Premiumization Slows as Consumers Seek Moderation

Premiumisation in the beverage alcohol market, which has driven steadily rising consumer spending for over two decades, is starting to slow down. This shift, seen in major markets, is largely due to economic pressures and a broader movement towards moderated alcohol consumption. The trend has been consequential for the alcohol industry because many leading manufacturers had tied their strategies for the 2020s to growing their premium and above offerings. These high-end segments have been critical in offsetting volume declines in more mature markets, as the "drink-less-but-better" mindset boosted profitability by encouraging consumers to opt for fewer but higher-quality bottles. Selling a premium-priced bottle yields more revenue than multiple lower-cost options, partly because of flat-rate taxes applied based on alcohol content in most markets.

IWSR's latest data indicates that the premiumisation momentum is waning, particularly in the spirits segment, which has been the primary beneficiary of the trend. This slowdown was notable at the Premium price tier, defined in the U.S. market as 75cl bottles priced between USD 22.50 and USD 30.50. However, an interesting counter-trend has emerged at the Super-Premium and above price points—spirits priced over USD 30.50 per 75cl bottle. Sales in this category have continued to grow steadily for the past two decades, with only brief interruptions during the 2009 global financial crisis and the first year of the Covid pandemic in 2020.

The driving force behind this counter-trend appears to be a new group of younger, middle-income consumers who skew more female. While older, higher-income, male consumers remain key players in the high-end spirits segment, the emerging demographic of younger drinkers brings a broader set of preferences. This cohort is more adventurous and strongly connected to cocktail culture, with a greater appreciation for the holistic experience of luxury that goes beyond taste and packaging, encompassing a brand's social positioning, values, and lifestyle alignment.

A prime example of this shift is the U.S. whiskey market, which includes categories such as Bourbon, Rye, and Tennessee whiskey. Premium-and-above price tiers have consistently outperformed Standard-and-below price tiers, with retail sales at the higher end exceeding those at the lower end by a factor of three to one. For the first time in 2021, premium-priced whiskey volumes outpaced standard-priced volumes. IWSR's Bevtrac consumer tracking data reveals that the consumer profile for U.S. whiskey is increasingly Millennial, female, and middle-to-upper income, with households earning between USD 100,000 and USD 150,000 per year driving demand. This cohort is more likely to socialize at home, a behavior entrenched by Covid, and prefers whiskey in mixed drinks or cocktails rather than consumed straight.

Interestingly, Millennials in this category are willing to spend more on premium bottles than their older counterparts. Bevtrac data shows that Millennials have an average highest spend of USD 55 per bottle over the past six months, compared to USD 44 for Gen X and USD 39 for Boomers. This pattern is mirrored in other spirits categories with a well-defined premium ladder, such as tequila, where Super Premium and above segments are seeing strong growth. The profile of tequila consumers, however, is more balanced across genders, reflecting a 50-50 male-female split.

In response to the rise of this new premium consumer, IWSR, in collaboration with OC&C Strategy Consultants, has identified a set of new and traditional category codes shaping the evolving premiumisation trend. Understanding these dynamics will be key for brands aiming to capture the attention and loyalty of these emerging, experience-oriented consumers.