Luxury is booming, but why?
Why are luxury alcohol brand sales on the rise?
The past few years have been an economic rollercoaster for us all. And yet, sales of luxury spirits are on the up. With the cost of living crisis heating up, we ask why? And will it last?
In times of crisis, we reach for comfort. Often in liquid form. But in times of economic crisis, we tend to tighten our spending. So you’d be forgiven for thinking that, that unnecessary luxuries – the ones that enhance but aren’t necessarily vital to our daily existence – would be the first thing to be curtailed. Yet so far, when drinks are concerned, that just hasn’t happened.
We may be in the early stages of an economic shitstorm, but consumers have not only been reaching for drinks, they’ve specifically been reaching for luxury drinks. As the cost of living spirals, and inflation rises faster than wages, why, and will this/ can this continue?
Spending on the rise
To answer that, let’s track how, and when, the growth of luxury spirits has unfolded thus far. Between 2015 and 2020, volumes of luxury spirits (defined as $50 plus) in the US increased by 125%, according to the Distilled Spirits Council of the United States (DISCUS). And as the pandemic took hold, sales of super premium spirits – those priced $200 and up – began to climb substantially.
According to data published by Reuters in August 2021 sales of such super premium spirits were the fastest growing segment in the spirits market, growing by 9%. The data from the IWSR data also showed that sales of 750ml bottles of drink priced USD $200 and over, are expected to grow 9.3% annually to 2025, outpacing lower-priced drinks. By comparison, sales of $10 bottles are predicted to grow by just 0.8%. And companies such as Beam Suntory have also predicted that more than half of its revenue will come from premium drinks by 2030. But what’s driving it?
Living in the moment
Back then, the theory was simple. Consumers deprived of other joys during the lockdown invested substantially in the fun things they could do at home. At home mixology was the cause of much premium spirits growth according to Bacardi, as consumers sought more adventurous, premium spirits to sip and mix with. With consumers filled with a renewed sense of living for the moment, spending a little extra on their drinks shelf was something they did with enthusiasm according to Diageo.
DISCUS reported a 47% increase in sales of spirits priced $50 or more in the third quarter of 2021 compared to the same period in 2020. According to its Luxury Brand Index (LBI), 2021’s volume growth was more than double the average 18% annual rate over the previous five years. Now out of lockdown, what was the cause? Again, in the face of travel restrictions, and even some lingering difficulty in heading out to a restaurant or bars, consumers continued to invest in upgrading their home drinking.
Not yet trading down
Fast forward to 2022, and DISCUS reports sales of luxury spirits rose by 37% in the first quarter compared to 2021’s figures. And according to Diageo, despite the mounting cost pressures, consumers are not yet trading down, as data shows other luxuries are already being cut out, such as clothing purchases. Announcing its results to the year ended in June, it credited around half of its 21.4% sales rise in part to higher prices, but also to consumers migrating to more expensive drinks categories. Sales of Johnnie Walker Blue Label, for example, rose by 31%. According to Diageo, consumers at all demographics were buying into the high-end category, to celebrate special occasions with something of quality, as well as the continued rise of at-home cocktails.
So, what does the future hold? As consumer’s spending power weakens, what now? Look back to the financial crash of 2008 and consumers trading down to cheaper categories. But the overwhelming feedback from most major drinks multinationals is that so far, this hasn’t yet happened.
One train of thought suggests luxury brands may further get a boost as consumers begin to cut back on socialising out of the home, choosing to invest instead on having as premium an experience as possible, in their homes.
Replicating the quality of on-trade serves is something many consumers began to explore during Covid-19 lockdowns. Now with a little practice, they’re better equipped to switch back to home socialising should they choose to. Which sounds somewhat rosy for spirits makers.
Expensive purchases can’t be sustainable in a world of shrinking incomes, but perhaps more pertinently, very real fear about each individual’s financial future. The bullish confidence of spirits and fine wine makers now, and the willingness of consumers to part with their cash, may not hold up under such pressure. Because though consumers may still seek out high quality when they do purchase, the frequency of such purchases may be about to fall off a cliff.
Can reduced purchases at the upper end, be evened out as some consumers trade down and purchase lower priced products more frequently? Probably not. Either way, it feels like the industry is heading for a period of readjustment. History tells us that alcohol is considered essential in times of turbulence, but even consumers with a taste for quality, may not be able to sustain it this time around.
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