The last two years have seen spirits volume fall from 8.8% in January of 2022 to a negative 2.5% this year. Even worse, neither beer nor wine showed any growth at all in that period.

Wine and spirits category trends will improve compared to the last few months, Danny Brager and Dale Stratton, analysts for WSWA's SipSource, said yesterday. The last four years have been unprecedented they said. The Covid-19 pandemic accelerated on-line shopping, led more people to discover cooking at home and left consumers both impacted and insulated from each other for extended periods.

Add to that the current unstable geopolitical situation, with wars in both Ukraine and between Hamas and Israel, the later threatening to spill over into other countries, continuing pressure for a government shutdown, a stalemate in Congress and the upcoming 2024 elections.

And there's more: Consumer debt levels are high: Credit card debt recently topped $1 trillion for the first time, both inflation and interest rates are high, and and, contrary to what you might expect, employment remains strong despite the Federal Reserve's best efforts to send the country into a recession.

All those factors affected all bev/al categories, but wine and spirits prices have risen less than beer. For example: in September beer purchased for at-home consumption was 4.7% higher than last year, wine was up 1.4% and spirits was up 3%. In terms of on-premise consumption, price-taking has been much higher: beer was up 5.7%, wine, 6.7% and spirits 7.8%.

Consumers have been seeking new experiences and much more willing to experiment than in the past. They've wanted convenience, flavors, and – significantly for bev/al – have been driven by wellness. They want transperancy on what they eat and drink, look at company purpose and values (to see what happens when a company get this wrong, just look at Bud Light which is still down 25-30%)l

Consumers no longer feel that a particular beverage is suitable only for one-type of occasion.

In terms of demographics, the country is increasingly ethnically diverse, particular among younger adults; there are more senior citizens, and there has been a tremendous population migration from high-tax, liberal states such as California, Illinois and New York to low-tax, more conservative states such as Texas, Florida, Georgia and North Carolina.

So, as we head into the final months of 2023 and the first quarter of 2024, the question is which way will be pendulum swing? Will it be toward and expanding economy that lifts all boats (and brands), or to a stable or contracting economy? The next six months are critical to the answer, Stratton and Brager said.

There's been a change in attitudes of both investors and retailers. They want volume growth, which only one household goods giant has achieved; they are no longer impressed with price increases to defend margins.

The last four months of 2022 and the first quarter of 2023 saw negative growth rates. That means it should be easier to beat the comps, but its not guaranteed.

Beer

If you wonder why beer sales keep declining in terms of volume, it's because brewers have been aggressively raising prices. The results: Hard Seltzers have had double-digit losses, while flavored malt beverages have posted double-digit gains, proving T.Rowe Price's wisdom back in the 1960s when the Baltimore investment advisor observed that "change is a businessman's only certainty."

Stunningly, imports are now larger than domestic premium beers, craft volume is down about 5%, nonalcoholic beer is gaining steam, and then there's the Bud Light fiasco that resulted in the No.1 beer becoming No. 3, and Modelo Especial becoming No. 1.

Wine

When it comes to wine, those products priced at $15 and above are performing better, while those between $11 and $15 are showing moderate decline. How much: For both the 12 months ending August 2022 and 2023, table wines priced below $15 showed declines in both years. Those priced $15 and above enjoyed strong volume gains last year, from 7.3% for those priced $15 to $24.99; 6.9% for those $25-$49.9 and 11.1% for wines priced above $50.

This year, however, even wines priced above $15 showed negative growth rates, down 4.3%, 7.5% and 12.9% respectively. Effectively, they gave back last year's volume gains and a bit more.

While August was challenging, Brager and Stratton expects to see improvment among wines in the coming months. The biggest improvement will be for Chardonnay, followed by Cabernet Sauvignon and then red blends. B oth white and sparkling wine are performing better than red and pink wines they added.

Spirits

Turning to spirits, the SipSource analysts noted that high-end price segments are struggling. That's true regardless of price segment, although most premium tiers are doing better than lower-price tiers.

Unsurprising, cocktails and tequila continue to lead growth, although vodka continues to be the No.1 seller in terms of volume. What's driving the growth in cocktails? In a word, cans.

Spirits RtDs are a good news-bad news story: Hard seltzer sales are in decline and spirits RtDs are expanding to the point that RtD Spirits are now the second largest Spirits category, leading U.S. Whiskey and Tequila. With variety, flavors and convenience, they bring consumer excitement, are a potential bridge to mainstream Spirit brands for brand extensions and a gateway for your LDA consumers to enter the Spirits category.

But. . . Spirits RtDs are de-premiumizing Spirits, with volume exceeding dollar growth, cannibalizing sales of mainstream spirits, constantly churning, are a shelving nightmare and have many declineres, including Crown Royal Cocktail (-25%), Jose Cuervo Cocktail (-16.4%), Bacardi Cocktail (-31.2%), Canteen Spirits Cocktail, down 48%, and Svedka Cocktail, down a stunning 63.8%.

So, everything hinges on the holiday season. This year it really is "critical." But 84% of consumers said they will spend the same, less or nothing for holiday and special occasion celebrations, and 82% said that;s also true of socializing. Still Stratton and Brager said, what consumers say and what they do aren't always the same.

The good news is that softer comps are ahead for most price tiers in spirts, table wine and sparkling wine. Wine growth rates will remain negative but "less so," they said, and spirits will swing to flat.

Brager and Stratton both predict wine and spirits category trends will improve relative to what we've seen the last few months, economic, geopolitical, and evolving consumer sentiments will continue to subdue growth rates. “It’s going to get better,” they say, “but the question is by how much?”