This article was initially published in the December/January issue of Global Drinks Intel magazine. For details on how to subscribe, click here.
Richard Woodard examines nine key themes that are set to influence the alcohol industry in the months to come.
The 2020s are proving to be a highly volatile and unpredictable decade for alcohol producers and brand owners. After two years dominated by the COVID-19 pandemic, 2022 saw war come to Europe with the Russian invasion of Ukraine, sparking a global energy crisis and exacerbating rising inflation and spiralling costs for businesses and consumers alike.
With no end to the conflict in sight and the macroeconomic picture at its gloomiest since the Global Financial Crisis of 2008-9, brand owners are braced for a difficult year or two — but the picture is not entirely bleak for alcohol. Optimism persists in the Americas and pockets of Asia — most notably, India — contrasting sharply with the lack of consumer confidence in many European markets. However, there are question marks about China, where a combination of pessimistic economic indicators and signs of a renewed government crackdown on extravagance could spell trouble ahead.
In spite of the many difficulties, it’s unlikely that the long-term trend of premiumisation will entirely grind to a halt, and the luxury market remains — as ever — mostly immune to broader economic woes. The wealthy, it seems, will always have the means, and the inclination, to spend on high-end spirits and wine.
Beyond the short-term economic concerns, the long-term drivers of alcohol sales — drinking less but better, and consumer interest in provenance and artisanal cues — are still bubbling away beneath the surface, underpinning the nine key trends that are set to shape the marketplace in the year ahead.
Agave – Luxury and diversity
The growth of agave-based spirits — chiefly Tequila, and chiefly in the US —has been the spirits success story of the past decade. The luxury Tequila boom stateside shows no signs of slowing, fuelling recent deals such as Pernod Ricard’s acquisition of Código 1530 — and making Diageo’s US$1bn Casamigos purchase look increasingly like good business.
Unexpectedly strong post-COVID growth is pressurising agave supply and increasing costs, opening up the market to other agave, or alt-agave, products, from mezcal to the more esoteric sotol, bacanora and raicilla.
The challenge for Tequila brand owners remains a dual one: maintaining momentum for high-end expressions in the US, while expanding the segment’s appeal in promising international markets in Europe and Asia.
Meanwhile, rising costs mean that lower-priced brands in the Mexican market face a choice between declining profitability and raising prices. The latter option could see consumers migrate away from the category in favour of lower-priced alternatives, such as ‘destilados de agave’ products.
Cognac and vodka – The quest for character
At first glance, there may appear to be little that unites the contrasting categories of Cognac and vodka, but both have traditionally relied greatly on image and lifestyle cues to build awareness and drive sales — and both are now discovering that this approach can sometimes have its limitations.
While Cognac still relies greatly on volume sales of VS in the US, along with a value-led approach in Greater China, brand owners are increasingly moving beyond brand appeal and traditional designations (VS, VSOP, XO) to talk about how their products are made and where the grapes come from.
For smaller, family-run and medium-sized businesses such as Camus, Frapin, Delamain and Hine, this isn’t necessarily new — although ventures like Delamain’s ‘Pléiades Collection’ are consciously borrowing the cues of malt Scotch in their communication. However, the philosophy has also permeated to bigger brand owners, with Rémy Martin rolling out Tercet globally (a Cognac marking the contributions of winegrower, distiller and blender) and drawing attention to vineyards and sustainability with the France-only release of L’Étape.
Meanwhile, vodka continues to pursue a more characterful approach, with craft-influenced distillers focusing on raw materials — from rye, barley and wheat to grape and potato — and, in a clear echo of gin, using botanical ingredients to tweak flavour profiles.
Origin is also increasingly important and transcends local craft distillers to big brand owners, such as Pernod Ricard (Absolut) and Moët Hennessy (Belvedere).
The evolution of the gin boom
The rebirth of gin has not so much ended as shifted and matured in the past few years. The markets that lay at the heart of the category’s early success — particularly the UK and Spain — may have peaked during the pandemic, but a number of other markets are emerging to take their place.
However, success for gin in countries such as Brazil, South Africa and India may look rather different to the pathway seen in Europe. In the latter, traditional expressions were gradually supplemented by more esoteric products, then flavours and liqueurs. Now, brand owners have a much more diverse array of product types with which to approach developing markets.
At the same time, a number of local distillers are putting their own twist on gin’s traditional juniper-led template, using native botanicals and tapping into localised flavour trends. Established international brand owners may find these new markets every bit as competitive as the historic gin hotspots.
Rum – Is this the moment?
Rum’s status as ‘the next big thing’ of the spirits market is as old as the 21st Century. To date, however, its momentum has been steady, rather than spectacular — and brand owners have cast envious eyes at happenings in the fast-moving agave spirits category.
Nonetheless, there are clear signs of growing momentum, and with an encouragingly broad base: while aged rums at higher price points have been strong historic drivers of category value growth, a new breed of premium and super-premium white rums is now adding to the mix.
Rum’s diversity of origins, production processes and ageing techniques can make it an opaque and confusing category for the consumer to navigate but managed correctly, it has the potential to serve a wide variety of drinkers and occasions. The global spread of cocktail culture continues — rum’s versatility in mixology is a trump card — and there are signs that long-term attempts for rum to be taken seriously as a top-quality sipping spirit among lovers of Cognac and single malt are starting to cutting through.
