The Spirits Industry

Many of the beverage trends that were evident in late 2019 began to accelerate in early 2020, as consumer behavior adapted to making essential choices, often under restrictive conditions. Initially, buying big, trusted brands became the norm. But more recently, beverage shoppers appear to be reverting to some of their pre-COVID habits – interest in health and wellness attributes and willingness to try new products and indulge themselves. Looking ahead, many of these new behaviors are likely to continue well into this year, as consumers remain mindful of their vulnerability while awaiting vaccination.

Four Key Trends for 2021:

Ultra-Premium now within reach

The long-term trend in the premiumization of spirits has strengthened under COVID-19. In the US, a recent trade survey by Drizly noted that tequila surpassed ‘longtime growth champ’ bourbon as the top spirit retailers expect to stock more of in the next one to three years. This response marked a ‘significant change’ compared to last year when retailers were asked a similar question, and tequila placed 30 points behind bourbon. In third place was vodka, followed by scotch and mezcal. On Drizly’s platform, tequila has grown its share by 22% over the past year, while mezcal’s share has risen by 57%.

Ready to Drink (RTD) Alcohol - not your Dad’s “alco-pop”

RTD alcohol, led by hard seltzers, saw explosive growth in 2020 and experts agree this trend will continue in 2021. As craft spirits reach maturity in 2021, consumers can expect to see more collaboration between traditional craft distillers and RTD alcohol brands in an effort to spur further innovation in this fast-growing category.

Low & No-Alcohol goes to Main Street

What started as Dry January and Sober October has evolved into a growing trend towards more mindful drinking year-round. Last year’s boom in hard seltzers has led to a new wave of innovation in low/no-alc elixirs, botanicals, and zero-proof spirits. Increasingly, spirit research confirms that consumers are actively shifting their drinking choices to include low/non-alc options. The category’s growth has not gone unnoticed by retailers – in New York’s Lower East Side, a new storefront called Spirited Away offers 80 different alcohol-free spirits, beer, apertifs, and “leisure sodas”. Most brands are less than two years old, which suggests we’re likely to see more developments in 2021.

Craft spirits grow up

The past year has been a roller-coaster ride for most craft spirits companies – from trying to minimize out-of-stocks in the off-premise channel to fighting for survival in the languishing on-premise channel. For many in Spring 2020, producing hand sanitizer was the only option. A key lesson from 2020 has been the consumer’s willingness to “trade-up” to ultra-premium, especially in “hot” categories such as Tequila and Mezcal, Bourbon, and Cognac. Each of these categories are expected to witness significant growth in 2021.

Ross Colbert is a Managing Director in the Corporate Finance group of KPMG, focused on the beverage industry.