Alcoholic Beverages Facing Foundational Shift

CHICAGO -- The alcoholic beverage trends of 2013 are continuing this year: Total beer volume is in decline, while wine and spirits are experiencing moderate growth. Diving deeper, however, specific category performances indicate a foundational shift in beer and spirits.

Chicago-based market research firm Technomic Inc., through its online DRINK resource, tracked a 2.4-percent decline in the compound annual growth rate for mainstream domestic regular beer and a 2-percent decline for domestic light beer from 2010 to 2013. The leading brands in each segment, Budweiser and Bud Light, together shed 32 million 2.25-gallon cases in 2013.

The story was very similar for the first quarter of 2014, according to Technomic's research. A downward trend was once again tracked for these two segments and their top brands.

"Given that mainstream domestic regular and light account for 70.3 percent of total beer volume, the consumer shift away from these powerhouse categories raises the question: Where is the consumer going?" said Eric Schmidt, director of research at Technomic.

"Some are going to craft beer, although the strong double-digit volume gains of recent years appear to be slowing; the category grew at less than 10 percent in the first quarter of 2014, which may be attributable to weather," he explained. "Imported beer continues to pace along, and cider is experiencing meteoric rise."

Still, the combined growth of craft, imports and cider is not enough to offset the losses by the major mainstream domestic categories, Schmidt noted.

"With per-capita consumption of beer contracting and the categories in transition, beer will continue to evolve in 2014 into a more diversified and perhaps dynamic industry," he said. "That’s good news because beer is increasingly competing with spirits and wine, both of which are enjoying higher per-capita consumption."

Similar to beer, vodka -- which accounts for one-third of total spirits volume -- felt the impact of on-premise sales softening in late 2013 and that continued through the first quarter of 2014, mainly driven by weather patterns and less-than-exuberant consumer confidence.

The vodka category is also being negatively impacted by a changing palate as consumers move away from sweet flavors, a driver of the flavored vodka segment, according to Technomic.

A bright spot in spirits is the higher-priced whiskey categories, which are experiencing ongoing expansion.

Looking at wine and sparkling alcoholic beverages, Technomic found that table wine trended just below 1-percent volume growth in the first quarter of 2014. However, sparkling wine continues to outpace table wine, bringing a new dynamic to the industry.

"When the categories and brands that are pillars of an industry decelerate or shed volume and sales, the marketplace is transformed. Such will be the case for beer and spirits in 2014 and well beyond. New flavors and segments are garnering consumer attention in both industries," Schmidt said.

"Wine, too, is in transition. As Millennials are now fully of legal drinking age, their taste preferences are evolving beyond the sweet styles, and they are embracing innovations and nontraditional offerings as well as more familiar varietals and styles," he continued.

These changing tides, he said, will result in a more diverse marketplace in which innovative brands, products, suppliers and on- and off-premise operators have greater opportunity to drive sales and profits.