My Drink is Premium! A New Drinking Culture?

How has our drinking behaviour altered as a result of the pandemic? What do consumers particularly value and what does the future hold for the spirits market? Peter Eichhorn sheds some light.

The British playwright N.F. Simpson once philosophised: “Reality is an illusion created by a lack of alcohol”. For two years now, we have been experiencing a very strange reality that is becoming ever stranger and ever more tragic. And the situation around alcohol is also changing in these times.

While the beer taps stay dry, our throats do not

We can now look back on two years of Covid and lockdown. A period that brought extremely tough hardships and losses, especially for the hospitality and event industry and the beverage producers associated with it. From beer to spirits to mixed drinks, at folk festivals, anniversary parties and down the pub – the taps stayed dry with no one at the bar. Nevertheless, during this time people were still drinking at home within their own four walls. And since every crisis is also an opportunity, the key players in the beverage industry were very attentive to the developments and new consumption habits brought about by the pandemic.

Developments and expectations

A large number of surveys and studies plus associated forecasts are now available to us. This is a good opportunity to take a look at developments and expectations. Many of the international studies also reflect the regional characteristics within a global industry. The UK, for example, has seen a sharp rise in cider sales, while Americans look to bourbon, rye and tequila, with hard seltzer up 288%. The Spanish, on the other hand, bought 45.6% more beer to drink at home.

Growth in consumption via the retail trade

With these growth figures and those still awaited, we have to remember that this ‘cocktail’ still contains a large dash of bitterness. The growth figures mentioned here relate exclusively to the consumer sector through the retail trade, i.e. outside of hospitality and beyond any events. Balance sheets in this sector reveal a different, sadder picture when it comes to bar-generated sales or tax revenues. In Great Britain, for example, retailers point to increased sales revenues in the first year of the pandemic of 1.9 billion pounds compared to the previous year, while in the same period the total amount of alcohol consumed fell from two billion litres to 1.3 billion litres.

Drink less, but better

One overlap in the results of all analysts is striking: we are experiencing a time of premiumisation. End consumers are investing good money in upgrading what they drink at home. Recently, Lulie Halstead, who holds the appealing title of “CEO of Wine Intelligence” at the IWSR (International Wines and Spirits Record), presented her estimates for 2023 and beyond to British journalists, as “The Drinks Business” reports. Halstead describes the alcohol industry as “resilient” pointing to the steady growth rates of premium products, which accelerated significantly during the crisis. She describes an increased need for quality of life at home, triggered by an absence of travel and going out: “Social life at home is being upgraded and elevated to something special thanks to better drinks.” This also comes with new everyday habits. “Consumers tell us that in the past they wouldn’t open a bottle of wine at home simply because they didn’t know if they would finish it the following evening since they might go out and not spend the evening at home at all.” And who wants to throw away half a bottle of good wine?

New awareness for the here and now

In an interview news agency Reuters spoke to Siddharth Banerji, Head of the Kyndal Group, which distributes Macallan whisky and other premium brands for the Indian market. Banerji highlights the awareness emerging during a crisis like this – a realization of how short life can be and how we need to live in the here and now: “There is a philosophical attitude towards alcohol, whereby people are thinking they could die any time and have the realization that money is not going to save your life.”

Now it gets expensive – upwards of $200

The IWSR, the world’s most important collector of data on the beverage industry, has also taken a look at current events. Their analysts predict growth in bottles priced 200 dollars and above of 9.2 per cent per annum until 2025. But the IWSR Trend Report 2022 also points to a premiumisation in the areas of hard seltzer and ready-to-drink (RTD) beverages. In addition, the study notes an increase in home cocktail mixing using premium spirits.

High-end spirits and mixing at home

Christine LoCascio, Head of Policy at the Distilled Spirits Council of the US, agrees: “In addition to the premiumisation trends of recent years, the pandemic has caused many consumers to change the way they buy and consume their favourite spirits. For instance, we are seeing a shift among end consumers towards high-end spirits and greater experimentation with cocktails at home. The restrictions on public life during the pandemic proved a catalyst for an already growing category in the spirits market.”

A new generation of consumers?

This raises the question of consumer behaviour when the Covid situation returns to normal. Many consumers are sure to be looking forward to socialising again in the pleasant surroundings of a nice bar or restaurant. Others long for a freshly tapped beer having had enough of bottles and cans. But how will the now advanced wine-savvy consumers react to the sometimes very exaggerated wine markups in upscale hospitality?

For the cocktail bar sector, Tony Latham, CFO of Bacardi Limited, expects a new perception: “Lockdowns created a renewed interest in cocktails as people experimented with their mixology skills at home. We believe this will translate into people being more adventurous and seeking out premium, quality drinks when they return to the bar.”

Digital distillates – smartphones and spirits

Analysis of another phenomenon also unites the experts: the importance of e-commerce was fuelled by the pandemic and this area will continue to grow in future. While many aspects of the premiumisation wave are geared towards the 55+ generation, millennials and Gen Z – generations who use their smartphones to navigate all aspects of everyday life – are now moving into the sights of the spirits industry. Though other target groups also did more of their shopping online during the Covid crisis and likewise found it convenient. Even though using your trusted retailer will play a greater role again in future, e-commerce is seeing enormous growth in the everyday lives of spirits consumers and is currently considered the fastest growing segment in the field of “fast-moving consumer goods”.

The unpredictability of forecasts

However, it is precisely current developments like today’s war that show us how unpredictable some forecasts within a global industry can seem. As Nils Wrage, Editor-in-Chief of bar magazine Mixology, recently remarked with sad irony: “2022 – the year the global bar community started talking about vodka again.” As a result, many retailers and restaurateurs are removing Russian vodka from their product ranges while other international suppliers are tapping into the (un)fortunate mood by stepping into the breach with their own vodka products.

Future research for the spirits market

At the 20th Spirits Forum of the Federal Association of the German Spirits Industry and Importers (BSI) in November 2021, a futurologist was given the opportunity to voice his opinion. In his talk “All about Lifestyles in 2030: How we will Live in the Future” Sven Gábor Jánszky, Managing Director of 2b AHEAD ThinkTank GmbH from Leipzig, said: “In the spirits market, there will be a dichotomy in the next 10 years: The standard segment will disappear giving way to a largely digital, mass market where customers will decide based on value for money. And alongside this, an equally large premium segment will emerge, which we futurologists call the ‘identity segment’. This is where customers buy spirits not because they taste good, but to prove to other people they are ‘special’: Particularly ecological, particularly close to home, particularly rich, particularly cosmopolitan, particularly interested in culture, particularly intellectual ... etc. Depending on the customer segment, suppliers need completely different strategies. The most important leadership skill in times of change is to love the future without knowing exactly what it looks like. The key is to trust the possibilities of the future more than the experiences of the past.”

So on that note let’s drink.  To the future!