4 predictions for the beverage alcohol sector in 2023

The past year proved quite eventful, with significant industry developments including: the release of the U.S. Treasury report on anticompetitive practices; Provi’s antitrust complaint against Southern Glazer’s and RNDC; and the recent IRS and TTB raid of Southern Glazer’s California office.

As we look at the trends and what to expect in 2023, we isolated a few key themes:

1) Ready-to-drink (RTD) beverages will continue to grab headlines on multiple fronts

2) States will decide on how to treat unlicensed third-party delivery and shipping services

3) Converging of product categories will continue as well as more battles among the biggest global drinks companies

4) Sustainability efforts will accelerate with packaging and recycling at the forefront

Read on for a sneak preview into what’s shaping up to look like potentially interesting changes to an alcohol regulatory system some 90 years after its inception.

Consumer preference, largely Gen Z and Millennials, has pushed the ready-to-drink category to become the fastest growing spirits category of 2022, and it’s expected to increase by $11.6 billion through 2026. RTDs are typically lower in alcohol and feature unique flavors, which is in lockstep with young Gen Z’s unique distinction of being “the least alcohol-consuming generation in history.” Retailers are paying attention: According to Drizly’s BevAlc Insights 2022 Retail Report, 71% of retailers surveyed said growth in the RTD category has permanently changed how and where they stock their products.

As the category grows, states will take a closer look at how to classify and tax these unique products. Spirits-based RTDs are leading the pack as a growth leader within the category, with 25 states, including Michigan and Vermont, reducing the gallonage excise tax rates on spirit-based RTDs. Look for more states to follow suit in 2023, and in doing so removing barriers to further growth and turning this category trend into a regulatory trend.

The pandemic wrought many changes over the past few years, and in the beverage alcohol sector none was more in the spotlight than the role of third-party providers (TPP). Today states are taking a hard, post-pandemic look at who should be allowed to deliver alcohol, as well as facilitate shipment via fulfillment houses.

Should DoorDash, Instacart, et al. be allowed to deliver alcohol just as they deliver food? Individual states get to decide, and Colorado voters just said no to Prop 126, which would have allowed delivery by DoorDash and other unlicensed TPPs.

Concerns around alcohol delivery to minors will continue to impact local sentiment and decisions. Other states, like New Jersey, give TPPs a green light to deliver alcohol, creating new requirements for these entities, including:

• Obtaining a $2,000 annual third-party delivery permit
• Running background checks on delivery personnel
• Training drivers on compliance with alcohol laws
• Putting safeguards in place to mitigate against deliveries to underage persons, including stringent record-keeping

The coming year will reveal new approaches by jurisdictions that recognize consumer demand for delivery and allow TPPs, albeit with examples to follow for solid guardrails, including better tools for monitoring these new players.

On the shipping front, fulfillment houses remain misunderstood in the alcohol shipping world, and we expect states to continue scrutinizing whether these businesses should be licensed. Indeed, with states pressed to ramp up enforcement, a trend has emerged whereby alcoholic beverage control authorities will peruse FedEx and UPS reports, then react to a high percentage of direct-to-consumer (DTC) shipments coming from fulfillment houses.

These third-party businesses that handle packaging and storage on behalf of alcohol producers then transfer to common carriers for shipment became a target in state-by-state tugs-of-war over DTC shipping. We’ve seen some states update their fulfillment house rules over the past several years, most recently in Louisiana. We expect this trend to continue, with more states evaluating whether fulfillment houses should hold licenses and file reports. 

In calendar year 2022, PepsiCo became an alcohol distributor with the launch of their Blue Cloud Distribution entity, securing federal alcohol wholesaler permits in 31 states, and introducing Hard MTN DEW and Lipton Hard Iced Tea into the marketplace; Keurig Dr Pepper invested in nonalcoholic craft beer giant Athletic Brewing Company; and Monster acquired U.S. brewery CANarchy — injecting diverse mash-up products at scale into the beverage alcohol industry. These category-blurring “total beverage” companies seek expanded market share with soda, energy drinks, and alcohol all under one marketing roof.

And the blur isn’t confined to categories, as heavily invested, longtime participants in the three-tier system closely examine a player the size of PepsiCo entering the fray, sidling up with serious distribution power, and taking a seat at the table. As journalist Kate Bernot recently opined in Good Beer Hunting, “The entrance of one of the world’s largest soft drink companies into the distribution business has created tension with traditional beer wholesalers, many of whom see Blue Cloud as both a practical and existential threat to the status quo.” 

According to consumer research from IWSR, 48% of U.S. alcohol drinkers say they consider a company’s sustainability or environmental initiatives before purchasing beverage alcohol. Such consumer sentiment, in addition to supply chain issues credibly prompting innovation out of sheer necessity, will help push this trend further to the center in the new year — from sustainable packaging (including a reckoning with the weight/production of glass) to zero-waste initiatives and carbon footprint reduction. Tablas Creek is one example of producers getting out ahead of the trend by introducing eco-friendly alternatives like their 3L wine bag-in-box.

The Golden State will help lead the way. Today, many aluminum, glass, and plastic containers, including containers for beer and wine coolers, are subject to a refundable bottle recycling fee in the world’s fifth largest economy, California. Starting in 2024, wine and spirits containers will be too.

With Millennials and Gen Z in the forefront of the sustainability push, count on new legislative measures to push this trend further. 

With global beverage alcohol ecommerce sales on track to exceed $173 billion by 2031, and the U.S. poised to become the world’s largest ecommerce market for alcoholic beverages, businesses in the industry face increased opportunities as well as scrutiny.

Growing tax requirements and complexity will continue to pose hurdles to business expansion in 2023 and beyond. One way to overcome regulatory challenges is to stay informed of compliance changes in markets where you sell. The complication of economic nexus in the beverage alcohol industry is one of many trends impacting sellers today. Learn what economic nexus means for the beverage alcohol industry and how recent changes may impact your business in this overview by Avalara.