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Feature
Spirits weather challenging economic climate
Cost-of-living pressures and changing consumption patterns are hitting the spirits market globally.
*This feature was originally published in the September 2024 issue of The Spirits Business magazine.
The spirits sector has been in a long-running battle with beer and wine for a greater share of the alcohol pie. According to the World Spirits Alliance’s (WSA) Spirits: Global Economic Impact Study 2024 report, with data from IWSR Drinks Market Analysis and research by Oxford Economics, spirits are on track to surpass wine in share size of total beverage alcohol volumes. The report said 2.67 billion cases of spirits were sold in 2022, almost in line with the 2.8bn cases of wine sold that year.
IWSR revealed spirits (excluding national spirits) had a 30% share of the global alcohol sector in 2023, while wine held a 15% share. Beer retained the most share at 52%.
By 2028, IWSR forecasts that spirits will increase its share slightly to 31%, while wine will have a 14% share. Beer’s share is expected to remain the same, while the booming ready-to-drink (RTD) category could have a 3% stake over the next five years.
Including national products, the spirits sector had a 39% share of global alcohol sales in 2023, wine had a 13% share, and beer had a 45% share.
Emily Neill, chief operating officer of market research at IWSR, said: “The performance of spirits categories varies hugely between markets and price bands. At a global top level, RTDs and spirits are set to gain share of servings globally, at the expense of wine.
“The spirits sector – and beverage alcohol – is facing a softening of demand as cost-of-living pressures mount in major consumption markets. The industry is also focused on unwinding inventories in key categories, such as Cognac and Scotch. Many consumers are opting to moderate their alcohol consumption to account for the squeeze on disposable incomes, as well as shifts in lifestyle choices.”
The WSA conceded that domestic white spirits, most notably Chinese baijiu, account for a sizeable proportion of the category’s overall volumes. That said, the report claims that the segment’s share of total spirits declined markedly in the decade from 2012, from 45.7% to 33.3% in 2022. International distilled beverages, meanwhile, grew their share from 54.3% to 66.7%.
IWSR data showed that global total beverage alcohol (TBA) declined by 1% by volume but rose by 2% in value last year. Spirits volumes were flat last year while beer dipped by 1% and wine was down by 4%. Indian whisky is set to be the fastest-growing category between 2022 and 2027, set to grow by 50 million cases, with Tequila, rum, and gin all expected to rise between 10m and 20m cases. Cognac and Armagnac are the categories set to grow the least.
In five countries (the US, Great Britain, France, Canada, and Australia), the on-trade accounts for 67% of the value of total spirits sales, according to CGA by NIQ data covering the 12 months to March 2024. Tequila was the only segment that increased its contribution in spirits, particularly in the US, where it has a 23.4% share of total spirits (up from its share of 22.8%). In terms of the five markets, France was the only country where on-trade spirits sales increased (up by 1.8%).
George Argyropoulos, client-solutions director at CGA, said it was a challenging year for spirits, whose share has suffered in the on-trade: “The last year has seen a shift to earlier occasions, and that has resulted in more categories competing for a reduced share of throat. Beer and wine, with their high connection with food and earlier drinking occasions, grew their contribution.”
Spiros Malandrakis, head of research for alcoholic beverages at Euromonitor International, says spirits’ performance differs by region. In emerging markets (such as Latin America and Africa), consumers have shifted towards international beer brands and away from local low-value spirits, he explains. In the US and most European markets, he says: “It’s not a question so much of spirits gaining share but of everyone else losing.” He adds that wine is “in serious trouble”, as it hasn’t managed to “reconnect” with younger drinkers, while beer has “passed its craft stage and is not the cool kid on the block anymore”.
Complicated picture
Another element to consider is the RTD category, Malandrakis notes, which can be made with all kinds of alcohol bases and therefore can complicate the alcohol share picture. “RTDs are doing well, and they could cannibalise some of the share of spirits,” he warns. “That might derail the advantage that spirits have in the Western markets at least, if not globally.” IWSR data showed that RTDs recorded 2% volume growth last year, alongside a 6% rise in value.
In terms of subcategories, Tequila is leading growth, mainly in the US. It is poised to add the most incremental value to the US spirits market by 2028, driven by premium-and-above expressions, IWSR said.
After years of growth after the pandemic, however, spirits are struggling, mainly because of financial concerns, Malandrakis warns. “Beer could potentially start capitalising in the next couple of years because the economy is struggling, and because it’s an affordable option, much more so than spirits,” he says.
Neill believes that drinks companies must consider broadening their offerings: “Companies need to evaluate and diversify their portfolios – either across categories, geographies, or both. As the growth axis shifts towards developing alcohol markets, beverage alcohol companies need to be more comfortable operating with a greater level of risk.”
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