US Alcohol Market Struggles Under Economic Pressure

The U.S. beverage alcohol market continues to experience contraction in 2024, following a broader pattern of decline observed in recent years. According to IWSR's newly released US Navigator data, total beverage alcohol (TBA) volumes fell by -2.8% in the first seven months of the year, surpassing earlier predictions of a more modest -1.9% drop. While categories such as ready-to-drink (RTD) beverages bucked the trend with modest growth, other major segments, including beer, spirits, and wine, posted marked declines. This performance has defied expectations of a slow recovery and has reinforced the persistence of challenging market conditions in the U.S.

The post-pandemic market landscape has been anything but forgiving for the U.S. alcohol industry. Despite forecasts for a slight recovery, the IWSR data suggests that alcohol consumption patterns remain tethered to the economic constraints of the average consumer. While total alcohol volumes were down -2.6% in 2023, 2024 was anticipated to bring a marginal improvement, with volumes predicted to decline by only -1.9%. However, the market's trajectory has proven to be even more difficult, with higher-than-expected volume losses across the board, excluding the resilient RTD category, which posted a +2% growth during the period.

Marten Lodewijks, President of IWSR's U.S. Division, attributes this stunted recovery to persistently high prices, which continue to strain consumer budgets. While some improvements in consumer sentiment and financial confidence were observed in IWSR's Bevtrac data, these shifts have not translated into higher consumption or spending, particularly for lower-income consumers who remain acutely affected by inflationary pressures.

"Although we have seen positive signs among affluent consumers, notably Millennials, those on lower incomes remain highly constrained, and this is having a profound effect on the overall market," Lodewijks explains. The growing disparity between affluent and less affluent consumers is further highlighted by the regional variability in alcohol consumption trends.

The Role of Local Preferences and Economic Disparities

State-level data from the US Navigator reveals a more nuanced perspective on the broader trends, with regional markets demonstrating diverse performance metrics for specific categories. While overall volume declines have been consistent, some states have managed to defy national trends, reflecting local consumption habits and economic resilience.

For instance, New York experienced a relatively modest -1.5% decline in spirits volumes, a significantly better outcome than the -3% national average. However, RTD and wine volumes in the state declined more severely than the overall U.S. average, with RTDs dropping by -6.5% and wine by -5%. Lodewijks attributes this trend to New York's entrenched cocktail culture and higher-income urban consumers, who remain committed to premium spirits, even as other segments, such as RTDs, falter in the market.

In contrast, regions such as Florida, Texas, and Pennsylvania posted smaller beer declines than the -3.5% national average, with losses of less than -2%. This disparity could be linked to these states' more stable economic conditions, which have allowed for a softer landing in terms of beer consumption. Even within the struggling spirits sector, states like North Carolina and Pennsylvania recorded declines below -2%, indicating a resilience that counters the national downward trend.

One of the brightest spots in the state-by-state breakdown comes from the RTD sector, which saw extraordinary growth in states like Louisiana (+16%), South Dakota (+14%), Nebraska (+8%), and Minnesota (+6%). In contrast, more traditional markets like New York and Florida reported declines in RTD volumes, showcasing the category's polarizing performance across different regions.

Premiumisation and Seasonality Shape Trends

Despite the overall contraction in volumes, consumer preferences for premium and super-premium products persist in several segments. Tequila, a once-booming category, experienced a -1% decline in volumes in the first seven months of 2024. The decline was particularly evident in the ultra-premium segment, which fell by -8%, while more affordable premium and super-premium categories showed modest gains of +6% and +4%, respectively. The ongoing growth of prestige-and-above tequilas, priced over $100, underscores the strength of premiumisation in this category, particularly in markets such as California and New York.

The disparity between more affluent regions and those with lower disposable income is stark when looking at tequila trends. While California and New York saw significant gains in premium tequila consumption (+10% and +5%, respectively), southern states like Florida and Texas exhibited smaller gains for super-premium tequilas, reflecting the economic constraints in these regions.

Meanwhile, the American whiskey category suffered a -2% decline, driven by larger markets like California, Florida, and Texas, where the more expensive tiers have been hit hardest. Interestingly, the category held steady in core whiskey-producing regions like Kentucky and Tennessee, suggesting that localized preferences and cultural ties to whiskey have shielded these markets from deeper declines.

Spirit-Based Products Lead the Charge

One of the most dynamic segments of the U.S. alcohol market remains the RTD category. While overall RTD growth stood at +2%, the energy within the sector is clearly being driven by spirit-based RTDs, which recorded gains of +11%. These products now account for more than 16% of RTD volumes, signaling a shift away from malt- and wine-based alternatives, which have either stagnated or declined. While malt-based RTDs showed growth in states like Texas and Georgia, wine-based RTDs saw a -2% decline.

The growth of spirit-based RTDs reflects a broader consumer preference for convenience and variety, and it has particularly resonated in younger demographics. This trend is further amplified by the seasonal nature of alcohol consumption, with RTDs seeing their peak during the early summer months, notably in June, before beer consumption peaks in July and August. Lodewijks notes that this seasonal trend suggests some degree of competition between RTDs and beer for consumer attention during the peak summer months.

Despite glimpses of resilience in premium products and spirit-based RTDs, the overall picture for the U.S. beverage alcohol market in 2024 remains challenging. While economic pressures continue to weigh heavily on consumers, particularly those in lower-income brackets, certain categories and regions are navigating the downturn better than others. The success of the second half of the year will largely depend on whether consumer confidence and financial conditions improve enough to reverse some of the volume losses seen in the early part of the year.

With the ongoing segmentation of consumer preferences, especially between more affluent and price-conscious segments, the alcohol market's recovery will likely be uneven, favoring categories and price points that cater to both premiumization and convenience. As we move toward the year's end, it will be critical to watch whether these trends evolve and whether a sustained recovery is achievable in 2025.