2014: Adult Beverage in Transition

A cursory review of the adult beverage industry results for the first quarter of 2014 recently posted on our online DRINK resource indicates that the trends of 2013 are continuing: total beer volume is in decline, while wine and spirits enjoy ongoing, if moderated growth, in keeping with our original projections for the year.

But a closer look at specific category performance indicates a foundational shift in beer and spirits. In both of those industries, the categories and brands generating the most case volume and dollars are indeed challenged, and will likely continue to be throughout the remainder of the year.

WHERE IS THE BEER CONSUMER GOING?

That the mainstream domestic beer categories and brands—both regular and light—are sliding isn’t news. In terms of compound annual growth rate (CAGR), we’ve tracked a -2.4% decline for mainstream domestic regular beer and a -2.0% slip 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 downward trend was again the story for these categories and top brands in the first quarter of 2014.

Given that mainstream domestic regular and light account for 70.3% of total beer volume, the consumer shift away from these powerhouse categories raises the question, where is the consumer going? 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 10.0% in the first quarter of 2014, which may be attributable to weather. Imported beer continues to pace along, and cider is experiencing meteoric rise. However, the combined growth of these three is not enough to offset the losses by the major mainstream domestic categories.

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. That’s good news, because beer is increasingly competing with spirits and wine, both of which are enjoying higher per capita consumption.

VODKA ALSO HITS THE BRAKES

Similar to beer, however, the largest category in the spirits industry is now challenged. Vodka, which accounts for one-third of total spirits volume, felt the impact of on-premise softening in late 2013 and the first quarter of 2014, much of which was due to unusual weather patterns and less than exuberant consumer confidence. The category is also being impacted by a changing consumer palate as imbibers move away from sweet flavors, a driver of the flavored vodka segment. Vodka’s growth has slowed from highs of 6.8% and 5.2% in 2011 and 2012, respectively, to below 1% for 2013 and again in the first quarter of this year.

At the same time, higher-priced whiskey categories are experiencing ongoing expansion as consumers embrace these flavorful and complex spirits. The impact on the spirits industry is significant: total volume growth has slowed, a trend that continued in the first quarter, and while white spirits hold the majority share of spirits volume, the segment is being outpaced by brown spirits, propelled by the whiskey trend.

WINE TRENDS ARE SPARKLING

The dominant category in wine appears to be trending better than the leading categories in beer and spirits. Table wine trended just shy of 1.0% volume growth in the first quarter, in keeping with recent performance and our projections. At 89.5% share of total volume, that translates to a notable 73.4 million 9-liter cases. Incremental volume is coming from sparkling wine and Champagne, however, as more diverse and approachable bubbly wines attract younger consumers and find their way into everyday occasions. In 2014, sparkling wine continues to outpace table wine, bringing a new dynamic to the industry.

WATCH FOR MARKETPLACE TRANSFORMATION

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. 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.

These overarching shifts may be concerning to some adult beverage professionals. But those who see the glass as half full recognize that these sea changes will ultimately 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. In our DRINK New Product Tracker, we already are picking up on truly unique offerings,such as hybrid products, coming to the fore.

As we move toward summer, there’s reasonable anticipation that many consumers will want to satisfy some of the pent-up demand created by the harsh winter. Industry pros are looking for a lift in volume and sales as the temperatures rise. But the slow economy may quell some of that exuberance.

Going forward in 2014, the outlook for on-premise calls for an ongoing take-share environment, wherein beer, wine and spirits battle for each occasion. Competition promises to heat up at retail, as well. Consumers now cite cost of adult beverages as the leading purchase influencer, whether on- or off-premise, according to our recent Trends in Adult Beverage survey. So even as consumers seek new adult beverage experiences this year, they’re looking to enjoy them at an attractive price point.

Note: This article was originally published in The Technomic Viewpoint. View original .PDF file.

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Eric Schmidt

Eric directs Technomic's beverage alcohol research division, which develops in-depth market reports and directories that cover the beverage alcohol marketplace. He has more than 10 years' experience in the beverage industry, including stints at Beverage Marketing Corporation and Beverage Information Group. Eric is widely quoted in the media about trends and current events in the beverage alcohol industry.

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