This article was initially published in the March issue of Global Drinks Intel magazine. For details on how to subscribe – for 20% off in May – click here.
Late last year, Danny Brager made the pages of Global Drinks Intel when he presented at the ‘Wine Industry Financial Symposium’ in California. We spoke to the former Nielsen executive & current beverage alcohol consultant shortly afterwards to hear more about the wider alcohol market in the US.
Global Drinks Intel: What are your alcohol-related qualifications?
Danny Brager: I headed up the beverage alcohol practice – covering beer, wine and spirits – at Nielsen for around 20 years in the US. During that time, I worked with suppliers, importers, distributors and retailers. I also got to know all the trade associations and all the industry events. I left in mid-2020 and have been consulting since then.
GDI: Your career includes covering the ‘Global Financial Crash’. How does today’s trading environment for alcohol compare?
DB: There are some similarities, but a lot of differences. The employment situation is better now than it was back then. The inflation part is impacting much more this time around. Interest rates were crazy in 2008-2009 and that resulted in a lot more trading-down activity compared to now. There’s some, but I don’t see quite as much, although that’s also mixed in with year-on-year comparisons shaped by Covid channel-shifting.
Covid caused all sorts of anomalies in terms of consumers’ relationship with alcohol. For a start, there was increased consumption, more so for spirits. On top of that, the long-term trading-up/premiumisation – whatever you want to call it – trend was massive in 2021. I’d never seen so much movement at the high end for spirits, and that was because those consumers that often buy wine and spirits had money that they couldn’t spend on things like travel or entertainment. Plus, there was government relief money that people had.
Last year, we were going against those huge numbers from 2021. It’s going to take a few months – well into this year – to get back to some more normal comparison levels.
GDI: You seem tired of the word ‘premiumisation’.
DB: I go with the flow; there are so many industry terms. I mean, what does ‘RTD’ mean exactly? Ask 100 different people and you’ll probably get 100 different definitions. With premiumisation, there has been a ‘quality over quantity’ thing, for sure.
GDI: In the medium term, beverage alcohol appears to have emerged from the pandemic in a healthier condition than before Covid arrived.
DB: Certain sectors, yes. But not everything. Spirits has been winning at a faster pace than it was before, but wine has been struggling at a higher level than it was before. There are category differences.
Then, there are new areas like RTDs – I’m not sure if RTD’s arrival was coincidental with Covid, but it happened around the same time, and it seems to have taken on a life of its own.
In total, it’s emerged healthier, but there have been winners and losers.
GDI: In beer, there appears to be a squeeze in the middle.
DB: If ‘middle’ means mainstream beer, then that’s the case to a certain extent. In the US, Mexican imports are ‘a thing’, and that’s primarily the Modelo brand: Looking at its figures for 2022 compared to 2021, Modelo’s so far ahead of the next largest; it’s not even in the same ballpark.
Craft as a segment is struggling now – It feels like it’s matured over the last couple of years. There’s going to be some paring down, certainly on the shelf. Craft occupies a lot of space.
Then, there’s hard seltzer, which got to some dizzying heights but’s now declining, albeit not at the same level that it grew by. Meanwhile, FMBs [flavoured malt beverages], such as Mike’s Hard Lemonade and Twisted Tea, are doing well and is replacing the volumes that hard seltzer’s losing.
There’s a ton of blurring going on. I don’t think the consumer cares about our crazy definitions.
Then, you’ve got inflation, which is leading to some trading-down activity. Below-premium – the lowest-priced segment – is doing better than before.
GDI: How has the switch in beer happened from craft with its hyper-local cues to Mexican imports?
DB: So we’re clear, It’s Modelo that’s doing great. I can think of Mexican beer brands, some owned by major players, that aren’t doing that well. Obviously, there’s the Hispanic factor – they’ve done a really good job of understanding Hispanic taste preferences and have tied in with relevant sports and entertainment areas.
