Consumers choose to drink less to save more

New findings from IWSR Drinks Market Analysis show that although consumer confidence varies across markets, consumers are generally employing three main strategies to make their budgets go further amidst economic uncertainty: moderation, selective uptrading within certain beverage categories, and value-seeking shopping strategies within preferred brands.

Pockets of cautious optimism

IWSR consumer data from Q4 2022 across 17 markets (Australia, Brazil, Canada, China, France, Germany, India, Italy, Japan, Mexico, Netherlands, Poland, South Africa, Spain, Taiwan, UK, and US) shows that consumer confidence varies considerably by region.

Asian markets are generally more buoyant, with consumers in India and China much more positive about life and finances. India’s optimism appears to be driven by the country’s rapid recent GDP growth, as well as increasing expectations around earnings. China’s positive outlook may reflect a post-Covid bounce-back that has yet to take place because of persistent lockdowns arising from the government’s “zero-Covid” policy.

Consumers in Europe, on the other hand, are more cautious, looking to save money as living costs climb and inflation erodes wages. Alcohol budgets are being squeezed alongside other non-essential items such as pre-prepared meals and snacks.

In between these sit markets such as the US, where the picture is more complex. Overall, American consumers remain relatively positive, particularly around personal finances, though they are becoming more concerned about the broader economic outlook. So far at least, this is having less impact on shopping behaviour and going out than it is on Europeans, but there are signs that lower income groups, in particular, are starting to feel the impact of inflation.

Within this contrasting landscape, there are a few commonalities in consumer behaviour and attitudes across markets.

Economising through moderation

Around half of all adult drinkers of beverage alcohol across the 17 markets surveyed agree with the statement “I am more interested in moderating my alcohol consumption generally”, with only around 1 in 5 saying they disagree. Younger consumers of legal drinking age are much more likely to be moderating than older consumers.

This moderation trend extends to on-premise behaviour. Consumers in just under half of the markets surveyed said they are planning on using on-premise less in the next four weeks than they did in the previous four weeks, while only one market (India) is reporting a net growth in planned on-premise usage. In European markets such as Germany and the UK, almost half of consumers claim they are choosing not to drink alcohol on at least some on-premise occasions, with over 4 in 10 in the US and Canada saying the same.

Selective uptrading

While some markets are much more positive than others, certain alcohol categories are performing consistently better than others in terms of tapping into the premiumisation trend. For instance, drinkers of brown spirits such as whisky and Cognac, plus fashionable categories such as tequila and Champagne, are much more likely to say they are spending more on those categories than drinkers of beer, RTDs and wine.

In some cases, this increase in recalled spend will be enforced rather than voluntary, as their favourite brand puts its prices up. However, it also suggests that consumers are engaging in what IWSR term “selective uptrade” of premium beverages. In response to constrained incomes, consumers are more selective about which brands and categories they spend their disposable income on, while trying to save money on more quotidian beverage categories. It also aligns with a desire to moderate consumption generally.

The most positive markets, such as China, India and Brazil, are showing increases in selective uptrading across all or almost all categories. IWSR analysis also shows that, even in the most pessimistic markets, selective uptrading is still taking place, just in more isolated pockets. For instance, in two of the most downbeat markets – Germany and the UK – 30% of the drinks categories measured are still showing net increases in recalled spend.

Shopping strategies

There is also widespread evidence of more careful shopping behaviours – waiting for favourite brands to be on promotion before buying, and – in some markets – switching retailers to get better prices.

In most markets, between a third and 40% of consumers say they will wait for their favourite brand to be discounted before buying, rising to over 50% of consumers in markets such as Brazil, South Africa and Mexico.

Retailer switching is also popular in some markets, though not all, with IWSR’s tracking data suggesting that more switching may have occurred over the past year, particularly for high volume beverages. In the UK for example, 25% of alcohol consumers say they purchase their beer and wine in discount retailers, up from around 16% in 2021.

Outlook for the next 6 months

The first wave of the IWSR’s consumer price sensitivity tracking data shows that the premiumisation trend in beverage alcohol has not been extinguished by economic headwinds – at least not yet. However, it is also clear that the strains on household finances are starting to affect many consumers. Not surprisingly, the extent to which these strains are impacting attitudes around personal finances appears to have a clear connection with alcohol spending behaviour.

It is important to note that the premiumisation trend is evident at different levels across categories, geographies and consumer demographics. For example, brown spirits and aspirational beverages, such as premium tequila, appear to be retaining positive premiumisation momentum in multiple markets; wine, beer, vodka and RTDs are not as favoured in others.

In Europe, overall budgets are down, yet individual category spend per unit is up, the implication for the alcohol industry is that volumes are more likely to suffer than value over the next few months. In China, India and the US, stronger economic fundamentals look to support existing or higher volume levels, while value is likely to carry on rising at a similar pace to the last 12 months.

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