What To Know About Beverage Alcohol Premiumization in 2023
There’s a slowdown in the trading-up trend, but there is an opportunity to take advantage of continued growth in certain categories
In the summer of 2020, BevAlc Insights reported on the premiumization trend that had taken hold across the country. Drizly data showed that consumers were trading up to higher-priced products across the beverage alcohol spectrum, especially in the early days of the pandemic. The practice continued into 2022, with upscale products seeing more share growth on Drizly than their lower-priced counterparts.
Now, with U.S. consumers concerned about inflation and the higher cost of living, trading up is leveling off for some categories. Beverage retailers will need to track trends and purchase wisely to make the most of continued premiumization in the strongest beverage categories.
Premiumization Continues at a Slower Pace
Data from the Distilled Spirits Council of the United States (DISCUS) shows an overall dip in trading up during the first quarter of 2023. “Premiumization grew drastically during the pandemic, so it is only natural to see that growth normalize and level off,” says DISCUS economist Hasan Bakir. “While this was expected, the long-term growth trend of premiumization remains intact.”
IWSR Drinks Market Analysis reports that all major beverage categories posted growth in 2022 across premium-plus price tiers (defined as $22.50 or more per bottle for spirits and $10 and above for wine). While the firm’s latest consumer research further supports the trend, it is showing signs of fragility.
“Premium consumption behavior in the U.S. continues,” says Richard Halstead, the head of consumer insights at IWSR, “but it is growing at a more moderate rate than previously.”
Christian Miller, proprietor of Full Glass Research, points out that consumers began trading up to wines priced over $20 well before the pandemic hit. However, he says, “Things have really leveled off and even gone negative in some segments since sometime in late 2021 or early 2022.”
For example, SIPSource figures show that depletions for wines priced $15 to $25 increased 10 percent in 2021, yet grew just 1.4 percent in 2022. Likewise, for luxury wines priced at $50 and up, depletions spiked 35 percent in 2021, but remained flat the following year. While the cause is unclear, Miller says, it’s possible that this is due to a short-term drop in consumer confidence rather than a permanent shift away from high-end products.
The 2023 Drizly Consumer Report suggests that inflation and recent spikes in the cost of living could be behind the slowdown. Sixty-six percent of survey respondents reported changing their alcohol-buying behaviors during the past 12 months due to inflation. Seventeen percent reported buying cheaper brands than they normally purchase and 14 percent said they have switched to less-expensive beverage categories.
Though the Champagne and sparkling wine category led premiumization in the wine category in past years, only 18 percent of survey participants said they are planning to purchase at the premium level.
When asked about the types of beverages they are still willing to buy despite rising costs, 36 percent named wine, while 27 percent chose dark liquor and 26 percent opted for white liquor.
“As consumers prioritized essential purchases like rent and groceries, they have had less money to spend on non-necessities like high-end spirits,” confirms Bakir. Even so, he adds, shoppers still view premium spirits as an affordable luxury.
Halstead also believes there is reason for optimism. “Consumer confidence in the U.S. remains resilient in the face of inflation and cost of living pressures,” he says, especially among younger consumers, who tend to be less anxious about the future.
Subcategories Leading Premiumization
On Drizly, the overall average unit price of products sold has seen a steady rise since 2019, growing nearly 17 percent over the last five years to reach $20.16 in 2023. However, the average remains relatively flat in 2023 year to date.
The average unit price for the wine category increased more than 20 percent over the last five years, totaling $19.57 in 2023 following a slight increase over the previous year. Within the top-selling wine subcategories, sparkling wine commands the highest average unit price, followed by red wine, rosé, and white wine.
Looking at wine data from SipSource, Miller says, Sauvignon Blanc and rosé are still doing well at the higher end, as are wines priced over $15 from Australia and New Zealand.
On Drizly, the average unit price for spirits is 2.7 percent higher today than in 2019; however, it has declined in 2023 year to date and is currently below the 2020 level.
“Spirits is the category that we saw the most significant growth in premiumization amidst the early pandemic years,” says Liz Paquette, the head of consumer insights at Drizly. “Based on the current data, however, it appears that has slowed down.”
Within the top-selling spirits subcategories, tequila has the highest average unit price on Drizly at $48.60 – up from $39.32 in 2019 – followed by whiskey at $37.78 and vodka at $21.78. The average unit price for both whiskey and vodka declined slightly in 2023 year to date, with vodka’s current unit price just below the 2019 level.
Among tequilas, the añejo subcategory has the highest average unit price and has seen significant gains over time, from $86.62 to $99.85 in 2023. Likewise, reposado’s average unit price rose from $44.50 in 2019 to $61 in 2023.
Bakir notes that tequila continues to be a top-performing category, along with American whiskey. “Whiskey has benefited from consumers’ desire for spirits with rich heritage and authenticity, along with legacy whiskey brands introducing super-premium versions,” he says. Bakir also credits the rise in craft distillers and whiskey tourism as drivers of the category’s success.
A recent report from IWSR identifies whiskey as a key growth driver for premiumization within the spirits category. “Premium-and-above segments contributed the most growth to the whisky category in the U.S. last year,” it states, “and will continue on an upward trend.”
Tequila will retain its status as a high-profile affordable luxury thanks to celebrity brands, the report predicts, though there are early signs that premiumization is slowing.
Tracking and Adjusting Product Offerings
To make the most of premiumization, says Paquette, “It is important that retailers consider the trend’s impact within specific subcategories, as they do not always mirror the overall alcohol category trend. While we are seeing shifting trends across the board, there are specific brands and products that consumers are still willing to splurge for.”
Miller recommends that retailers keep a close eye on sales trends and adjust their promotions and assortments accordingly. “People are drinking across more categories now and there are more new product introductions,” he says, “so I think it’s going to be very volatile.”
As premiumization levels off, he adds, it’s more important than ever to focus on customer acquisition. “Whether it’s advertising, social media, word of mouth, events, promotions, or whatever,” he says – especially among more affluent consumers – and retention.