Pandemic premiumisation drives huge drinks growth

The two words on the lips of drinks executives around the globe are “pandemic premiumisation”, with sales skyrocketing despite challenging market conditions.

The premium-and-above beverage-alcohol market briefly stalled amid the initial lockdowns of 2020, but consumers in developed economies started accumulating high levels of savings while their opportunities to spend were severely curtailed.

Now, while lower-income consumers are cutting back their spending due to rising inflation, higher-income shoppers are continuing to buy pricy restaurant meals, airline tickets, car and super premium alcohol.

Americans, for example, are consuming more super-premium spirits than ever before, with high end bottlings accounting for nearly 21% of revenue in 2021.

Last week Beam Suntory reported a new sales increase of 13% for the first half of 2022, reflecting a 25% increase versus the pre-pandemic period in 2019.   .

“The fact that we were able to deliver these strong results in a challenging period underscores the resilience of our markets, quality of our brands, and the significant impact of our premiumisation strategy,” President & CEO of Beam Suntory Albert Baladi said.

The maker of Jim Beam and Maker’s Mark bourbon, Courvoisier cognac and Hibiki Japanese whisky benefited from double-digit sales gains in markets including the United States, Spain, United Kingdom, India, Australia and emerging Asia, with high-single-digit sales growth in Japan. Sales grew more than twice the rate of case volumes, which the company attributed to its “premiumisation agenda continues to gather momentum”.

In recent years, Beam Suntory has shifted its portfolio toward more expensive spirits, upgrading to brands like Knob Creek bourbon and Bowmore Scotch whisky.

Its latest results showed super premium brands had demonstrated “meaningful momentum”, with particularly strong double-digit growth from Yamazaki, Knob Creek, Laphroaig, Bowmore, and El Tesoro Tequila.

Baladi said the company raised prices last year and this year, and some brands even hiked their prices twice already in 2022. It’s the latest company to report signs of a split among its customers amid soaring inflation and recessionary fears. Executives have said lower-income consumers are cutting back their spending, while higher-income shoppers keep buying pricy.

“It’s something that’s likely to stay with us as consumers cut down on large expenses,” Baladi said. “They’re likely to want to treat themselves with little daily luxuries.”

It’s not just spirits benefiting from the trend. Treasury Wine Estates recently noted: “83% of our global sales revenue is now generated by the Luxury and Premium portfolios, an increase of 7 percentage points.

TWE released the 2018 version of its flagship wine Penfolds Grange earlier this month with its first-ever $1000 a bottle price tag. And consumers are lining up to pay the premium.

“We’re seeing premiumisation across the board in Australia … we’re seeing that premiumisation trend everywhere,” the company said.

Penfolds managing director Tom King added to the Australian Financial Review: “It’s clear consumers continue to have a strong appetite for premium and luxury wines, with a shift over the last couple of years of buying less, but more expensive wine. We see increasing demand for Penfolds luxury wines in all markets around the world,”

The top Aussie categories for pandemic premiumisation

IRI hosted a “Pandemic Premiumisation” presentation last week, which revealed three segments that are symbolic of the trend: craft beer, single malt whisky and Champagne.

IRI Director – Liquor & Tobacco Mark McCaffrey led the presentation, which explored how the pandemic had turbocharge premiumisation in Australia and globally.

All three segments are growing at a faster rate than the category average – both on a one-year and two-year comparison basis.

Top 5 growing beer segments

  • Ginger Beer
  • Craft Lager
  • IPA
  • Pacific Ale
  • XPA

Craft beer is up +9% YA and +46% 2 YA (36% $/litre premium). High performing craft brands are driving strong gains in high-end beer and ginger beer, with super premium beers seeing 43% growth.

Over-indexing of super-premium is led by brands including Brookvale Union Ginger Beer, James Squire Ginger Beer, Matso’s Ginger Beer, Bundaberg Ginger Beer, Balter XPA and Captain Sensible, DAZY, Stone & Wood Pacific Ale, Coopers Australian IPA, Burleigh Big Head and Bentspoke Crankshaft.

