Shifting consumer behaviour drives opportunities – and challenges – for the beverage alcohol industry

Rapidly changing trends in consumer behaviour, and new ways in which people interact with each other and with the brands they choose to purchase, is having a significant impact on the global beverage alcohol industry. This was the prevailing theme when three chief executives from prominent companies in the industry, and analysts and advisors who cover the space, convened recently in New York for an intimate and honest discussion about trends and opportunities in the dynamic and fast-changing drinks business.

The ‘Forecasting the Future 2019’ seminar, organised and hosted by IWSR Drinks Market Analysis, took place on 25 April, marking the third time that IWSR has hosted such a gathering in the US. Speaking at the 2019 conference were Albert Baladi, president and CEO of Beam Suntory; Phil Rosse, president of Mike’s Hard Lemonade Company; Lawson Whiting, president and CEO of Brown-Forman Corporation; and Brandy Rand, IWSR’s COO of the Americas; with opening remarks from Mark Meek, CEO of IWSR.

“IWSR Drinks Market Analysis has long been recognised as the authority in data and intelligence on the beverage alcohol market. That expertise comes not only from extensive data collection, but also from a deep understanding of market trends, and the ‘why’ behind the numbers,” says Meek. “To that end, one of the most important and valuable ways to learn about what’s driving the drinks business is to hear firsthand from industry leaders about the key trends, opportunities and challenges they see for their companies and brands.”

Though each company’s goals and opportunities are different, several themes ran throughout the morning-long seminar, including shifting consumer behaviour (particularly in regards to mindful drinking, changing taste preferences, and consumers seeking ‘experiences’ over ‘things’); ecommerce and convenience, opportunities for US whiskey to steal share from Scotch; premiumisation, and the continued growth and occasions for flavoured beverages and product innovation.

Brandy Rand, IWSR Drinks Market Analysis

To open the seminar, IWSR’s Brandy Rand presented an overview of industry performance and key trends shaping beverage alcohol and noted how disruptors in consumer behaviour – these big shifts happening all at once – are helping to drive innovation and choice. For example:

• Demographic shifts: Technology has changed how we communicate and share information – consumers today are much more interested in ‘experiences’ and are willing to pay for them.
• Transparency and sustainability: Consumers are much more interested today in real ingredients, real stories, and brands with a real social purpose. “Real is the new craft,” which has helped increase consumer interest in venerable, long-established brands that have a proven record of authenticity.
• ‘My premise’: Rand detailed the concept of ‘my premise’ – new and blurring ways of purchase, which is impacting beverage alcohol. Where traditionally consumers would buy alcohol on- or off-premise, that is quickly shifting to ecommerce, as well as on-site breweries, distilleries and wineries, and even pop-ups and mobile bars at events.
• Ecommerce and convenience: Though food and drink sales in the US account for less than 3% of total ecommerce (and heavily skewed towards wine), that share is increasing every year, especially as grocery delivery becomes more commonplace. The IWSR is preparing a comprehensive report on this subject as a follow-up to a larger study in 2018, across 10 global markets.
• Category and occasion blur: Consumers increasingly are faced with choices about which occasions (from date nights to book club to beach days) suit which consumption need and desire.
• Mindful drinking: Increasingly, people are seeking light, refreshing and healthy alternatives, and that includes a need for more functional alcohol products. The IWSR recently published a detailed study about the market for low- and no-alcohol products.
• Cannabis: The IWSR has also completed a full research study examining the intersection of cannabis and alcohol, concluding that while the impact today is small, there does exist a long-term risk to the industry, and opportunities for beverage alcohol companies to get in front of this.

Albert Baladi, Beam Suntory

After eight years in various leadership roles at the company, Albert Baladi last month took the helm as president and CEO of Beam Suntory. And over the past eight years, he reports, the company has doubled its business to $4.5bn in sales and has grown its flagship Jim Beam brand from 6m global nine-litre cases to 10m+. Noting that Bourbon represents only a fifth of Scotch volume outside the US (and growing faster than Scotch), there exists much headroom and opportunity to expand and own the whiskey category. The company’s ambition, he says, is to “make Bourbon the world’s whiskey.” Over the next five years, Beam Suntory plans to invest $1bn to make Bourbon in Kentucky (and has also recently announced a $5m contribution to the University of Kentucky to help educate the next generation of distillers and engineers).

But Beam Suntory certainly is not focused solely on Bourbon. The House of Suntory also puts Beam at the forefront of the growing Japanese whisky category, and an emerging force in premium white spirits with the launch of Roku Japanese gin (100,000 annual cases in less than two years) and Haku vodka. Baladi points out that the company is strong in other growth categories as well – the number two player in tequila, the number four Cognac house on a global basis, and number one in Islay peated malt whisky.

“We have incredible growth and a well-positioned portfolio, and now the key opportunity for us is how do we leverage these amazing assets,” he says. “We’re going to do that with a proven strategy of creating famous brands, building winning markets and fuelling our growth.”

Baladi admits the company has work to do to build global premium brands of scale, and the opportunity to achieve that is through premiumisation.

