Premium priorities persist - spirits executives talk “creating value”

Both alcoholic and non-alcoholic spirit producers among some mixer brands and RTD businesses all discussed the dreaded “race to the bottom” at Arena’s Spirits Strategies and Innovation Conference 2023.

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Premiumization remains at the forefront of spirit producers’ minds when looking at future trends for the category, despite pressures on consumer spending.

Both alcoholic and non-alcoholic spirit producers, as well as mixer brands, RTD businesses and a Prosecco company all discussed the dreaded “race to the bottom” at Arena’s Spirits Strategies and Innovation Conference 2023 in London, presented by Just Drinks.

Issues raised during the two-day event ranged from the role of celebrities in spirit businesses and the benefits of personalization.

There were some expected reoccurring themes such as sustainability and the RTD boom in recent years. However, ‘premium’ and ‘value’ were the two predominant buzzwords at the event.

“Value does not mean low price”

Discussing the dynamics seen in the spirits category, Mark Dempsey, senior consulting director at GlobalData, Just Drinks’ parent company, believed that consumer priorities have changed dramatically over recent years.

“It’s very fair to say the last three or four years have been an incredibly challenging time for the industry as a whole, for consumers as individuals and as family members, making decisions based on cost-of-living prices, making decisions based on frankly keeping their families healthy in a pandemic, making decisions based on declining job security, declining consumer confidence,” Dempsey said.

Despite initially appearing to suggest that low costs would be a key factor in winning and keeping customers, Dempsey caveated to say that this posed a “significant challenge but also a positive outlook”.

“Value does not mean low price,” he stated. “Value might tactically mean some use of pricing and being aware of economic conditions. Value increasingly over the next five or ten years will be ethical, defined by premiumization, experience and quality.”

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Using GlobalData research, Dempsey went on to deliver some encouraging data for alcoholic spirit makers – consumers are less likely to move to own-label brands for spirits than several other categories, like sports nutrition products and chocolate.

“If we look at alcoholic drinks, this is pretty good news,” Dempsey noted.

“If you have a quality brand, either a global tier-one brand or a strong, niche artisan-style brand, have faith in that the risk of a consumer moving to a private label or a tertiary brand is the lowest rate of the major categories. It speaks to the fact that premiumization, quality and brand trust are key.”

However, Dempsey added that “historic winners will not be the winners of the future” and that spirits companies need to find the “right new changes to drive growth”.

A presentation from Fever-Tree – the UK-based mixer business – also indicated the company’s focus on ‘premium’ products and how consumers are leaning into drinking less but of a higher quality.

Rose Cottingham, innovation director at Fever-Tree, said: “We know that consumers are drinking more premium spirits. In fact, in the US it was recently announced that spirits have now surpassed wine and have become the second most popular drink choice of consumers. The first time that’s been the case in around 30 years.”

Nascent but noisy low-and-no

The non-alcoholic drinks industry has been on a meteoric rise for some years now. Last month, another conference in London gathered together some of the major players in the non-alc sphere to discuss innovation in the industry and how much hope lies there.

At the Spirits Strategies and Innovation Conference 2023, non-alcoholic spirits were very much towards the top of the agenda.

"The spectrum of quality in non-alc spirits is pretty far and wide" - Ben Branson

During a panel discussion, Seedlip founder Ben Branson, Crossip co-founder Tim Blake and Lyre’s global social director Cameron Parker spoke about some of the main challenges and intricacies in the fledgling but growing category.

Firstly, Branson discussed the nascency of the industry and “overcrowding” from new entrants into the industry, describing the sphere as “pretty noisy”.

He said: “Therefore, the spectrum of quality I’d say it’s pretty far and wide. It’s pretty polarizing in the sense of copycats, a lot of imitation going on – there are poor quality unscalable liquids but I guess the cream will always rise to the top.”

However, notably, when the topic of functionality in non-alcoholic spirits arose, Branson turned his nose up at the thought.

“I’m not 100% convinced that the vehicle for the function from a health perspective is going to be largely found in times of drinking alcoholic and non-alcoholic drinks. I think there are other times – soft drinks is obviously doing a really good job in the supplement world.”

Related to the more functional parts of the sector, at a later panel discussion, Mindful Brands founder Craig Hutchinson labelled the Food Standards Agency’s (FSA) new CBD guidelines as a “little bit of a grenade”, as the non-alcoholic brand uses the cannabinoid in its Maria and Craig’s product.

He said: “But our view was that CBD is a somewhat benign product. It does help you relax but in terms of danger, this has never been discussed. And we were talking about much higher levels. We thought the 70 milligrams per day was already very, very low and so it’s unfair that this has just come out of the blue.”

Whither non-alc in the RTD surge?

Another hot topic in the spirits world – for both alcoholic and non-alcoholic brands – is RTDs. The efforts by the world’s largest distillers to expand their portfolio of products continue, as exemplified by the recent eye-catching move by Pernod Ricard to team up with The Coca-Cola Company to produce an Absolut and Sprite collaboration.

However, at the conference, the question was posed as to whether there is a place for RTDs in the non-alcoholic sphere.

Blake said: “I think there’s definitely an opportunity for one or two brands to win in this business in non-alcoholic RTDs, but personally I’m very cynical and sceptical of it.”

On the other hand, speaking exclusively to Just Drinks, Ellie Webb, founder of Cale?o Drinks, said the UK-based non-alcoholic spirits company had launched alcohol-free ready-to-drink canned cocktails.

Asked if she has any doubts over the move, Webb said that “a canned cocktail in a super easily consumable format at a lower price point is doing that job of bringing those people into the category”.

“Once they’re in the category, they’re then going to potentially upgrade to a bottle of your spirit to then consume at home, to enjoy with friends either in a simple one or two-ingredient mixed drink or to enjoy the brand in a cocktail in the on-trade. For me, the can is really about getting more people into the category,” she added.

“It gets some trial in the category and I think you’d be hard-pressed to talk to any non-alcoholic producer who won’t tell you that trial is the biggest challenge. Once you get people to try the liquid and they like it, most of your job is done.”

Room for rum newbies?

Another speaker at the Arena conference has recently launched a ready-to-drink variant – Duppy Share rum. Founder Jack Orr-Ewing spoke about some of the main challenges facing a start-up in the spirits industry and how he is adapting his growth strategy to cope.

“How do we compete as a challenger, as a brand? Will I recommend to a young buck to start a spirits brand? Probably not at this stage. It’s incredibly expensive to do it and we have over ￡5m ($6.1m) invested so far.

“You’re competing with limited budgets and – we’re a well-invested brand – we still need money and we still don’t feel we can compete on certain levels. Raising capital is incredibly difficult in a market where you’ve got luxury assets you can’t use. You can’t borrow any money so you’ve got to keep raising capital.”

The Duppy Share boss went to talk about the rum industry and the direction he believes it is headed.

“I think where rum is quite different to a lot of the other spirit categories is that it’s very graded and separate. I think white rum, gold rum and spiced rum are almost three separate categories.”

According to GlobalData, the global market value of rum is set to stand at $33.4bn in 2024, reaching 1.56bn litres.

In comparison, as Orr-Ewing claimed, the surging Tequila market is forecast to stand at roughly half of the market value of rum and less than one-third of its volume.

In the UK specifically, rum’s value is predicted to reach $1.8bn while Tequila and mezcal will only reach $168m.

By Henry Mathieu