16/03/2023

Online alcohol sales in the US normalise after a surge during Covid-19 lockdowns

Growth will continue, with particularly strong prospects for beer and spirits

IWSR findings show that the long-term outlook for beverage alcohol ecommerce in the US is positive. However, the channel’s skew to more premium products and pricing may inhibit short-term growth prospects due to high inflation and rising living costs.

As ecommerce matures in the US, its previous weighting towards direct-to-consumer (D2C) sales of wine is shifting in the direction of omnichannel and diversifying in terms of categories, mainly due to large investments from the country’s major supermarket chains. On-demand providers are also increasing their market share.

“Online alcohol sales have grown rapidly in the US in recent years,” says Guy Wolfe, Head of Ecommerce Insights, IWSR Drinks Market Analysis. “Covid-19 boosted consumer awareness of the channel, and retailers and brand owners have invested heavily in the space. Certain states also eased previous restrictions on online sales, while in others, technological solutions offered a way to legally circumvent such barriers.”

As Covid restrictions have eased, the on-trade channel has rebounded and is expected to fully recover in coming years, alongside some shift back to traditional bricks-and-mortar (B&M) purchasing patterns in retail. As such, online alcohol sales are expected to moderate, following value growth of nearly 80% in 2020 and 15% in 2021. This picture of more moderate expansion is reflected in forecast growth rates, with ecommerce sales expected to record a value CAGR of 11%, 2021-2026, in the US.

Online purchases, however, remain a small part of the overall market. “With the channel still only accounting for around 3.5% of total alcohol (in a very off-trade-weighted market), there is still considerable room for expansion,” says Wolfe. “With consumers now accustomed to the convenience of ecommerce, and the infrastructure more established, the channel is expected to return to growth in the medium term.” Ecommerce share of total off-trade beverage alcohol sales is forecast to move to above 6% by 2026.

One of the attractions of ecommerce to brand owners is its weighting towards higher price points. While premium-plus products had a 28% value share of total beverage alcohol sales in 2021, the figure for online purchases was 49%. This ratio is expected to rise to 54% in 2026.

However, this skewing to higher-value products could create problems in the short term, notes Wolfe. “While significant growth in online alcohol is forecast, expectations have been tempered by an increasingly uncertain economic environment. Ecommerce sales are largely weighted to the premium end, and therefore expansion may be limited by high inflation, recessionary fears and rising living costs. Although IWSR consumer research indicates that premium consumers are generally more insulated from economic weakness than less affluent groups, some reduce purchase frequency or quantity in order to avoid down-trading. Retailers and brand owners have also become more cautious about investment.”

Online beverage alcohol is also likely to undergo a channel shift in the next few years: omnichannel and on-demand operators are expected to gain share at the expense of D2C, which enjoyed early gains thanks to minimal restrictions on direct wine sales. This change is being fuelled by major ecommerce investments by large supermarket chains, with omnichannel platforms also meeting consumer demand for value in a weaker economic context.

This will particularly benefit sales of beer and spirits. Online sales of spirits are expected to rise at a CAGR of +17% between 2021 and 2026, just ahead of beer / cider / RTDs, and well ahead of wine.

Spirits’ share of ecommerce remains relatively modest, partly because of greater restrictions on online sales, but the category is now benefitting from greater consumer awareness and the expansion of the omnichannel. Whisky – which accounts for around half of online spirits sales – and premium agave spirits will spearhead future growth.

The beer, cider and RTDs categories have previously underperformed in ecommerce thanks to a combination of factors including their mainstream pricing and wide availability in B&M retail. They are typically sold in larger volume – and are therefore heavier and more expensive to ship – and their usually slimmer margins can make online sales unprofitable.

But this is set to change with the rise of omnichannel. “Omnichannel caters to stocking up, with larger total basket sizes and click & collect options reducing delivery fees,” says Wolfe. Growth will also be driven by rising sales of no-alcohol products – a strength for beer, share gains by RTDs, and online investments by craft brewers.

Online wine sales enjoyed notable success during Covid-19 lockdowns, thanks to the D2C channel being well-established and free from widespread restrictions; however, there has been greater regulatory scrutiny of potentially illegal out-of-state shipments in recent times.

“Wine’s higher existing online penetration and reliance on premium sales via the D2C channel are expected to restrict growth to low single digits moving forwards,” says Wolfe.

One notable exception to this is premium sparkling wine, which lost share of online sales during the Covid-19 pandemic because of consumer pessimism and restrictions on social gatherings. “With these dynamics now reversing, sparkling wine is expected to see the fastest growth online over the forecast period,” says Wolfe. “Most sales are at the premium end, and this price band is set to perform best, as consumers give themselves an affordable treat.”

You may also be interested in reading:

https://www.theiwsr.com/key-drivers-for-the-us-no-low-alcohol-market/
US alcohol sales in 2022 led by premium spending across all categories
The 8 drivers of change for beverage alcohol in 2023 and beyond