In a recent interview, Mark Dempsey, Senior Consulting Director at GlobalData, shared valuable insights on the current state and future trends of the spirits industry.
With his extensive experience in market intelligence, FMCG knowledge and expertise in strategic business development research, Dempsey offers a comprehensive view of the challenges and opportunities facing spirits marketers today.
Q: Given your extensive experience in the FMCG sector, what do you see as the most significant shifts in consumer behavior affecting the spirits industry today?
A: Despite global economic challenges, we're seeing a significant shift towards premiumization and experience-driven consumption. Consumers are saying, "I'm going to do it a little less, but I'm going to spend a bit more and have a great experience." This trend is driving growth in artisanal, heritage, and provenance-focused brands.
To illustrate this trend, look at the food service marketplace. There will always be a role for McDonald's as a value option, but the trend is moving towards artisan players and fast-casual brands like Five Guys, Shake Shack, and Chipotle. Consumers are willing to spend a little more for freshly made, high-quality ingredients and a more premium experience. We're seeing the same thing in the spirits categories.
Another major shift is the rise of no and low-alcohol options. The number of consumers, particularly younger ones, opting for large alcohol consumption is significantly declining compared to five or ten years ago. This has led to increased demand for non-alcoholic or low-alcohol alternatives that still provide the flavor profiles and experiences associated with traditional spirits.
Q: How are consumer demands and expectations changing when it comes to spirits brands?
A: Today's consumers, especially younger ones, are more health-conscious and informed about their consumption. There's a growing emphasis on natural, authentic flavors in spirits products. We're also seeing a strong link between no and low alcohol consumption and health consciousness.
Additionally, ethical considerations are becoming increasingly important. The ethical policies of the industry and the manufacturer is key, particularly to the younger generation. This includes sustainable sourcing, environmentally friendly practices, and corporate social responsibility.
Q: What emerging trends in the spirits industry do you think will have the biggest impact on strategies in the next 3-5 years?
A: The continued growth of the no and low alcohol category will be significant. Spirits brands that invest in developing high-quality, flavorful non-alcoholic or low-alcohol alternatives will be well-positioned to capture this growing market.
In this regard, the spirits industry is following the beer market's lead. While they may be a bit late to the trend, they're now catching up. The key is to ensure that the flavor profiles, taste, and experience of these no and low-alcohol spirits match those of traditional products.
Sustainability will also play a crucial role. Implementing and communicating ethical and sustainable practices throughout the entire value chain, from sourcing to packaging, will be essential for brands to remain competitive.
The RTD segment is a very interesting area to keep an eye on. Developments in the RTD (ready-to-drink) space are quite aligned to several important areas of focus, namely: convenience factor; lower cost; appealing to younger consumers; and offering a new experience. We are seeing many new brands and products being launched in this space, mainly with bold flavours and creative product or brand mix-ups. A good example here is the “JD & Coke” RTD product and then more recently the “Hard Sevens” (from PepsiCo). Expect to see increasing player competition from non-alcoholic manufacturers and more beer/cider-focused manufacturers all looking to gain traction in this space.
Lastly, the focus on creating authentic experiences and storytelling around brand heritage and provenance will continue to be important, especially in the premium and super-premium segments.
Q: Can you share insights on how successful spirits brands are creating connections with consumers?
A: Brand presence at the right events is crucial, particularly those that resonate with younger audiences. Creating connections through experiences that align with the brand's values and the consumer's lifestyle is key.
Successful brands are getting their products into the hands of consumers for testing and trials, especially in the food service or out-of-home space. This includes quick-service restaurants, full-service restaurants, clubs, bars, hotels, and sporting events. It's not just about sampling the product, but also about helping consumers understand the story behind the brand.
We see a strong correlation between companies investing heavily in trials, visibility and demonstrations at events, restaurants, bars and clubs and their success in steering future consumer habits. This approach allows brands to inform, educate, and engage with their target audience effectively. You want to make sure you are visible in the out-of-home category.
Looking for more inspiration on brand visibility in the on-trade?
Check out the spirits portfolio here to get inspired!
Q: What role do you see sustainability playing in this industry going forward?
A: Sustainability is becoming increasingly crucial, impacting the entire value chain. This includes ethical farming practices, fair treatment of workers throughout the supply chain, local sourcing to reduce transportation needs, the use of natural flavors, and a shift towards recyclable packaging materials.
The most successful brands will be those that can demonstrate 100% ethical, sustainable sourcing and operations throughout their supply chain. This extends from the initial farming practices, all the way to the final product delivery, whether in retail or food service settings.
Consumers, especially Gen-Z and Millennials, are more conscious about what they put into their bodies. They have instant access to information and can easily fact-check companies' claims about ethics and sustainability. Brands that can genuinely back up their ethical claims will have a significant advantage.
Q: What do you believe will be the biggest challenges and opportunities for spirits marketers in the coming years?
A: The biggest challenge will be navigating the shift towards healthier lifestyles and reduced alcohol consumption while maintaining brand relevance and profitability. This is also an opportunity for innovation in the no and low alcohol space.
Another challenge is the increasing competition from private label and tertiary brands, especially in challenging economic times. Discounters are developing their private-label spirits, and even big retailers are bringing in tertiary brands that offer a balance between private-label and premium brands.
The opportunity lies in capturing the youngest legal drinking-age consumers and building brand loyalty and increasing awareness early. Brands that align with this demographic's values and preferences – emphasizing sustainability, authenticity, and unique experiences – will be well-positioned for future success.
Q: What advice would you give to marketing managers at spirits brands about adapting to rapidly changing consumer preferences?
A: My main advice would be to focus on the younger legal consumers. Research that consumer, get to know what drives them, and understand how you can reassure them of the ethics you share. Adapt your storytelling, heritage, provenance, and quality messaging to resonate with this audience.
It's also crucial to invest in no and low-alcohol options and to embrace sustainability throughout your entire value chain. Be aware of private label competition in the retail space and be prepared to differentiate your brand through quality, experience, and ethical practices.
Lastly, avoid a one-size-fits-all approach. Understand the nuances in different regions and markets, and adapt your strategies accordingly. The European consumer is not the same as the APAC or North American consumer, so it's crucial to dive deep and understand how dynamics differ across regions.
"The winners of the future will be the ones that capture the fresh, young audience right now. Whatever the legal drinking age in the country, research that consumer, get to know them, what drives them and how can you reassure them on the ethics you share. How can you adapt and develop your storytelling, heritage, provenance, quality, and processes from start to finish to reassure them of that?
Mark Dempsey is the Senior Consulting Director at GlobalData, specializing in insight research and strategic business development across the food and beverage industry. He will be chairing the upcoming spirits industry conference in October. For more information or to connect with Mark, you can reach him at mark.dempsey@globaldata.com.
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