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Spirits (Liquor) Industry Research: COVID-19 Implications – United States

Woodford Reserve and Dixie Vodka are 2 liquor brands that have activated outside the eCommerce space during COVID-19. In September 2020, Woodford Reserve kicked off a multi-channel campaign dubbed The Spectacle for the Senses that covered TV, print, and out-of-home (OOH) advertising. In March 2020, Dixie Vodka signed a deal to be the title sponsor of the NASCAR Cup Series and embarked on on-premise activations to drum up awareness of the partnership.

1. Woodford Reserve-Brown-Forman Corporation

  • Woodford Reserve is Brown-Forman’s premium “straight bourbon” whiskey. A link to its website can be found here.
  • Woodford Reserve worked with the creative agency BBDO to create The Spectacle for the Senses campaign aimed to showcase bourbon as a “multi-sensory drinking experience” by highlighting the over 200 flavor notes present in the product.
  • The campaign was set to make its debut during the Kentucky Derby on September 5, 2020. Woodford Reserve has been a standing sponsor of the Kentucky Derby. Apart from airing during the Derby, MediaPost reports that the campaign also included print and OOH advertising.

The Spectacle for the Senses 1

  • Mediapost reports that the campaign was designed to set apart Woodford Reserve from other brands in the same category through “more fashionable and upscale messaging“. The article goes on to note that the campaign’s anchor spot was the use of “bright and beautifully designed photographs” of the products aimed to “inform viewers about the 200+ different flavor notes, such as lemon and honey“.

The Spectacle for the Senses- Kentucky Derby

  • Matias Bentel, Brown-Forman’s Chief Brands Officer, says this about the campaign, “This new campaign separates Woodford Reserve from other whiskeys with its fresh, bright design aesthetic, in contrast to traditional Bourbon advertising. It elevates Woodford Reserve beyond the Bourbon category and will introduce our brand to new consumers globally”.
  • Jonathan Fussell, Creative Director at Energy BBDO, adds, “Woodford Reserve is more than a bourbon. It’s a sensorial experience. Not only how it tastes, but how it smells, makes you feel, or just looks in a glass. Our new campaign works to bring those experiences to life in a way that’s as spectacular as the bourbon”.

2. Dixie Vodka

  • In March 2020, Charleston-based Dixie Vodka, signed a deal to be the title sponsor of the NASCAR Cup Series. A link to Dixie’s website can be found here.
  • Unlike previous title sponsors, Sports Business Daily reports that Dixie Vodka did not have the whole year to promote the partnership. Within a short period, the news website reports that Dixie Vodka utilized on-premise activations (as well as social media) during the Champions Week and at the Daytona 500 motor race to create awareness around the new partnership.
  • Speaking of the collaboration, CEO and founder Matti Anttila narrates, “The flavors of the south go to what ingredients that we’re using in our product. But then too, it’s what stories are we telling and what partnerships are we pursuing. It’s one of the reasons why NASCAR made a lot of sense for the brand. NASCAR is a very authentically southern sport”.

Dixie Vodka & NASCAR

  • On-premise activations at the track featured collaborations with Hooters and Applebee’s. For Daytona 500, Anttila talks of the Speedway Cocktail, a Dixie-infused cocktail made exclusively for the “at-track” activations at Daytona 500.

Dixie Vodka Speedway Cocktail

  • Anttila notes that the brand has enjoyed growth as a direct result of the partnership and the ensuing campaign to promote it. He informs Sports Business Daily that Dixie Vodka’s email list grew from 15,000 to approximately 100,000, with representation from over 50 states.

According to Nielsen, spirits have experienced a 31.7% growth in sales during the COVID-19 pandemic. At 71.6%, Ready-to-Drink (RTD) cocktails have fueled the growth in sales for spirits. Off-premise sales of spirits are reported to have risen by 34.1% during the pandemic, and industry expert IWSR assert that spirits have been performing strongly enough to level up the total industry to a 0.6% increase in volumes. The data breakdown required for this brief has been grouped around growth and decline in sales caused by the pandemic, as well as the effect COVID-19 has had on customer preferences and behavior, particularly as it concerns spirits.

