New IWSR data shows that alcohol pricing strategies by category, demographic and market will be more critical than ever for drinks companies’ 1–5-year business growth plans.
The drinks market analyst warns that brand owners will need to sharpen their focus on value in order to generate meaningful alcohol growth in the future.
IWSR data shows that spirits are better equipped to drive premiumisation through higher-priced products, but beer and wine brands can also benefit from the ‘drinking less, but better’ trend.
The wild card for all categories is a high degree of uncertainty surrounding the effects of rising inflation around the world and its impact on consumer spending power.
According to IWSR data, spirits has been the clear winner when it comes to value generation over the past few years: the average global price per serving for spirits (excluding national spirits such as baijiu) rose at a CAGR of +3.8% between 2016 and 2021, ahead of wine (+3.4%), beer (+2.3%), RTDs (+1.4%) and cider (+1.1%).
IWSR forecasts suggest that this trend will continue in the years ahead, although the picture is more complex than might first appear. Spirits’ share of the TBA value pool is predicted to rise from 35% in 2021 to 42% in 2026, overtaking beer, wine and RTDs in the process. However, the numbers are skewed by the huge increases in premium-and-above baijiu sales in China. Stripping out national products – most of which is accounted for by baijiu – spirits’ global value share is set to rise from 23% to 27% (2021-26).
“One of the advantages enjoyed by spirits is the very wide differential between low-priced and standard products at one end of the pricing spectrum, and super-premium, ultra-premium and above at the other,” said Emily Neill, IWSR COO research & operations.
“With beer, by contrast, this price differential between standard products and high-value products is smaller. International spirits categories such as whisky, rum, tequila and gin have more of a runway to premiumise.”
However, the signs are more positive for beer when it comes to the future evolution of global servings by category volume – or “share of throat”. Here, IWSR forecasts that equivalent serves of beer will rise at a CAGR of +1.3% between 2021-26 (or +1.6% including cider and RTDs), leading to a change in category share of +0.4% (+1.2% including cider and RTDs). Spirits’ CAGR increase of +1% equates to a category share loss of -0.2%, with wine predicted to decline at a CAGR of -0.2% (category share loss of -0.9%).
This disconnect between value and volume for beer is explained by the fact that category growth is mostly occurring in developing countries across Africa, South America and Southeast Asia, where average prices are lower. Meanwhile, says Neill, many mature beer markets across North America and Europe – where prices are typically higher – are in decline.
Wine value share to shrink
Steep wine volume declines are overriding the premiumisation trend globally.
“Wine can premiumise more, and we are indeed seeing a marked ‘less but better’ trend for wine across many regions,” said Neill.
“However the big volume markets for wine – such as the US, France and Italy – are in decline.”
In these markets, a generational shift is reducing routine, everyday consumption of lower-priced wines among older consumers. Younger generations don’t tend to do that, but when they do buy wine, they spend more on a nice bottle.
Consumer research in the UK and Australia shows that millennial and legal-aged Gen Z regular wine drinkers spend more per bottle than older generations on still wine, so the consumption behaviour of younger wine consumers is pushing lower volumes, but higher prices per bottle.
“With wine, focusing on the more premium end of the market is going to be increasingly important.,” said Neill.
“One of the challenges is not to lose sight of this strategy in terms of focusing on premium – and where you do that, given that the on-trade is still quite challenged in many places – while still dealing with difficult operational issues and rising costs,” Neill said.