The alcoholic beverage industry is poised for a significant reset in 2025 after facing numerous challenges since the onset of the COVID-19 pandemic.
Data indicates that inventory challenges, reduced disposable incomes, and a growing trend toward alcohol moderation will continue to shape the beverage market in the coming years. For beverage professionals and sales forecasters, understanding these dynamics is crucial for anticipating market shifts and adjusting strategies accordingly. Despite these headwinds, the U.S. remains a critical driver of value growth among mature alcohol markets. In 2023, total beverage alcohol (TBA) volumes in the U.S. declined by 3%, underscoring the challenges the industry faces. However, the fact that TBA value increased by 1% highlights the market's resilience and underscores the importance of recognizing value-driven segments as key opportunities for future growth.
The U.S. is projected to continue being the primary value driver in the global alcohol market, expected to generate over $7.5 billion in incremental gains by 2028—a growth trajectory comparable to that of India. This highlights the U.S.'s importance in shaping the future of the industry as it adapts to emerging headwinds, such as the non-alcoholic movement, the rise of legal marijuana, and increasing demand for THC and CBD-infused beverages, all set against a backdrop of changing consumer spending habits.
Multiple Sources of Industry Headwinds
The U.S. beverage alcohol market encountered multiple headwinds in 2023, contributing to a notable slowdown across key segments. According to data from the IWSR, the industry was hit by imbalanced inventories, economic pressures on consumers, and a rising emphasis on health and moderation. For the first time in nearly three decades, spirits sales declined, accompanied by drops in wine and beer consumption. Ready-to-drink (RTD) beverages saw only marginal growth, signaling the end of a period of strong gains. IWSR forecasts predict that overall consumption will continue to decline, with a compound annual growth rate (CAGR) of -1% from 2023 to 2028.
One of the primary challenges has been inventory overstocking. Initially driven by a spike in demand during the COVID-19 pandemic, supply chain disruptions and poor stock planning exacerbated the issue. As demand tapered off and economic conditions worsened, wholesalers and retailers were left with excess inventory, which is expected to persist well into 2025 or even 2026. According to IWSR's U.S. Division President, Marten Lodewijks, consumer demand will need to rise significantly for inventory levels to normalize.
Economic pressures also played a critical role in reshaping the market. Following the end of pandemic-related stimulus programs, rising inflation, interest rates, and credit card debt severely reduced consumers' disposable income. As household budgets tightened, spending on alcohol took a hit, with consumers reallocating their money to essential goods. This shift in spending habits contributed to a marked decline in alcohol consumption, which dropped below pre-pandemic levels.
As a result, price sensitivity has become more pronounced. Consumers are increasingly seeking better value for money, leading to a softening of the "trading up" trend that had seen many opt for premium products. Instead, more affordable options have gained favor, reflecting a broader shift in consumer behavior.
Another significant trend has been the growing focus on health and wellness, particularly among younger legal drinking age (LDA) adults. This demographic is moderating or even abstaining from alcohol consumption in favor of healthier lifestyles. While this trend has driven down overall alcohol consumption, it has spurred growth in specific market segments that align with wellness, such as low- and no-alcohol products, and beverages marketed as low-sugar or low-calorie.
Despite these headwinds, some areas of the U.S. alcohol market continue to thrive. Agave-based spirits, such as tequila and mezcal, remain popular, as do Mexican lagers and Prosecco, driven by strong consumer loyalty. Ready-to-drink beverages, while slowing in volume growth, still present opportunities for future expansion. However, it is clear that the industry will need to navigate these headwinds carefully as it approaches the anticipated reset in 2025.
Beer & Spirits Evolving
In 2023, the U.S. beer market continued its long-term decline, with volumes dropping by 3%. This trend is expected to persist, with the IWSR forecasting a compound annual growth rate (CAGR) of -2% between 2023 and 2028. Despite the overall decrease in beer consumption, the premium-and-above price segments have emerged as the primary drivers of value growth within the category. Several factors contribute to this downward trajectory, including the weaker entry of Gen Z legal drinking age (LDA) consumers into the beer market compared to previous generations. Additionally, there has been a continued shift from beer to newer categories, such as ready-to-drink (RTD) beverages, as well as increased moderation in alcohol consumption overall.