Growth in Sales

  • Nielsen reports that spirits realized a 31.7% growth in sales during the COVID-19 pandemic. Nielsen goes on to note that this increase puts spirits well ahead of other categories (wine- 27.1% and beer- 15.4%). To return to pre-COVID levels, Nielsen asserts that spirits, together with the other categories, should maintain a 22% volume growth.
  • Larger packs of spirits have also experienced “unprecedented demand” during the pandemic. Nielsen asserts that during the first 7 weeks of COVID-19 that ended in April 2020, demand for 1.75-liter pack sizes was 23 times higher than the same period ended in February 2020. This represents a 47% increase from the 2% pre-pandemic growth rate reported by Nielsen.
  • Quoting more recent Nielsen US data, Wine Industry reports that in the week ending July 11, 2020, spirits continue to lead the growth rate for off-premises sales at 25.5%, with dollar sales reportedly increasing by 33.6% during the pandemic.
  • Compared to a year ago, the article goes on to assert that the value and volume of spirits have increased by 33.6% and 28.9% respectively. Nielsen asserts that spirits have overall enjoyed a 374% jump in off-premise dollar sales compared to 2019.
  • Beverage Industry reports that e-commerce has been driving triple-digit growth for alcohol sales during the COVID-19 pandemic. Market Watch posits that online sales for alcohol have jumped 243% during the pandemic, with spirits such as tequila, gin, and premixed cocktails leading growth. The article pegs spirits’ growth at 75% compared to the same period in 2019.
  • Wine Industry notes that “ultra premium” spirits have experienced continuous growth over other price tiers during the pandemic, with growth rates above 50%.
  • Minibar Delivery and Drizly, online alcohol delivery platforms, have reported sale surges of 539% and 550% respectively. Liz Paquette, Head of Consumer Insights at Drizly, notes that bourbon experienced the most growth in sales, followed by vodka, and tequila.
  • Nielsen’s data, measured in the 7-week period ending April 18, 2020, found that spirits accounted for 19% of online alcohol dollar sales, compared to 17% in the same 7-week period before the onslaught of COVID-19.
  • IWSR assert that spirits have been performing strongly enough to level up the total industry to a 0.6% increase in volumes in a rolling 12-month period.

Decline in Sales

  • Nielsen’s data estimates that the decline in on-premise sales fell by a full 90%. On-premise sales accounted for about 45% of total alcohol dollar sales. This has been attributed to the shelter-in-place restrictions enforced to curb the spread of the Coronavirus.
  • In the spirits category, the worst-hit segment appears to be craft distillers. According to a study by Distilled Spirits Council of the United States (DISCUS), craft distillers have lost approximately $700 million, or 41%, of their sales due to the shut-down of their on-premise tasting rooms.
  • DISCUS’s report goes on to note that 40% of craft distillers rely heavily on their tasting rooms to deliver over half of their sales. The study also found that over 40% of craft distillers had experienced a 25% decline in wholesale revenues, while a full 11% have lost their entire wholesale business. Washington Post reports that industry experts worry that many distilleries will not survive the harsh economic decline brought on by the pandemic.

Changes in Consumer Behavior

  • Nielsen reports that consumers are spending less on alcohol and “seem less willing to experiment” with alcohol brands they are unfamiliar with. 69% of consumers surveyed by the firm asserted that they only buy brands that they “know and trust“. This sentiment is echoed by Ross Colbert, Managing Director of KPMG Corporate Finance, who says, “The pandemic has really pushed the consumer toward the big comfort and value brands that they trust”.
  • Further, Washington Post reports that consumers are “going heavy” on less-expensive familiar liquor brands such as Jim Beam and Smirnoff, leaving “the fancy stuff“- craft spirits, Amari, and bitters- to expert mixologists in bars and restaurants.
  • Nielsen also reports that of the consumers they surveyed, 75% were “still willing to treat themselves” and pay more for a delivered spirit than go to a retail store.