I don’t know if it’s fair to correlate craft’s decline with Mexican beer’s growth. In my experience, everything gets to a point when it becomes harder to grow, and craft beer’s no exception. It’s tougher to bring something innovative to market now, and there are all these shiny new toys out there that people are interested in trying.
GDI: Can hard seltzer’s rise be attributed to the trend towards convenience, as so many brand owners claim?
DB: It’s part of it. There’s an interplay between convenience and ‘better for you’. Then, there’s the flavour aspect; there’s a huge range of flavours available. Combining these three factors explains how hard seltzer has become what it is.
GDI: Today, the segment is declining quite sharply. Will hard seltzer hang around?
DB: Yes, I think so. I don’t think it’s an inexorable descent into nothingness. Over 50% of the top 20 hard seltzer brands are growing, while the top two brands – White Claw and Truly – are down. It’s just difficult for the others to make up the difference. I think it’ll stick around, it’s not a fad.
GDI: The major brand owners are piling into spirits-based RTDs. Are they in reactive mode?
DB: Initially, it was reactive to hard seltzer, with brand owners thinking ‘I could do that, and I could do it better’. Since then, it’s become quite proactive with who’s getting involved and the kind of innovation we’re seeing.
Everyone’s involved: There’s E&J Gallo, which is leading the charge with [vodka-based] High Noon, then there are five or six beer companies led by Anheuser-Busch, who have taken beer extensions and extended them further. On top of that, there are the major spirits brand owners, such as Diageo, Bacardi and Pernod Ricard, alongside at least the same number of small, entrepreneurial companies that are looking to be acquired by somebody else at some point. Everybody’s working out how to carve their own space in a segment that’s still only about a quarter of the size of hard seltzer. There’s a lot of runway still to come.
GDI: To what end, though? Where’s the mother brand’s benefit?
DB: I wonder the same thing. Are you trading-down consumers? What’s the affinity back to the mother brand? These haven’t been answered yet, but you have a choice: Do you sit on the sidelines or do you jump into it?
GDI: Is spirits’ premiumisation record under threat?
DB: The trend year after year has been a constant drift-up into more premium segments for spirits. But, in the last year or so, it’s levelled off. It’s not like the high-end is coming down, but it’s not been growing as it was over the last couple of years. Of course, the last couple of years have been an anomaly.
GDI: The spirits consumer seems to be accepting whatever price increases are thrown at them.
DB: You’ve got to put that in the context of broader inflation, which is running way ahead of average price increases for beer, wine and spirits. I’m sure they’re doing work on their brands’ price elasticities but it’s not out of line with what’s normal these days in that broader context.
GDI: Over in wine, why are there willing buyers for cheaper brands that are up for sale when the category growth is at the higher end?
DB: That’s a question I struggle to find an answer for. Are buyers expecting people to trade down? Because I haven’t seen any trading down in wine. Besides, there isn’t very much that excites me under US$10. The innovation I do see under $10 isn’t in a 75cl bottle, it’s either in different packaging or in wine-based things that consumers don’t even recognise as being wine.
For the selling companies, they clearly want to be in the premium space and that’s the right place to be. The companies doing the buying, like Gallo and The Wine Group, they’re smart people – They know what they’re buying.
GDI: Late last year, you warned that wine is “competitively disadvantaged among younger LDA [legal drinking age] and multi-cultural consumers” in the US. Is this a problem today or tomorrow?
DB: Competitively, it’s a serious problem when you look at how much better beer and spirits companies do against younger consumers and multi-culture groups. We’re not talking about 1% or 2% of the population here, these are large percentages that are growing faster and they’re younger.
GDI: How should the wine industry hedge its bets?
DB: The industry needs to reflect on the job it’s done to understand what these types of consumers like and don’t like and marketed itself accordingly. I don’t think they’ve been introspective enough or diverse enough. I don’t see too much diversity at the conferences I go to.
Wine companies have to do a better job within themselves first. Any company’s stronger if they reflect the consumers in the marketplace.
This article was initially published in the March issue of Global Drinks Intel magazine. For details on how to subscribe – for 20% off in May – click here.
