Assessing the Reduced Growth of the U.S. Adult Beverage Market
The market hears about fragmentation quite a bit, but its effects can’t be underestimated—even in categories that have historically boasted clearly defined paths-to-purchase. Today, information is everywhere, choice is rampant, and even the most traditional consumer journeys are shifting.
The alcoholic beverage category in the U.S. is a perfect example. Not too long ago, consumers would either consume at their favorite restaurant or bar, or they would grab a six pack on their way home or to a party. Today, the abundance of information, places to make purchases and variety of products available are making it increasingly challenging to stay ahead on the retail front.
At a very high level, factors like shifting demographics, stagnant wages, health and wellness trends, fewer drink-led occasions and declining big brands are playing a part in decelerating alcoholic beverage growth.
In the case of beer, an over-abundance of products is a factor as well, and the number of beers available continues to grow (1,398 at year-end 2017 vs. 1,336 in 2014). But the real factor affecting choice is how many places consumers can buy alcohol. In fact, the number of places (on- and off-premise) that sell alcoholic beverages in the U.S. grew by more than 100,000 between 2007 and 2017 (528,594 vs. 644,647).
This expansion isn’t specific to the alcoholic beverage sector. In fact, total retail across the U.S. is outpacing population and sales growth, predominantly in the cosmopolitan suburbs.
When we look specifically at retail involving alcoholic beverages, the number of newly opened and newly closed locations that sell alcohol provide clear insight into current consumer preferences. Notably, we see quite a bit of closures among fine dining locations, while we see significant growth in casual dining locations.
MILLENNIALS ARE LOOKING FOR SOMETHING NEW
Some of the shifts in outlet preference can be connected to consumer demographics. For example, 67% of U.S. Millennials say they’ve visited a brewery tasting room more than they did in the past year, and 63% say they’ve visited a Tiki bar more than a year ago. The popularity among 21-39-year-olds of new drinking establishments like these speaks to the importance of nontraditional outlets going forward.
But new channel options like breweries aren’t just appealing to younger drinkers. According to Nielsen CGA’s latest on-premise consumer survey, 61% of all U.S. drinkers said they visited a brewery or brewery tasting room more than they did in the past year. So what’s driving this? A few things: 30% say they want to try something new; 56% want a different selection of beer; and 38% want more specialty or limited run beer options.
The expansion of new drinking outlets could be good for the overall alcoholic beverage market, but it could also present new challenges for traditional establishments. To date, however, many consumers are not visiting new options instead of traditional ones. For example, 63% of Millennials say that visiting a brewery did not replace a visit to another establishment that serves alcohol. In looking at the popularity and growth of options like dart clubs, movie theaters, social ping pong establishments—even axe throwing bars—that appeal to younger generations, traditional channels may see further declines if they don’t adapt to new consumer preferences.
MILLENNIALS ARE NOT ALL THE SAME
But Millennials aren’t a homogenous group. And given the different ages within the larger segment, it’s helpful to divide the generation in half to gain a better understanding of individual drink preferences. Generally speaking, older Millennials favor beer and wine, while younger Millennials gravitate more toward ciders and spirits.
We also see differences in where younger and older Millennials purchase alcohol. Not surprisingly, younger Millennials are more likely to buy at nightclubs and bars, while older Millennials are more likely to buy at warehouse club stores.
Looking more closely at the Millennial group, the research shows that Millennials with kids also buy alcohol at tasting rooms and music/sporting events, often order wine by the bottle when they’re at a restaurant, and they drink more wine than they did a few years ago.
ADAPT AND OVERCOME CHALLENGES
Many industries and categories have learned from successes elsewhere and applied them to overcome their own hurdles. The same can be done with alcoholic beverages.
In an environment where there is an increasing amount of food-led events, retailers can propose food pairings—both on menus and in stores where alcohol is sold. Traditional bars and taverns could also benefit from partnering with food trucks.
Health and wellness is another trend that Americans are very focused on. And there are ways for alcohol retailers to tap into this movement. Running clubs, for example, are an easy, inexpensive way to engage customers, particularly on weekday evenings. Retailers can also learn from wineries and breweries that have started offering yoga and other exercise events directly on site. And it goes without saying that providing the right pairing of low-calorie, low-carb, healthy food options will go a long way in appealing to health-conscious consumers.
When it comes to meeting consumer desires for convenience and a unique experience:
- Explore the shipping and delivery options;
- Consider wine or beer of the month clubs;
- Offer the right product mix, including small pack sizes, to give customers the opportunity to explore and try new products; and
- Think about creating an experience or activity where customers will also come to drink. What about the next rooftop curling bar?