“The near-complete 60-day shutdown of business in restaurants, bars and hotels has been nothing short of catastrophic for the on-premise channel,” said SipSource analyst Dale Stratton. “On-premise share of depletions for wine is down to 11.1%, a 340 basis-point drop since February. The news is worse for spirits, which have lost 430 basis points in share and are down to 14%. Share losses softened in June as several states allowed the re-opening of restaurants under strict guidelines.”
Meanwhile, the premiumization trend that played an integral role in building both the wine and spirits category in past years has diverged as new at-home consumptions trends emerge. Early indications are that premiumization is not happening in the wine category – across almost every varietal, the Value and Popular segments are gaining momentum, while the Luxury segment is losing momentum.
Wine volume in the e-commerce channel is up +29 percent in the first six months of 2020 compared to the calendar year growth of only +4.7 percent. But, for the first time since the data has been reported, volume growth outpaced dollar growth as consumers purchased more everyday wine through the e-commerce marketplace.
“It is a different story for spirits,” says Stratton. “While the most significant momentum gains are coming from the two middle price tiers, there are examples of growth and momentum gains at the Ultra-Premium level. Examples of continued premiumization include the Ultra-Premium segment for Tequila up +14.7 percent, U.S. Straight Whiskey up +12.3 percent and Gin up +5.6 percent.”
The latest data shows interesting developments on what consumers are purchasing, but at the macro level shows consumer purchasing habits remain consistent. The growth rates between categories remain diverged, with spirits growing 3% and wine down 1.3%.
SipSource data previously forecasted products heavily leveraged against the on-premise would naturally show the largest declines, which has held true except for two segments: Tequila and Prosecco. Tequila growth has softened from up 9% in February to up 6.2% in June; however, most of that decline is in the Popular price segment, which is largely driven by on-premise, well brands. Prosecco continues to do well, growing 7.9% and has successfully transferred on-premise sales to off-premise, which is up 17.2%.
“One thing is clear in the COVID-19 pandemic,” said Stratton. “American consumers still love their cocktails. There has been no significant change in top-line spirits trends and the category continues to be the model of strength and consistency. There has been some movement at the segment level, largely based on the importance of the on-premise to the segment, but the clear point is that consumers have moved their on-premise cocktail occasions to in-home consumption.”
Rounding out the latest report is total depletion data across both the wine and spirits categories, answering the question, “Are consumers drinking more alcohol as they shelter in place?” Total depletions have increased from down -0.6 percent in February to up 0.7% in June, indicating a 1.1% growth. Continued trend improvement in both categories indicates that panic-buying alcohol in March was actually consumed.
“Tequila continues to be a powerhouse and passed Rum in June to become the third largest volume category in Spirits. We were nervous about Tequila trends due to its strength in the on-premise, but while Popular-priced Tequila, used primarily for on-premise wells, is down -8.6 percent, the Super- and Ultra-Premium segments are up +12.3 percent and +14.7 percent, respectively,” said Stratton.
“The growth rate on Premixed Cocktails has almost tripled in the last four months, going from up +10.2 percent in February to up +28.4% in June. All price tiers are growing by double digits, but the Popular—priced segment is up an impressive +51.3 percent in depletions. The entry of single-serve canned pre-mixed cocktails is a significant growth driver of this price segment. There are no signs of slowing momentum, with new brands and items continuing to enter the category. As Premixed Cocktails were not prevalent in on-premise, shelter-in-place has been a tailwind for this category,” said Stratton.
Spirits Highlights — European Whisky Impacted by Tariffs on EU Wine and Spirits
“While we have not done a detailed analysis on the impact of tariffs, current trends on European Whisky are of interest in the discussion. All major brown spirits categories are currently growing except for the two that were hit with increased tariffs: Scotch and Irish Whisky. Cognac (up 10.8% ), U.S. Whiskey (up 5.5%), Canadian Whisky (up 4.4%) and Brandy (+1.2 percent) are growing while Irish and Scotch Whisky are down 6.5% and -4.5%, respectively. At the end of October 2019, Irish was up 6.1% and Scotch was up 1%,” said Stratton.