This potential is recognised in the recent acquisition of Venezuelan rum Diplomático by Brown-Forman, and in brand development work from the likes of Dictador, Campari Group (Appleton Estate), Pernod Ricard (Havana Club) and Moët Hennessy (Eminente).
Whisky redux, stateside and beyond
The global whisky category is immersed in a golden age right now, buoyed by continued demand for established segments such as Bourbon and malt Scotch, and growing interest for products from non-traditional origins. The flurry of recent corporate activity shows just how wide-ranging this movement is, with the past few months seeing companies as diverse as Bacardi and Anheuser-Busch InBev entering the Indian whisky segment. Meanwhile, Diageo has acquired Texas-based craft whisky operator Balcones Distilling and — through its Distill Ventures arm — a stake in English rye whisky maker The Oxford Artisan Distillery.
From Nordic markets to Australia and from Mexico to Taiwan, the choice of whiskies has never been greater, but American whiskey, in particular, is at an interesting inflection point. While the bulk of volumes still sits in Kentucky and Tennessee, a maturing generation of craft distillers is producing a multiplicity of styles.
Innovative, craft-influenced producers such as Westland, Westward and Balcones make American single malt — shortly to be given its own set of production regulations — a segment to watch in the years ahead.
Fortified wine – beyond Brandy
Both Port and Sherry have faced generational challenges over the past few decades, beset in both cases by long-term declines in their volume markets, and the departures of multinationals in pursuit of more enticing growth prospects elsewhere. Navigating these periods of change has been difficult, but both categories are rediscovering the credentials that brought them success in the first place, alongside a stream of innovations that augurs well for the future.
Primarily, there is a belated but entirely necessary focus on value. In Portugal’s Douro Valley region, this means not only traditional and single quinta vintages, but also a much-expanded role for aged tawnies, some of them with luxury price tags. There are white and rosé ports, and Millennial-friendly port RTDs, and the valley’s spectacular vineyards now produce as much unfortified table wine as they do Port — and this is finding a growing audience at premium-plus price levels around the world.
In Jerez, innovative and quality-focused Sherry producers are looking beyond traditional notions of Fino, Amontillado and Oloroso to embrace an array of new products, such as En Rama (unfiltered), Añadas (vintages), single casks and unfortified, biologically-aged wines.
In both Iberian countries, family companies with long-term visions are leading the charge.
Champagne’s challenges
Managing production levels in Champagne to reflect global market conditions is a constantly changing and difficult process, and never more so than at times of global crisis. COVID-19, and now a fragile economic backdrop, have made the past few years challenging for the Champenois.
Despite the prospect of a bumper crop in 2020, yields were constrained by the authorities because of fears of the impact of the pandemic on global consumption. As those fears receded, appalling weather brought a small crop in 2021, leaving producers facing the prospect of shortages in the years to come as supplies fail to match likely demand.
Fast-forward to the Autumn of 2022, and a much-needed production boost from a large crop, with the possibility for growers to rebuild their personal stock reserves (plus rule changes giving this system more flexibility).
It feels as though Champagne is returning to some form of equilibrium, only to face the prospect of further pressures thanks to the cost-of-living crisis reducing disposable incomes in key markets around the world. Brand owners and Champagne authorities alike will be watching export trends closely in the months ahead — before more difficult decisions need to be made around the 2023 harvest.
Wine – In pursuit of elegance
Consumer trends point to an appetite for, as one Argentinian producer put it recently, “white wines that taste like reds, and reds that taste like whites”. This means white wines of greater texture and complexity, and reds that are more expressive of the vineyard, fresher and with more restraint in the use of oak.
At a time when temperatures in many regions are rising thanks to climate change, raising ripeness and alcohol levels, this may seem counter-intuitive. But, at premium-plus price points in particular, winemakers are combating this by harvesting earlier and using a variety of techniques in vineyards and wineries to lock in freshness, acidity and balance.
Nowhere was this new philosophy more evident than in Europe during the 2022 harvest when, after a famously hot and dry summer, producers were nonetheless able to create wines of great quality and balance — even in especially heat-affected areas such as the south of France, Spain and Portugal.
RTDs – The only way is up?
The RTD segment is perhaps the most dynamic and fastest-moving alcohol category today, and its ceaseless conveyor belt of innovation makes predictions and trend-spotting all the more complicated.
Nowhere is this more evident than in the case of hard seltzers, the category darling from 2019 to 2021, but now being dealt a cold dose of reality by stuttering demand. As growth stalls in the hugely dominant US market, hopes are switching to overseas destinations — but doubts persist that the hard seltzer concept will translate meaningfully to other territories.
However, the trends that underpinned the hard seltzer boom haven’t vanished overnight, and the market still exists for a convenient, single-serve, low-ABV and low-calorie drinks option. On top of this, consumer RTD tastes are becoming ever-more diverse and sophisticated, with higher-priced, higher-ABV spirit-based premixes coming to the fore alongside niches such as hard kombucha, hard tea and hard coffee.
The price trajectory is clearly upward, but this remains a rollercoaster of a category with peaks and troughs that are hard to predict.
This article was initially published in the December/January issue of Global Drinks Intel magazine. For details on how to subscribe, click here.
