol ordering and delivery online?” Mather said. “From a legal perspective, that’s another very significant frontier. How can we look at this other thing, and how can we give the consumer what they want, but do it within the three-tier system?”
“We’re talking more about the consumer than we ever have, rooted in access and immediacy,” Robert Hanson, EVP and president of Constellation’s wine and spirits division, said during a panel on the future of spirits and sustainability in the digital age. “Ultimately, regardless of the industry that we’re in, and the complex regulatory environment, the consumer’s gonna win.”
Consumers adapted to buying bev-alc online and for delivery much faster than the delivery of other goods, most likely due to the circumstances of the COVID-19 pandemic, according to Hanson. He suggested that “rather than be fearful” of the growing route-to-market, see it as a resource to get “deeper” and faster consumer analytics, and an “additional channel” to the existing three-tier system.
To respond to growing e-commerce trends, spirits company Brown-Forman reorganized its e-commerce workforce to be fully integrated into the company, according to John Hayes, SVP and president for the company’s U.S. and Canada operations.
“A few years ago, e-commerce people were sitting over on the side, doing their thing, and they weren’t as integrated within the brand structure as much as they needed to be,” Hayes said. “So we’ve tried to break that down and come up with what we call ‘integrated marketing.’”
DISCUS Launches ‘Destination Distillery’ for Spirits Education and Exploration
Teased at the DISCUS conference was the trade group’s new website, Distillation Distillery, announced to the public Thursday.
The platform serves as a “go-to resource” for consumers to learn about spirits history and products, find local distilleries, and see the economic impact of the spirits industry, according to DISCUS.
“It’s a website that’s going to feature the tourism driven experience [of spirits] that has just blossomed in this country over the last 15 to 20 years and then some,” Chris Swonger, DISCUS CEO and president, said during a press briefing. “It’s an educational journey into the cultural heritage of the history of spirits in America. … Spirits enthusiast are gonna be able to explore all the iconic distilleries around the country.”
Distilleries of all sizes are featured on the site, along with local trails for tourists to follow when visiting new cities. More than 2,000 distilleries operate in the United States, according to DISCUS.
“With well over 30 spirits trails across the United States, the growth in spirits tourism is helping to transform communities surrounding distilleries and boost state and local economies,” Philip McDaniel, CEO and co-founder of St. Augustine Distillery and chair of the DISCUS Craft Advisory Council, said in a press release.“This is the first tool of its kind to provide consumers with a comprehensive list to discover established distilleries and explore trails across the entire country – from the Pacific Northwest to the tip of Florida.”
“It’s a work in progress,” Swonger said. “Destination Distillery is really intended to represent every great distillery in the country, whether they’re a DISCUS member or not. We want to promote the distilleries that are wedded into the fabric of our country now.”