28/09/2023

Purchasing channels evolve for high-end spirits post-Covid

IWSR analysis shows that Covid-19 lockdowns changed the way consumers purchased luxury spirits, and that these channel shifts may continue post-Covid as well

High-end spirits – those that sit in the IWSR’s prestige and prestige-plus price brackets – make up well under 1% of global spirits volumes, but in value terms, they account for as much as 15% of the marketplace. Driven by the key Asian and North American regions, these prestige and prestige-plus spirit segments expanded during the pandemic years. They have continued to take share from other price bands, with volume increasing by more than 6% and value by 8%, 2021-2022, despite a relatively challenging macroeconomic climate.

However, Covid-19 lockdowns changed the way consumers purchased luxury spirits, and these channel shifts may continue post-Covid as well.

Ecommerce becomes more important

Covid-19 lockdowns prompted the rapid development of the ecommerce channel in many markets, and some online subchannels have proven to be very suited to trading high-end products. In the US, for example, direct-to-consumer ecommerce spirits sales were boosted by consumers switching to at-home consumption, aided by more relaxed rules on home delivery, which particularly favoured the US$100–249.99 segment. Many ecommerce sites also expanded to offer educational and/or entertaining browsing experiences.

The global ecommerce channel for total beverage alcohol (across all categories and price bands) jumped by nearly 50% in value, 2019-20. While growth slowed significantly in 2021 and 2022 as purchasing habits normalised, the post-Covid ecommerce environment is now significantly more developed, with consumers more digitally savvy.

It is expected that ecommerce will continue to be an important channel for vendors of higher-end spirits. In fact, Alex Holbrook from Master of Malt reports that “sales of products priced over £100 soared on Master of Malt, more than doubling throughout last year [2022].”

“Brand owners need to be well represented online and their products carefully curated to justify their high price points,” comments Guy Wolfe, Strategic Insights Manager, IWSR. “Ecommerce is also no longer a selling tool but a valuable data mining resource as well, with sales results scrutinised for sales patterns, consumer insight and emerging trends.”

On-trade recovery sluggish

The on-trade has always been an important outlet for prestige and prestige-plus spirits – not just to trade in, but also to showcase products in the more fashionable bars, restaurants and nightclubs.

In 2019 (pre-Covid), IWSR data shows that 56% of sales in the these two price bands came from the on-trade. In 2022 the market had normalised to 43% but there are some concerns that the financial ramifications of the pandemic will have made it challenging for many on-trade retail operators to afford to restock the more expensive products. Recovery will likely be more sluggish at this end of the market.

GTR integrated into wider brand strategies

Global Travel Retail (GTR) is a valuable shop window for the global spirits industry and an important generator of volumes. IWSR data shows that, pre-pandemic, if GTR was a country, it would be the most valuable market in the world for Scotch.

Duty Free accounted for nearly a tenth of all prestige and prestige-plus sales in 2019, but the Covid-19 slump reduced this to less than 4% in 2020.

Sales are now rebounding as footfall in airports and other travel outlets recover, but it already appears that suppliers’ approach to travel retail is changing. The role of travel retail has evolved as brand owners used the pandemic as an opportunity to rethink their GTR approach. Organisational changes at many leading suppliers indicate a strong drive to integrate GTR into a wider brand strategy across all channels. GTR is no longer seen as a separate entity and, crucially, high-end allocation is increasingly integrated into overall brand strategy planning.

Momentum for secondary market cools

The secondary market for top-end spirits had been on a strong upward trajectory pre- and post-Covid, and some of the prices achieved at auctions have generated considerable media interest. Though according to Duncan McFadzean, Managing Director of Noble & Co, a Scottish financial advisory firm with a specialism in whisky, the auction market has softened in recent months, with prices falling. However, there has been a significant rise in the volumes transacted at the lower-priced end of the market.

The overall wellbeing of the auction market hinges to an extent on the high-end launches selling out, because the secondary market feeds off this over demand. Although it is not possible to measure the excess demand for these luxury launches, new releases continue to sell out even if it is likely that the number of potential buyers may have fallen as the cost of living has increased.

When the economic conditions do become more favourable, it can be expected that auctions will gather momentum again. This will be important because when bottles sell for high and even record prices, it provides exposure and boosts the equity of the sector. Some operators are also now launching limited releases on the back of landmark auction sales.

Providing trust continues to underscore the purchasing experience

One trend that has not been disrupted by the pandemic is the desire for an exceptional experience when purchasing at the high-end, especially amongst HNWI. Charles Beamish of Beamish International, an advisory service for the very top-end of the whisky market, sees consumers increasingly wanting a more VIP service from a third-party consultancy or the private client divisions of the major distilleries. This moves beyond just the purchase of the bottle – it is the experience of, for example, the distillery visit, the dinner, or meeting the brand ambassadors.

Beamish points out that trust is critical for those buyers with big budgets because they need the reassurance that their investment is justified, and that the product is authentic. Trust and the level of service have helped drive the rise of third-party agencies and the private client divisions before, during and after Covid-19.

The outlook

Although indicators in the first half of 2023 point to a short-term softening of the demand for high-end spirits, IWSR forecasts indicate that the overall prestige and prestige plus end of the market will continue to make good headway once the current macroeconomic challenges subside. Initial signs suggest that demand is sufficiently strong to ensure long term prospects are upbeat, and that the high-end spirits segment will likely add a third to their value by the end of 2027.

IWSR continues to track the high-end and the status spirits market, with updated findings to be released in Q4 2023.

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