In the spirits category, 2023 marked the first decline in U.S. spirits volumes in nearly 30 years, with a 2% decrease. While spirits are expected to see only slow growth in the near future, with a projected CAGR of 1% from 2023 to 2028, certain segments within the category continue to perform well. Tequila, in particular, remains a standout, driving significant value gains, especially in the premium-and-above segments. Agave spirits recorded a 4% volume increase in 2023, following a period of double-digit growth, and are expected to continue expanding at a CAGR of 6% through 2028.
Other spirits segments, however, have faced challenges. U.S. whiskey, which experienced a 1% volume decline in 2023, is forecast to return to growth with a CAGR of 2% between 2023 and 2028, as demand for Rye and Bourbon remains strong. Despite the U.S. market’s importance for malt Scotch, this segment has encountered increasing competition from domestic whiskey and shifting consumer preferences. Malt Scotch volumes fell by 12% in 2023, and flat growth is anticipated in the coming years.
Overall, while beer and spirits continue to face headwinds, premium products within these categories remain critical to their value growth. The market’s ongoing evolution reflects broader consumer trends, including shifting preferences toward moderation, wellness, and alternative alcohol categories, which will shape the industry's trajectory in the years leading up to the anticipated reset in 2025.
Bright Spots are in the Data
While the U.S. wine market continued to face structural challenges in 2023, with total wine volumes decreasing by 4%, Prosecco offered a glimmer of optimism. Still wine volumes fell by 4%, and even the previously robust sparkling wine segment contracted by 3%. However, forecasts suggest a more moderate decline in the coming years, with an expected CAGR of -1% between 2023 and 2028, largely driven by still wine. In contrast, sparkling wine is expected to rebound, and Prosecco remains a key growth driver within this segment.
Prosecco’s popularity stems from its affordability and versatility, making it accessible to a broad consumer base while offering opportunities for premiumization. Additionally, Prosecco has benefited from its role in the increasingly popular spritz cocktail, which has contributed to its sustained demand. Low-alcohol wines are also gaining traction, particularly those marketed with health-conscious attributes. Sauvignon Blanc is currently one of the best-performing varietals due to its refreshing profile and compatibility with food pairings, further stabilizing the wine sector amid broader declines.
In the ready-to-drink (RTD) category, growth moderated in 2023, with volumes increasing by just 1%, but the future outlook remains positive. IWSR forecasts predict a CAGR of 3% from 2023 to 2028, driven by key RTD segments like hard tea, flavored alcoholic beverages (FABs), and cocktails/long drinks. Hard tea, in particular, is seeing notable expansion as new brands enter the market, looking to premiumize this segment and capitalize on growing consumer interest.
The non-alcoholic beverage market continues to outperform its traditional alcoholic counterparts, particularly in the U.S. In 2023, no-alcohol beer volumes grew by 19%, while no-alcohol spirits surged by 38%, albeit from a smaller base. Both segments are expected to continue posting strong double-digit growth through 2028. Although no-alcohol wine is growing at a slower pace, it is still making significant progress.
The growing population of no-alcohol drinkers has been a key factor behind this trend, especially in markets like the U.S., where it is expanding from a low base. According to IWSR Bevtrac data, the percentage of U.S. drinkers consuming no-alcohol products doubled from 6% in late 2023 to 13% by early 2024, underscoring the increasing importance of this sector in the broader beverage landscape.
In Conclusion
The alcoholic beverage industry is undergoing significant shifts as it approaches a pivotal reset in 2025. Traditional segments such as beer, spirits, and wine have faced substantial challenges due to economic pressures, changing consumer preferences, and the rise of health-conscious behaviors. While the beer and spirits categories have seen notable declines, particularly in 2023, premium segments and agave-based spirits, like tequila, have remained resilient. Wine, though in structural decline, finds some relief in the continued growth of Prosecco and emerging demand for low-alcohol options. Similarly, the ready-to-drink (RTD) category, driven by hard tea and cocktails, continues to present growth opportunities despite moderating in recent years. The most transformative shift, however, is the rise of non-alcoholic beverages, with no-alcohol beer and spirits registering robust double-digit growth, driven by the expanding base of health-conscious consumers.
For sales professionals in the alcohol distribution space, understanding these trends is critical for navigating this evolving market landscape. With consumers increasingly focused on health and wellness, premiumization, and affordability, those in the distribution sector must adapt their strategies to meet the demands of a diversifying marketplace. Staying informed about key growth drivers—such as Prosecco's role in the wine segment, the expanding RTD category, and the booming non-alcoholic market—will be essential for success. By leveraging these insights, industry professionals can position themselves to thrive in an environment defined by changing consumption patterns and economic headwinds.
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