Ginger Beer dollar growth is up +144% 2YA, with the no.1 beer sub-brand for growth outside of Great Northern being James Squire Ginger Beer, followed by Brookvale Union. Matso’s Ginger Beer has also seen a 57% increase in sales value versus 2 YA.

Australian cider

Premium cider is a rare bright spot in an underperforming category with 187% growth. Over-indexing of super-premium is led by: The Hills Cider, Willie Smiths, Spreyton, Cedar Creek Cider and Bad Adams.

The spirits leading the premiumisation trend

Single malt whisky has seen +7% YA growth and +52% 2 YA growth, it also ccommands a 70% $/litre price premium in the category. Australian whiskey is also benefiting from the trend. Starward’s sales growth vs 2YA is +331% with a 57% price premium.

Ultra-premium tequila is also going gangbusters. Patron sales growth in 2021 was six times faster than in 2020.

Growth contribution of premium spirits is 1.4 times higher than sales rate. Over-indexing of super-premium is led by brands including Malfy Gin, Grey Goose Vodka, Patron, Four Pillars, The Glenlivet, Glenmorangie, Johnnie Walker Blue Label, Don Julio, Glenfiddich and Tequila Herradura.

Premiumisation trend reaches RTDs

High strength and premium glass spirit extensions are also trending in RTDs. Over-indexing of premium RTDs is being led by brands including Wild Turkey Rare, Bombay Sapphire Gin & Tonic, The Kraken Black Spiced Rum & Cola, Aperol Spritz and Wild Turkey Extra Aged.

The no.1 growth brand in RTD category is Smirnoff Seltzer, which is attracting a 28% price premium versus the RTD average.

Fears Australia wouldn’t embrace hard seltzer have been well and truly laid to rest by data from IRI, which shows the category has grown a whopping 282% over the last year.

The US phenomenon has become a $210million category in Australia, taking a 16% of the share of the long-established light RTD category.

IRI is bullish about the future prospects for seltzer – it predicts sales in Australia will hit $300 million by 2025.

Four Pillars is also gearing up to lead the premium canned cocktail trend over summer with two new releases: Fresh Yuzu Gin & Soda and Bloody Shiraz Gin & Tonic.

Australia’s growing taste for Champagne

Australia’s passion for Champagne has hit new heights, with the Champagne Bureau revealing imports have increased by 16.5% in volume and 26.8% in value over the past year. 

It follows Comite Champagne reporting nearly 10 million bottles of champagne were exported to Australia in 2021, an increase of 1.3 million bottles year on year. Of the 320 million bottles of French bubbles exported across the globe, Australia was ranked the sixth largest export market by volume.

Champagne has gone from being a special-occasion drop to an ‘everyday indulgence’. Australians are consuming fizz at restaurants and at home, they’re even taking it to casual barbecues.

Top line pricing analysis from IRI shows premium wines generally are mostly outperforming, with the four largest growth generating wine styles over the last two years being Champagne, Shiraz, Pinot Noir and Rose, whereas all wine priced
below $15 declined over the one and two-year timeframe. W

According to IRI, Champagne sales are up 6% YA and 54% 2 YA (341% $/litre premium).Consumers report more premium occasions where quality matters.

The occasions & consumers driving premiumisation

Holiday celebrations see the biggest difference in underlying premium needs, while house parties drive the biggest actual difference in price premium paid.

While 25-50-year-olds are the biggest on-premise premium consumers, the biggest actual difference in on-premise price premium paid is among 50-69-year-olds.

In the off premise, it is the 40-49-year-olds who lead. While 63% of premium shoppers are male, premium female
drinkers pay more

Older age groups are prepared to pay a price premium for local brands, while younger age groups are influenced by gift packs and new flavours.

Watch the presentation below:

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