“Premiumisation is a pillar of our strategy going forward,” he says. “Being strong in premiumisation will help us address key consumer trends we’re seeing.” Those trends include increasingly globally connected cities, consumer interest in personalised and authentic products and ‘experiences’ over ‘things’, convenience and wellness.

Over the past several years, Beam Suntory has improved its product mix by “infusing life” into core legacy brands with new premium packaging, introducing new premium innovations, expanding in premium gin with the acquisition of Sipsmith, and divesting non-core Spanish brandies and sherries. They also see great opportunity in building beyond their icon markets of the US and Japan, particularly in countries such as China, India, Russia, Mexico and others where they own and control the route-to-market.

Ultimately, Baladi told those gathered, the company’s goal is to build a global spirits powerhouse with $10bn in sales (60% of which come from premium spirits) by 2030.

Phil Rosse, Mike’s Hard Lemonade Company

Phil Rosse is president of Mike’s Hard Lemonade Company, which is now the fifth-biggest beer company in the US and the fastest-growing alcohol company in the country. Launched in 1999, Mike’s is a 20-year story of sustained growth and success, selling more than 330m total cases in that short time.

The company concentrates solely on the super high-end price tier in beer ($33.00 and above per case), and are the largest player in that category, with a 13.2% share. Mike’s focuses on three main brands: Mike’s Hard Lemonade (the number one flavoured malt beverage (FMB) in grocery), Mike’s Harder Lemonade (the number one FMB in the convenience store channel), and White Claw Hard Seltzer (the number one brand in the hard seltzer category).

“We’re brand builders,” Rosse says. “We have always had a company goal of growing at least double digits every year [so far in 2019 Mike’s Hard Lemonade Company has a national depletion trend of +58%], and we are extremely focused in what we do. When we find something that we think will resonate with consumers we invest in it and we build it.”

There is no better example of that than the company’s fast-growing 100-calorie White Claw Hard Seltzer, launched in 2016, that has already achieved 50% awareness among adult drinking consumers. That, as Rosse explains, will only continue to grow as people increasingly look for convenient products that help them live better lives. “Better-for-you is a real consumer movement,” he says.

White Claw, now entering year four, has explosive growth rates of 345% so far in 2019 and has grown to capture 55% market share in the seltzer category. The brand is drawing consumers in primarily from beer, wine and spirits, with very little cannibalisation from the FMB category where Mike’s Hard Lemonade plays. It is also a brand that is showing a great deal of positive velocity, with consumers enjoying it throughout the drinking occasion.

“Something very unique is happening here with White Claw,” says Rosse. “Consumers are more willing today to try new brands, but penetration is still relatively low. Lots of opportunity in the C-store channel, and there’s a huge potential for seltzer still in the on-premise. We’re still very much in the build stage.”

Above all, Rosse emphasises his company’s focus on flavour, and the tremendous opportunity that the flavour movement represents for the industry (“Bring Flavour to Life” is Mike’s organisational purpose and the core of every product.) He notes that flavour is changing the way that Americans shop, across consumer goods, but at present only 26% of the volume in the US beer industry is flavoured (as opposed to 74% lagers). That translates into enormous continued flavour growth potential, potentially for decades to come, and Rosse underscores that the faster the market bets bigger on the “proven best-tasting flavour brands, like Mike’s and White Claw”, the better chance that the beer industry will start to return to growth, by giving the current and future generation of consumers more of what they want.

Lawson Whiting, Brown-Forman Corporation

Like Albert Baladi, Brown-Forman’s president and CEO Lawson Whiting is very bullish on the opportunity for US whiskey, particularly his company’s Jack Daniel’s brand, and he highlights the significant opportunity that the category has to steal share from Scotch.

Noting that US whiskey peaked in 1970, Whiting says that the boat has been rising again for the past 10 years, and still has a long runway for growth, especially in emerging markets.

“Emerging markets are the shining star. Growth is coming from markets where nobody else is playing – Mexico, Brazil, Poland and other parts of Eastern Europe,” he explains.

What are the drivers and the opportunities propelling US whiskey’s growth? Whiting points to the “four A’s” that make for a great brand:

• Authenticity: US whiskey is true and real.
• Approachability: Increasing interest in cocktails and mixability have changed the dynamic of the whiskey business; it has removed the barriers that were in the category back in the 1970s when everybody drank it straight. US whiskey today combines the tradition and heritage you see in Scotch, with the modern, stylish and mixable attributes of vodka.
• Attitude: “It is hard to develop brand attitude, but I would argue Jack Daniel’s has attitude in spades and it has been one of the reasons the brand has been successful,” Whiting says, while commenting that craft brands often have a hard time with this.
• Aspiration: The Jack Daniel’s brand focuses on maintaining a balance between heritage and pop culture. “We work very hard to get that clash between Lynchburg black and white ads, and pop culture. It does not seem like those two should match, but that quality of Lynchburg, with the music and pop culture angle is a key to the brand.”

Future growth in the category, Whiting explains, will continue to be driven by globalisation and the potential to increase the category overseas, premiumisation (case in point, Brown-Forman’s Woodford Reserve, which Whiting describes as “the right brand at the right time”), consumer trends, and innovation (including the recently announced Jack Daniel’s Tennessee Apple). “Flavours remain very attractive for us,” he says.