The beverage alcohol industry in uncertain economic times

It’s often said that people who drink consume more alcohol both when times are good and when times are bad. But is it true? How might an economic slowdown in 2023 affect the beverage alcohol industry?

A 2021 study of business cycles and alcohol consumption across 24 countries over more than 50 years found that consumption of wine, beer, and spirits tends to increase during “phases of economic expansion.” It seems those who enjoy alcohol really do drink more during good times. 

The study also found “no symmetric reduction” in beer and spirits consumption during recessions. “Decreasing levels of average per capita income lead to very small changes in gross alcohol, wine, and beer consumption.” 

As reported by Forbes, analysis by Goldman Sachs determined that “alcoholic beverage consumption should be resilient” during an economic recession, because beer and spirits tend to be seen as affordable luxuries or even staples. Yet some buying habits may change. For example, consumers are more likely to drink at home during economic downturns because it’s less expensive than buying drinks out. 

It’s interesting to look at the broad trends, but for many of us, the Great Recession of 2008 and the hard times of 2020–21 still loom large. What did they do to alcohol sales?

It took years for the U.S economy to recover from the “deep and protracted” economic crisis that began in late 2007 and hit bottom in mid-2009: The unemployment rate didn’t return to pre-recession levels until 2014; median household incomes didn’t fully recover until 2016.

Drinks market analysis firm IWSR analyzed the impact of the 2008 financial crash on the beverage alcohol industry. It found that beer and cider sales plummeted from 6% growth in 2007 to a 1% decline in 2009. By contrast, wine and spirits volumes dropped by 8% in 2009 as travel retail sales declined, but then rose by 12% in 2010. 

“Total beverage alcohol 5-year volume CAGR growth 2003–2008 was 1.0%,” reports IWSR, “while the following 5-year volume CAGR growth 2008–2013 softened to 0.1%, largely driven by declines in beer consumption post-recession.” Beer and cider were hit harder than wine and spirits “due to a combination of duty rises, an on-premise slump, and increased at-home consumption, which tends to favour spirits and wine.” 

Another takeaway from the last economic crisis is that there was “a ‘shake-out’ of small brands from retail” as operators sought to maximize returns. Large, well-known brands generally fared better than their small, lesser-known counterparts.

COVID-19 changed buying habits

While there may be lessons to be learned from 2008, it isn’t necessarily a polestar. Much has changed since then for the beverage alcohol industry, in part because of the COVID-19 pandemic. For example, about 35 states temporarily authorized cocktails to go when on-premises sales were prohibited, and nearly 20 have made those provisions permanent. 

Online beverage alcohol sales also flourished during the pandemic: Alcohol ecommerce value grew by over 40% in 2020 alone according to IWSR. Direct-to-consumer (DTC) wine sales made up much of that growth, since many states still don’t permit DTC sales of beer or spirits. According to Rabobank Research Analyst Bourcard Nesin, online wine sales increased from about $1 billion in 2018 to more than $3 billion in 2021.

Though IWSR expects growth rates to moderate, online beverage alcohol sales should remain robust and could contribute an additional $10+ billion to the beverage alcohol sector between 2021 and 2026. Beer, cider, and ready-to-drink (RTD) cocktails could “register the quickest growth” and account for nearly a quarter of online sales by 2026.

Ask different experts about the state of the economy and you’ll get different answers: Some economists think we can escape recession in 2023, some predict a mild and short recession, and others expect stagflation, a “two-headed monster of high inflation and economic stagnation.” Since it’s hard to predict the economy, it’s hard to predict the economy’s impact on the beverage alcohol sector.

Consumer demand was generally strong in 2022, buoyed by lingering COVID-19 stimulus programs that kept buying power up despite rising prices. But stagflation, if it happens the way some economists predict, could cause a reduction in purchasing power in 2023. 

Just about everything costs more today than it did at the start of 2022: energy, ingredients, containers, wages, shipping, you name it. Companies best positioned to weather the stagflation storm will be “those with strong pricing power,” writes Rachana Shanbhogue, deputy business affairs editor at The Economist, “either because they sell essential products for which demand is generally sturdy … or because they have brands that customers trust and value.” 

For more insights, read our four predictions for the beverage alcohol sector in 2023.