Does premium slump signal end of pandemic spirit boom?

Premium alcohol sales appear to be slowing down after a pandemic-era heyday, as many drinkers cut back on affordable luxuries, sending a potentially worrying signal to other luxury brands. 

The FT reports on the trend’s recession, which at its high points had seen some New York clubs running short on cognac brand Hennessy; now, however, the sluggishness begins to resemble a bit of a hangover for the category. 

Why premium spirits matter

On one level, premium spirit brands are critical to the overall premiumization strategies of major drinks companies seeking to protect or even increase their margins. 

But a slump among consumers, especially in the cognac segment – the focus of the FT report – suggests two important insights. First, that pandemic-era savings, which built up for some, appear to be running out. This is especially true in the US on-trade, which has dipped 3.3%, according to the Spirits Business. 

Second: cognac is particularly popular among African Americans who account for half of all the cognac enjoyed in the US (according to Bernstein analysis), and this community has been hit harder than the US overall by the cost-of-living crisis.

Focus on cognac

Cognac’s popularity is largely attributed to French producers’ courting of African American consumers during and after the Jim Crow segregation laws in the middle of the 20th century. Since then, the tipple has become a favorite of hip hop artists, which both confirmed and boosted the centrality of cognac to Black culture in the US. 

But it appears the tide, among the African American demographic, is now shifting slowly toward tequila, which is typically cheaper to produce and buy, according to Bernstein.

Price promotions

Despite the risks of price promotion to brand value, certain major brands have heeded Euromonitor advice to build “margin-friendly affordability”. LVMH, for instance, is accused by competitors of shredding value by focusing promotions on slightly cheaper Very Special (as opposed to other brands’ focus on VSOP, or Very Special Old Pale, varieties). 

Sourced from the Financial Times, WARC, Dazed