Who is really winning the category share game?

Recent announcements from brand owners have put a spotlight on category share within the context of total beverage alcohol (TBA). Companies such as Diageo have announced ambitions to grow its market value share of the TBA market from 4% in 2020 to 6% in 2030. Meanwhile, the CEO of AB-InBev has rejected the suggestion that beer is losing share to spirits.

According to IWSR, widely recognised as the most accurate and comprehensive data source for the total beverage alcohol market, the story is nuanced.

Trends in category share for beer and spirits vary by region and price band. Broadly, there are a few key themes that drive consumer relationships with beer and spirits. IWSR has been collecting, tracking and analysing data for the total beverage alcohol market for over 50 years, and historical trends generally show that in developed markets, spirits continue to gather momentum, largely due to premiumisation efforts by brand owners. In many developing markets, however, beer has been making gains as consumers trade up from local low-value spirits to beer, before eventually graduating on to more premium spirits.

Over the past ten years, beer volumes in many African markets, for example, have increased – particularly in ones that have received investment by brewers, such as Mozambique and Ethiopia, where beer volumes grew by over 115% and 280% (2010-2020) respectively. Beer has also been the trade-up offering of choice in markets where government intervention has curbed the production of low-end local spirits, such as low-end baijiu in China and low-end vodka in Russia.

Trends vary by region

There are subtle regional variations to this global picture: in the Americas, and especially the US, the rise of hard seltzers has helped brewers to partially offset declines in the core beer market – but, even when beer and hard seltzer data is combined, the growth rate of spirits outperforms that of beer.

In the 2010-20 period, beer in the US recorded a value CAGR of 0.1%, but a volume change of -1.0%; combine this with hard seltzers and the respective CAGR changes are +1.1% and -0.3%. However, spirits in the US showed value and volume CAGRs of +5.4% and +3.2% respectively between 2010-20. Furthermore, 10-year value CAGRs matched or outpaced same period volume CAGRs in the key premium-plus price tiers.

“Slower volume growth in the lower price tiers for spirits has been offset by gradual, market-driven price increases,” explains Adam Rogers, IWSR Research Director for the Americas. “These value CAGRs are far higher than the beer and beer plus hard seltzer CAGRs.”

In the CIS region, locally volatile trading conditions also have an impact on the contrasting fortunes of beer and spirits, with a long-term decline in beer’s price per litre partly explained by the rise of DIOT (draft-in-the-off-trade) – draft beer dispensed into PET bottles in shops and supermarkets. Regional beer volumes have been recovering slowly over the past four years, according to IWSR data.

Meanwhile, spirits have enjoyed a slightly positive price-per-litre trend in the region, both because of genuine premiumisation and the annual rise of the State-imposed minimum retail price for spirits in Russia.

One relatively bright spot for brewers has been Asia-Pacific, where beer’s market share has risen over the past decade, and its increases in price per litre have more or less kept pace with those of spirits.

“In Asia-Pacific we can see consumer uptrading as people increasingly have higher levels of disposable income,” explains Sarah Campbell, IWSR Research Director for Asia-Pacific. “They are moving up from local standard to local premium beers, and then to international brands. Essentially, this is a by-product of local economic development.”

Spirits gains over beer explained

IWSR data shows that beer’s global value share of total beverage alcohol (excluding national spirits) has fallen from 52.1% in 2010 to 46.9% in 2020; over the same timescale, spirits (excluding national spirits) have risen from a 20.8% share figure to 24.7%. Price-per-litre data echoes this trend: while beer prices have declined by 0.5% from 2010-20, spirits have moved up by 1.5%.

“They are innately different products,” says Emily Neill, COO Research at IWSR. “Beer is more of a fast-moving consumer good [FMCG], but spirits plainly is not. Spirits can premiumise by heading towards the luxury/status end of the market, and creating a ‘halo effect’ on a brand family by launching much more expensive expressions of the product.

“This path is not open to the brewers, simply because of the inherent nature of the product, and the fact that it needs to be consumed immediately. It can’t be stored for long periods of time, or sold on.”

These contrasts are also hard-wired into the histories of the rival categories, with beer traditionally widely consumed for a low price, thanks to the low cost of its ingredients and production. “In essence, beer has grown up trying to reach the maximum number of consumers for a widely affordable price, produced at the lowest possible cost,” explains Thorsten Hartmann, Director at IWSR.

However, consumers have always been inclined to trade up in spirits – originally for greater safety, then for improved taste. As disposable incomes grow, consumers opt for more expensive spirits products as a lifestyle/image choice.

Furthermore, a bottle of spirits offers multiple serves, and a variety of types of serve – neat, in mixed drinks or cocktails – compared to a bottle or can of beer, which offers only one of each.

However, the actions of brand owners have accentuated these inherent differences between the categories, says Hartmann. “The key difference is that many spirits marketers have focused more on image-building, whereas beer marketers, especially in the largest companies, have focused more on distribution channels,” he explains.

“Consumers may also find it more convincing to spend £10 more on a bottle of spirits in the expectation of higher quality than £10 more on a unit of beer. In other words, offering premium spirits is often an easier proposition than offering premium beer.”

Beer’s opportunities to premiumise

Despite spirits premiumising at a faster rate than beer, there are positive signs for the category, with craft, speciality and no/low alcohol beers all showing potential for growth.

Brewers are also diversifying and developing new products to target fresh consumption occasions, such as hard seltzers, hard kombuchas, hard teas and coffees, and CBD/THC beverages, as well as cross-category moves into spirits and wine.

“Beer has many opportunities to premiumise – around ingredients (yeasts, hops, grains, water); finishes (barrel types/ageing/blending); flavours, seasonal/special offerings; and packaging, marketing and image,” says Hartmann, who adds that diversifying into non-beer categories could also have positive knock-on effects.

“Paying attention to total beverage alcohol, rather than just the beer market itself, also affords an opportunity. It is very clear that today’s consumers switch between drinks according to the occasion. Spirits producers have been very quick to see this and to act on it – it’s now time for the brewers.”

Different growth perspectives

Ultimately, the natural or inherent growth rate that relates to each drinks company depends on its market and category mix – where the natural growth rate is the CAGR for total category, by market, allocated in proportion to a company’s geographic and category mix.

This gives each company a unique perspective on how they evolve their growth strategy, and different priorities when tapping into value creation opportunities. Whatever that perspective however, it’s more critical than ever that the drinks companies have a full understanding across all beverage alcohol categories.

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