Super-premium spirits could decline amid recession
Demand for super-premium wine and spirits brands in the US is expected to drop by mid-single digits in 2023, according to a new report on the impact of a recession on the price segment.
A report by Rabobank looked at how a recession could affect the consumption of super-premium wine and spirits in the US. Rabobank economists and others see an increasing likelihood of a recession in the near future, the report noted.
Rabobank believes that demand for super-premium brands will ‘soften notably’ in the fourth quarter of 2022, and ‘turn noticeably negative’ in 2023. Rabobank expects mid-single-digit declines for the coming year.
However, the report said that the long-term growth trend of super-premium brands will ‘remain intact’.
“We could imagine a case where the declines could be a bit more pronounced – and this is particularly true of spirits, which saw stronger growth rates in 2021,” the report noted.
“That said, we don’t expect the downturn to resemble the softness seen during the GFC [global financial crisis]; it should be much more moderate. Perhaps more importantly, we believe the overall growth story of the super-premium segment remains intact, and any declines we may see in the coming year should also be viewed in the context of the exceptional year of growth in 2021.
“We expect the segment to eventually return to its more historical growth trends.”
‘Impressive growth rates’
The report noted that super-premium wine and spirits have experienced ‘impressive growth rates’ for more than a decade, surpassing mainstream and value brands. As such, many companies have looked to the super-premium segment for their M&A strategies.
From 2010 to 2021, super-premium spirits enjoyed an average volume growth rate of 8.8%, the report said.
The segment is driven by affluent consumers, Rabobank said, however it said the results from the global financial crisis (GFC) of 2008-2009 shows that these drinkers are not recession proof. During the GFC, the super-premium segments of both wine and spirits experienced ‘notable declines’, the report said.
The report added that super-premium wine and spirits brands that ‘can easily shift sales’ from the on-trade to the off-trade will ‘enjoy certain advantages’.
Sales of luxury spirits in the US grew by double digits in the second quarter of 2022, led by Tequila and American whiskey, according to a report by the Distilled Spirits Council of the US.