Credit: BevNet
By: Ferron Salniker

From the espresso martini’s comeback to canned hard water, there’s been no shortage of surprising developments in spirits recently. But what are the overarching trends that will shape the industry in 2023? Here are four drivers of change to look out for.

No/Low Matures

In the last year more drinkers have adopted moderate drinking habits by switching between full and zero-proof cocktails, enjoying occasional low-alcohol or functional beverages, or abstaining altogether.

“Moderation is not just a moment, it’s a lifestyle for many people,” said Brandy Rand, chief strategy officer for drinks data company IWSR.

Now an $11 billion global business, no- and low-alcohol has proven to extend beyond a moment as well and is projected to grow 7% in volume over the next four years, according to IWSR.

More options to meet each occasion are likely to emerge from well known spirit brands or portfolios, which will help grow consumer perception and awareness, said Rand. Among non-alcoholic spirits, clear spirit replacements like gin and tequila alternatives are the fastest growing non-alcoholic segment in the U.S., and dark alcohol-free spirits catering to whiskey and rum drinkers are providing new options that can be straight or mixed. Those spirits will mirror industry-wide behaviors.

“As premiumization has been a trend in beverage alcohol for several years, the no- and low- space will continue to grow not only on existing brands but with new offerings at higher price points,” said Scott Lammert, executive vice president of supplier business development for Republic National Distributing Company.

No-alcohol spirits are expected to see more dynamic growth as brand owners invest in innovation and retailers and bars develop nuanced non-alcoholic beverage sets and menus.

“There is starting to be a much clearer consumer and trade differentiation between low and no,” said Rand. “We see the motivations to drink each category to be different, so how we segment and talk about the low versus no-alcohol categories will become more important, especially at retail.”

Drinkers Are Still Thirsty For High-End Spirits

U.S. alcohol sales in 2022 were led by premium spending across categories, and despite the economic climate most analysts agree that high-income drinkers will continue shopping for pricier spirits, but possibly with more caution. In 2022, total spirits volumes grew by 2%, with premium-plus up 13%.

“Alcohol has evolved to be much more lifestyle driven in that people are willing to invest in quality – what you drink says something about who you are, it’s a very social experience,” said Rand.

That attitude is expected to mitigate the trade-down in spirits from consumers more impacted by inflation. While sales analytics agency Bump Williams Consulting tracked a dip in upper-tier spirits towards the end of 2022, macroeconomic headwinds don’t appear strong enough to completely reverse the long-term trend.

“I think spirits in general are going to continue to perform well, I just think we’re going to see a slowdown on those higher end spirits— they’re not going to be carrying as much of the weight as they might have in years past, at least in the short term,” said Dave Williams, vice president of analytics and insights at BWC.

Among high-quality products, consumers are shifting to smaller bottle sizes versus moving to lower-priced brands within spirits, noted RNDC’s Lammert.

The categories consumers are most excited about spending on? High-end tequila and U.S. whiskey. But drinkers are also reaching for pricey bottles in categories that have experienced moderate or soft volume growth, like gin and rum.

“We’re seeing similar behaviors in categories like gin, it’s just about waiting for one of those brands to really step into the forefront and catch its stride and get to scale like in some of those other categories,” said Williams.

More Whiskey, More Agave

With whiskey and agave threatening to overtake vodka as America’s favorite spirits, enthusiasts are looking for new and interesting products— creating an opportunity for diversification within the categories.

Total whiskey volumes were up 3% in 2022, surpassing vodka last year for the first time in almost two decades, per IWSR. Whiskey also saw a fair share of mergers and acquisitions in 2022 with major spirit players like Diageo and Campari bringing higher end producers like Balcones Distilling and Wilderness Trail into their portfolio. The recent proposition to officially recognize American Single Malt as a category will fuel a lot more investment and innovation in the segment, added Rand.

Meanwhile, agave spirits contributed $1.6 billion to the spirits industry in 2022, accounting for 70% of the overall volume growth and 65% of overall value growth of total U.S. spirits, according to IWSR. As tequila’s popularity continues to rise, drinkers will likely explore similar spirits.

“The rise in tequila goes so well with the premiumization trend because now you’ve got these mezcals jumping in,” said MaryAnn Pisani, chief revenue officer of MHW, a beverage alcohol importer, distributor and service provider. “All those boutique mezcals that didn’t really have a chance five or ten years ago, now there’s this huge slot for them because there is space for a $50-plus bottle.”

Other agave and Mexican spirits are emerging and though they are tiny in volume terms, the growth rates indicate early momentum. Data from IWSR showed sotol was up 23% last year, raicilla 75% and bacanora 72%.

Spirits-Based RTDs Will Keep Rising

Coming off seven straight years of volume gains, the ready-to-drink category will continue to evolve with spirit-based RTDs leading the way. Premium-priced RTDs have grown faster than any other segment over the past two years, according to IWSR data. That momentum is driven by an increase in spirit-based cocktails, higher-proof offerings and well-known premium brand extensions.

“We expect continued over-performance of spirits-based RTDs versus the industry and malt-based hard seltzers, as industry leaders continue to enter the space and leverage brand-building capabilities and scale,” said Lammert.

More agave based RTDs will likely crowd the shelves, mirroring tequila’s ascension. Ranch water, paloma, and the evergreen margarita will be some of the top growing flavors, added Lammert.

While overall premiumization trends are moving drinkers to spirits-based canned cocktails, those RTD brands are also doing a better job at appealing to a broader base of consumers, according to Williams.

“I think we’re seeing beer drinkers remain pretty loyal to the category, it’s just that they’re not seeing the same influx of new drinkers,” said Williams.

New drinking-age consumers are finding their way into alcohol via canned cocktails, he added. While BWC includes all RTD bases in its data, the agency expects RTDs to cut into about 20% of beer shelf space during the spring resets as retailers trim to make room for hot growth areas. Spirits companies may also work harder to reach those tech savvy demographics online — luxury alcohol e-commerce site ReserveBar recently launched a canned alcoholic beverage focused site, for instance.

As major beverage companies continue to innovate in the RTD space, they will also likely look for inroads into beer channels. Spirit giant Sazerac recently transitioned from wine and spirits wholesaler RNDC to several beer distributors. Like Topo Chico’s spirit-based version of its hard seltzer brand set to release this year, other beverage companies may continue to launch spirit takes on their malt ready-to-drink beverages, putting themselves in position to be effective in beer and wine-only channels if state liquor laws change. While there were some legal victories for spirits in 2022, state-level lobbying will heat up as advocacy organizations push to equalize tax rates for spirits, open up sales at grocery and convenience outlets, and legalize direct-to-consumer shipping.