13/03/2024

From necessity to novelty, US beverage alcohol ecommerce is evolving

IWSR analysis shows that although recruitment to the ecommerce channel has slowed, there is still headroom for growth

The US ecommerce market for beverage alcohol is entering a period of more moderate growth as trading conditions continue to normalise – with consumer demand transitioning from pandemic necessity to novelty and convenience.

While recruitment to the channel has slowed since the Covid-19 pandemic, there is still headroom for future growth, particularly among Millennial and LDA Gen Z consumers.

The channel also lends itself to higher-value alcohol purchases, with wine enjoying a larger online presence thanks to its established D2C (direct to consumer) presence, although both spirits and beer are expected to gain share over the next few years.

However, online consumers are also becoming more price-sensitive thanks to ongoing economic pressures – and they are increasingly prioritising special offers and lower prices over faster delivery times.

“The US online alcohol market achieved steady but slower growth of 1% [by value] in 2022, with a slight year-on-year decrease in the total number of online alcohol buyers,” says Guy Wolfe, Head of Ecommerce Insights, IWSR. “After substantial pandemic growth, online alcohol sales have stabilised as the on-trade recovers and consumers revert to more typical purchasing habits.”

Recruitment potential

As it normalises, ecommerce is still expected to outperform the overall US total beverage alcohol market: IWSR forecasts predict a 2023-27 value CAGR of +7% for online alcohol sales, compared to a total beverage alcohol (TBA) CAGR of +1% over the same timescale. That would see ecommerce’s TBA share increase from 3.2% in 2022 to 3.9% in 2027.

Although there has been a slowdown in online use by alcohol purchasers – in 2023, 14% said they had shopped in the channel in the past six months in 2023, down from 18% in 2022 – IWSR consumer research suggests that there is still plenty of growth potential in the US.

“Recruitment has unsurprisingly slowed down since the pandemic, especially among Boomers, indicating that the channel is becoming more mature,” explains Wolfe. “However, there is still room for growth, as one in four online buyers has been recruited in the past two years. In addition, frequency of online shopping has continued to rise among those who use the channel.”

Millennial and LDA Gen Z consumers who don’t currently buy alcohol online are most likely to consider doing so in the future: according to IWSR consumer research conducted in 2023, 44% of Millennials are somewhat or very likely to start making online alcohol purchases in future, as are 39% of Gen Zs.

High-spending Millennials

Online purchasers of alcohol in the US are skewed towards men, Millennials, those on higher incomes and people with broader alcohol repertoires – and 60% now spend more on alcohol than they would in a store, an increase on 2022.

“IWSR research also shows that 67% of Millennials say they spend more online than in-store, significantly higher than the total sample,” points out Wolfe. “This suggests they are key drivers of volume and value growth – so tailoring marketing strategies and product offerings to appeal to this group is an important part of any online strategy.”

Increasing price sensitivity

At the same time, however, consumers are becoming increasingly price-conscious when shopping online, with special offers and lower prices now almost as important to them as fast delivery times. Delivery charges are also one of the most significant barriers preventing consumers from buying alcohol online.

“As online shoppers become more price-sensitive due to economic pressures, competitive and transparent online pricing strategies are increasing in importance,” says Marten Lodewijks, Director of Consulting – North America, IWSR. “Faster delivery is becoming less critical to consumers, and keeping delivery fees down is essential.”

Shifts in online behaviour can also be seen in site loyalty, with more consumers staying loyal to their favourite brands, rather than staying site loyal. The exception are Boomers, who are notably most likely to stick to a single retailer for all alcohol purchases. Gen Zs on the other hand are more likely to vary online retailer according to the occasion.

Research prior to purchase over indexes for online shopping

More than four in five respondents spend at least some time doing research before purchasing a beverage online, more than in any other shopping channel. Frequent online shoppers are most likely to take a lot of time researching products online. This implies that they are engaged consumers rather than impulse buyers. The main reasons for researching prior to purchase include finding out more information about a specific product; discovering something new and interesting; and finding the best price possible.

Beer, spirits to eat into wine’s share

Wine stands out as the most mature category in US ecommerce, thanks to the widespread acceptance and use of D2C: while wine has a 22% value share of TBA in the US, its slice of TBA ecommerce stands at 45%. Spirits has a 37% ecommerce share (33% of TBA), with beer/cider/RTDs at 18% of ecommerce (44% of TBA).

“Beer, cider and RTDs under-index online due to their widespread availability in physical channels, especially convenience,” explains Lodewijks. “Wine’s established D2C presence gives it larger online representation.”

However, both spirits and beer/cider/RTDs will gradually erode wine’s share in the coming years. While IWSR expects ecommerce wine sales to reduce slightly (2023-27 value CAGR of -1%), spirits (value CAGR of +7%) and beer/cider/RTDs (+19%) are predicted to make gains.

Additionally, growth occurring from the no-alcohol segments across all beverage alcohol categories is significantly outpacing traditional products. “No-alcohol products are being shipped across the US with no restrictions,” notes Adam Rogers, Research Director – North America, IWSR.

“No-alcohol’s share of sales in the D2C channel is growing more quickly than in typical distribution channels. As such, brand owners can use non-alcohol variants to drive brand recognition and create markets in states where they are currently under-represented.”

Wine passes a peak

Online’s share of total wine sales by value in the US peaked in 2021 at 6.6%, and is now likely to stabilise at around 6.1%. “Post-pandemic growth has been hard to come by across the wine market, including online, with consumer attention being pulled to other categories,” says Rogers.

Following significant growth during the pandemic in 2020, D2C wine has since cooled off with two consecutive years of volume declines. Recent declines are attributed to a reduction of shipments for brands priced under $30 USD while growth remains for wines priced $100 and over.

“This illustrates a scenario where inflation disproportionately affects individuals with lower incomes, while those with higher incomes experience minimal impact from increasing prices,” notes Rogers.

Spirits look to grow

For spirits, whisky dominates online sales with almost 50% value share in 2022, while fast-growing agave-based spirits are poised to overtake vodka during 2024, commanding over 20% share of online spirits sales by 2027. Online’s value share of US spirits sales is expected to reach 4% by 2027, up from 3.5% in 2022.

“Stricter state regulations on the online sale of spirits, compared to other beverage alcohol categories, have resulted in a relatively low but increasing ecommerce value share,” says Rogers. “In an intricate market landscape, spirits continue to find ways around restrictive state laws to meet consumer expectations and demand.”

Spirits industry organisations have collaborated on a “Ship My Spirits” campaign, a grassroots coalition with the common goal of allowing direct-to-consumer shipping of distilled spirits, in order to have parity with the wine industry. While 47 states allow the direct shipment of wine straight from winemakers to consumers, only 11 states, including the District of Columbia, currently allow distillers to ship their products directly to consumers. Any change that brings parity to spirits and wine D2C shipping would benefit the spirits industry.

Beer’s promising future

“Beer, cider and RTDs have not historically attained the same online presence as wine or spirits,” says Lodewijks. “Products are relatively expensive to ship because they are heavy but carry lower prices, reducing margins.”

However, rising levels of consumer interest in the convenience of on-demand, plus access to hard-to-find products via D2C, are expected to drive strong future growth in ecommerce sales, although off a small base.

Online held a 0.6% value share of overall US beer/cider/RTD sales in 2018; by 2022, this had risen by 1.3%, and it is expected to more than double by 2027. “The future is promising for online, both for sales and as a marketing tool that enables beer/cider/RTD brands to connect with consumers in new ways,” says Lodewijks.

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