We warned you that strong inflation means sales declines, even for bev/al.  The latest SipSource report from WSWA proves me correct.  In the first quarter, sales of spirits were down 5.1% and sales of wine were down 7.4% compared to a year earlier.

On-premise depletions share compared to pre-pandemic levels. While on-premise depletions tracked at 96% for spirits and 92% for wine in Q1 compared to pre-pandemic levels, gauging growth in spirits up +5.2% and wine up +2.6% over the past three months compared to Q1 2022, current inflationary pressures are driving costs up, SipSource said.

“We expect market conditions to remain challenging on-premise based on higher commodity costs, increasing labor costs and the continued squeeze on disposable income for consumers — one of the first ways consumers look to save money is by cutting back on food away from home,” said SipSource Analyst and industry veteran Dale Stratton. “The Consumer Price Index (CPI) increase for spirits away from home is +6.7%. This represents a +5.2% gap compared to at home, which is up only +1.5%. The away-from-home gap for wine is at +7.0%, a 4.5% gap compared to at home, which is up only +2.5%.”

The Normalization of Negative Growth in the On-premise

“Various product segments experienced incredible highs and lows over the last three years, but as we look ahead we need to accept that performance will be measured by current market conditions,” said Stratton. “That said, we believe the deeper we move into calendar year 2023, the more the data and market conditions will normalize as we enter into the summer travel season and beyond.”

Looking ahead, SipSource analysts warn that normalization doesn’t necessarily mean growth. They expect on-premise trends to come down significantly in Q2 compared to the same period in 2022, when the on-premise was experiencing the height of its post-pandemic renaissance. On-premise sales were up +12.2% for spirits and +8.6% for wine in the second quarter of 2022. Analysts don’t expect either category to come anywhere close to those rates in the current environment .

Spirits Premiumization Decelerating in 2023

At the macro level, premiumization has slowed significantly for spirits, in part due to the very high comps of the prior year, but likely also due to the broader economic picture. The 2023 Q1 SipSource Report tracks $25.00-plus price segments down a combined -3.5%, with the only products achieving growth being premium tequila/agave spirits (at +5.1%), U.S. whiskey (at +3.8%) and gin (at +0.6%).

West Coast Holds Back Wine Growth

The Pacific regional division is down, with total wine depletions tracking -10.4% for the 12-month ending period and -14.6% for the first quarter. Additionally, recent enhancements to SipSource data adds detail to regional analyses, showing wines from California down -7.2% compared to Washington wines (down -19.6%) and those from Oregon (down -10.8%). Yet, beyond state-level region reporting, there are some bright spots. For example, witness the +12.2% growth for Santa Barbara county wines for the 12-month period ending March 2023.