Predictions for the spirits industry in the US, moving forward from COVID-19 and into 2021, include pro-longed recovery and growth times, the emergence of Direct-To-Consumer selling as a “critical lifeline” for liquor brands, growth of the premium spirits category, the uncertain future of on-premise sales, and the disappearance of brands. Findings from global alcohol beverages industry analysis provider, IWSR, informed the bulk of this brief.

Recovery and Growth

  • Quoting IWSR data, Fortune reports that the U.S. liquor industry will not recover to pre-COVID levels until after 2024. This is attributed to the “subduing” of consumption drivers such as restaurants, bars, sporting events, concerts, and festivals for the foreseeable short and long term.
  • Whiskey and gin are predicted to recover the fastest by 2024. Vodka, on the other hand, is not expected to get back to pre-pandemic levels until after 2024.
  • Mark Meek, CEO of IWSR, states, ” While we’re still assessing the full impact of the current COVID-19 situation, it’s very clear that the pandemic is set to cause a deeper and more long-lasting after-effect to the global drinks industry than anything we’ve experienced before. Even the downturn following the 2008 financial crisis was less severe than what we are seeing now. In many ways, 2019 was perhaps the last ‘normal’ year for the drinks industry.”
  • Non-alcoholic spirits, having enjoyed double-digit growth in 2019, are predicted to grow with a Compound Annual Growth Rate (CAGR) of 7.2% through to 2024.

Emergence of DTC

  • Direct-to-Consumer (DTC) sales have been deemed a “critical lifeline” for the future of the liquor industry in the U.S. and globally.
  • Michael Weiss, CEO and co-founder of home delivery company Spirit Hub, predicts that by 2025, one in every 5 consumers will order alcohol from delivery apps such as Spirit Hub. In his words, “Since consumers have already changed their buying patterns and have become accustomed to purchasing alcohol, among other goods, online safely and easily, I believe this channel will only continue to grow… We believe that once the pandemic subsides, eCommerce will emerge as the third major channel for alcohol purchases on par with on-premise and off-premise”.
  • IWSR posits that the 80% off-premise and 20% on-premise volume split that was typical in the US alcohol sales channel are “long gone“, replaced by “at-home” consumption which, according to the market analysis firm, will dictate volume growth. In the words of Brandy Rand, COO for the Americas, “Value growth will likely suffer substantially due to the on-premise mark-ups, while volume growth will be dictated by ‘at-home’ consumption rates. People are also investing in making their home environment more comfortable and functional in lieu of going out — outdoor spaces, technology and entertainment, and items for cooking and making cocktails”.
  • IWSR advises that brands and marketers have the opportunity to meet the rising “immediate needs” of consumers who will continue drinking while “enjoying the comfort and safety of their homes”.

Premium Spirits

  • IWSR also predicts that the premium spirits category will increase in market share by approximately 1% between 2019 and 2024. The US is the second largest “premium and above” market for spirits, second only to China. During the pandemic, premium spirits are reported “to outperform the growth rate of the other price tiers below it, with growth rates generally above +50% for most weeks”.
  • The global volume market for premium spirits is expected to grow to 13% by 2024.

On-Premise Return and the Disappearance of Brands

  • Euromonitor International Research Analyst Aga Jarzabek notes that while alcohol levels sold at bars and restaurants are expected to “somewhat” return to pre-pandemic levels in 2021, she also predicts that it could take a few more years for normalcy to return. While not explicitly stated, it was safely construed that this prediction concerns spirits, as they too are also sold on-premises.
  • Speaking on the resumption of on-premise sales, she adds, “I believe there’s going to be a ton of permanent closures, and a ton of brands are just going to disappear”. IWSR reiterates this, noting that while the development of a vaccine may prompt a full return to on-premise sales, “on-premise closures are imminent“.
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