Just a short article today to highlight two of the most important trends shaping the beverage industry right now.
The first big trend relates to the continued growth in off-premise consumption relative to on-premise.
Some in the industry call this the "Netflix affect" as more people are opting to stay at home and crack a favorite bottle (or two) while catching up on the latest shows. This trend tends to be more prominent within the millennial category which if course is growing in importance to the industry.
Danny Brager, SVP of Nielsen’s Beverage Alcohol practice recently stated:
This trend is supported by new alcohol delivery services such as Drizly and Mini Bar along with more established delivery services such as Instacart and Delivery.com which now offer alcohol in certain markets.
The second big trend relates to "premiumization" within the industry where consumers are opting to consume less quantity, but higher quality products.
This has led to the new buzzword, particularly in the liquor segment, but is playing out in wine and beer as well.
The days of the daily jug wine and handles of generic vodka are being traded in for more epicurean experiences of small batch craft liquors and family estate wines.
The key question for the industry is - what do these trends mean for my business?
First, we need to recognize that the lifecycle of a particular brand will likely be shorter than in the past.
Consumer preferences are changing at a faster pace and brand loyalty is not as strong, therefore brands will need to become more proactive to stay relevant and portfolio managers will need to manage portfolios like investments - discarding those that underperform and diversifying into emerging brands and categories more quickly.
This is especially important for on-premise retailers where a more diverse, eclectic and dynamic selection will be required to get consumers off the couch.
Second, the already competitive off-premise segment will become tougher with emerging digital channels.
Retailers cannot simply rely on the handful of wine outlets in the neighborhood as the primary competition - the smartphone that every consumer now has glued to their hand will be the biggest form of competition going forward.
Savvy retailers will form partnerships and improve their own digital offerings to take advantage of the trend while brands will need to "up" their digital game in order to capture the attention of these new customer acquisition channels.
Finally, the middle tier (importers, wholesalers and brokers) will need to add more value to sustain their position in the industry.
As brands and retailers become more savvy at capturing the consumer's attention through new digital channels, the role of the middle tier will become increasingly commoditized, putting downward pressure on margins.
Middle tier operators will need to highlight service offerings that go beyond just movement of boxes and fulfilling compliance in order to justify their margins.
While there are many other important trends to pay attention to in the industry, the growing shift towards off-premise and "premiumization" are driven by larger demographic and social forces and will have a long lasting impact.