US forecast to become biggest online alcohol market

The value of alcohol e-commerce across 10 core markets is expected to reach US$24 billion this year, with the US predicted to overtake China by the end of 2021.

The US is forecast to overtake China to become the world’s largest online alcohol market by the end of 2021

According to IWSR Drinks Market Analysis’ Global E-commerce Strategic Study, the value of the online alcohol channel is expected to grow by 42% in 2020.

The study looked at 10 core markets that represents 98% of total alcohol e-commerce value: Australia, Brazil, China, France, Germany, Italy, Japan, Spain, the UK and the US. In 2019, the total value of alcohol e-commerce in these 10 markets grew by 11%.

The report also explored 10 emerging markets for e-commerce alcohol: Mexico, Colombia, Argentina, the Netherlands, Israel, Nigeria, Kenya, South Africa, Singapore and the Philippines.

Across all 20 markets, the IWSR expects the total value of alcohol e-commerce to exceed US$40bn by 2024.

Guy Wolfe, strategic insights manager at IWSR Drinks Market Analysis, said: “Consumers’ increasing proclivity for online purchasing has been driven by necessity in recent months, but these purchasing behaviours are here to stay.

“As brand owners increasingly invest in the channel, markets must be assessed on their own merits with a bespoke strategy developed. This is especially important as government regulations for alcohol e-commerce may evolve as the channel continues to grow.

“The forecast size and growth of e-commerce means it can no longer be viewed as merely an interesting niche. Online is now a market in its own right, and one that the IWSR forecasts to equal the Indian beverage alcohol market in value by 2024. The channel should therefore be given an equivalent level of focus and be fully integrated into route-to-market strategies.”

China versus the US

The IWSR notes that alcohol e-commerce has grown in nearly all markets this year, however some have witnessed faster growth than others.

China is currently the world’s largest online alcohol market, but its growth rate has been much slower when compared to markets such as the UK, the US, Australia and Brazil. China’s e-commerce alcohol market is excepted to grow by 23% in value this year. The IWSR said the slower growth is due to China’s e-commerce channel being ‘reasonably well developed’ already.

Furthermore, the IWSR found that 46% of Chinese consumers who buy alcohol online have done so for several years. The IWSR said the market is also ‘heavily reliant’ on the on-trade, which accounts for the sale of around 50% of China’s alcoholic drinks.

The US is forecast to overtake China to become the world’s largest online alcohol market by the end of next year. The market was previously underdeveloped, but now the channel’s growth rate in the US has accelerated by several years.

Between 2019 and 2024, total alcohol e-commerce value in the US will grow six-fold to nearly double China, the IWSR predicts. But the IWSR notes this growth will come from a low base to represent 1% of off-trade retail alcohol volume in the US in 2019.

The IWSR expects that e-commerce will make up 7% of total off-trade alcohol in the US by 2024, compared to 6% in China.

Wolfe added: “This year, there has been a huge increase in awareness of alcohol e-commerce among US consumers, while some states have relaxed legislation to facilitate online sales and home deliveries. IWSR consumer research data shows that in the US, 44% of alcohol e-shoppers only started buying alcohol online in 2020, compared to 19% in 2019.

“Growth is largely being driven by the omnichannel segment as supermarkets and traditional retailers seek to rapidly enhance their online offering. On-demand players are also expected to gain significant share.”

The direct-to-consumer channel is predicted to grow by nearly US$3bn in value between 2019 and 2024, at a value compound annual growth rate (CAGR) rate of 24% over the five-year period.

Furthermore, the ready-to-drink (RTD) category is projected to represent 10% of total alcohol e-commerce value by 2024 – up from 2% in 2019. This growth will be led by the US, where RTD products represent 20% of US alcohol e-commerce value by 2024, compared to 5% last year. The IWSR said this would make RTDs a bigger online business than beer in the US.

“Spurred by the trend for the category in the market as a whole, the expansion of the US omnichannel and the prevalence of younger legal drinking age consumers in e-commerce, online sales of RTDs are expected to soar in the coming years,” Wolfe added.

Tequila, mezcal and US whiskey are also experiencing growth across the e-commerce channel.

Looking across IWSR’s 10 ‘markets to watch’, the Netherlands is currently the largest for online alcohol sales. Mexico, Argentina, and South Africa are predicted to post ‘high value growth’ in 2020.

Mexico is projected to produce the highest incremental value in e-commerce sales, at more than 60% CAGR in the five years to 2024. Spirits are ‘on track’ to grow by 50% CAGR in online sales in the Philippines over the five-year period.

Earlier this year, The Spirits Business explored whether the future is digital and the impact of Covid-19 on bricks-and-mortar alcohol sales.