Innovation Slowdown in Beverage Alcohol

Innovation continues to play a critical role in the beverage alcohol industry, though its nature and impact vary significantly across categories. According to the IWSR's Innovation Tracker, global new product development (NPD) launches have declined for three consecutive years, reaching levels similar to 2018 and down by 20% compared to the peak in 2020. This trend underscores the importance of strategic and category-specific approaches to innovation.

Spirits lead the way in terms of innovation, accounting for over half of all beverage alcohol product launches in 2023. Scotch whisky dominates this category, contributing over half of global whisky innovations annually for the past decade. New malt expressions and high-value launches in travel retail have targeted engaged consumers, with flavor innovations also driving growth in U.S. whiskey. Tequila and gin have seen notable activity, particularly in trending subcategories, though gin innovation has slowed as its popularity wanes. In contrast, vodka's frequent flavor innovations have lessened category-wide growth as old flavors are replaced by new ones.

Beer operates under different economic pressures. It has a lower rate of innovation, accounting for less than 10% of product launches compared to spirits. Beer's high fixed costs, such as brewing and distribution expenses, mean that brewers must rely on fewer but higher-volume launches to generate returns. Despite these challenges, beer has achieved the highest overall value from NPD over the past decade, albeit with innovations typically contributing less than 5% to total retail sales value within a year.

The ready-to-drink (RTD) category exhibits a different pattern. While innovations accounted for a significant share of its value during the pandemic—almost 20% annually—the category has since seen a steep decline in new launches, down 66% from its peak in 2021. Consumer attitudes toward RTD launches appear to be shifting, with evidence suggesting that saturation and economic challenges are reducing the impact of new products. Short product life cycles and the proliferation of options have also diluted the success of individual launches.

Economic factors further shape consumer behavior, with many opting for familiar products over untested innovations during challenging times. As a result, RTD brands are increasingly focusing on maintaining "hero SKUs" to provide consumers with anchor options while supplementing these with incremental innovation.

Local market preferences significantly influence the success of innovations, particularly in the RTD sector. In flavor-driven markets like Brazil, targeted local flavor innovations can rapidly gain market share, whereas brand-loyal markets such as Australia and the UK present higher entry barriers with slower returns.

IWSR's analysis highlights three strategic use cases for innovation. In categories like high-end whisky and travel retail, incremental innovation drives sales. In beer and RTDs, where barriers to entry are high, targeted strategies are essential to break through. Finally, in mature categories like wine, where returns on innovation tend to be low, maintaining the status quo often dominates.

Despite the current slowdown, innovation remains a key value driver for the industry. Experts at IWSR recommend a more focused approach to NPD, aligning innovation strategies with market demands and supply chain capabilities to maximize returns in a cooling market.