What lasting impact will COVID have on the luxury spirits market?

With consumer priorities shifting massively, vast changes in channel and category hierarchies and new consumption occasions have all risen from the coronavirus pandemic. Spirits category commentator Amy Hopkins examines how the higher-end spirits market could be changed in the long term.

The luxury spirits segment has received mixed prophecies throughout the pandemic. Initially, as the on-premise and global travel retail (GTR) channels closed en masse, and as concerned consumers sought to economise, we were warned of a reversion to cheaper, familiar brands. 

With jobs at risk and a widespread wartime attitude that framed shopping as a necessity rather than an indulgence, it made sense that the conspicuous consumption underpinning the higher-value end of the market would take a downward turn.

Many consumers are redirecting their disposable income to affordable luxuries such as alcohol.

More recent insight shows that this initial consumer response has not been at the expense of luxury brands. In fact, analysts claim that COVID-19 has actually accelerated the premiumisation of drinks. 

The IWSR’s ‘Drinks Market Analysis’ estimates that premium-plus wine and spirits will grow total volumes by 25.6% between 2020 and 2025, compared to a 0.8% volumes increase for lower-price tiers. The market researcher notes that while COVID has curtailed spending for some consumers, many others are redirecting their disposable income – previously earmarked for travel or dining out – to affordable luxuries such as alcohol.

Of course, premium-plus encompasses much more than just the luxury segment. But The IWSR also claims that so-called ‘status spirits’ - those priced at US$100-and-above per bottle - will show high levels of resilience during the pandemic and beyond. 

Of the ‘status’ spirits market, IWSR CEO Mark Meek says: “It’s a unique and nuanced sector which has definitely benefited from the general trend towards premiumisation, and also by the younger generation, who continue to seek out luxury and find it in high-end spirits.”

COVID shakes up sleepy spirits

While COVID has not hindered luxury spirits in the long term, the market will be dramatically changed in a number of ways. This presents both a challenge and an opportunity for brands to evolve what has long been a complacent segment.

Inherent to the success of luxury spirits brands is tourism and the GTR channel. Travel retail has been steamrolled by the pandemic over the past 16 months, at the same time as alcohol e-commerce has become much more dominant. Could this lead to more dedicated online luxury shops for spirits in the future? With more brands adopting an omnichannel approach, it’s very possible.

Spying a gap in the market, last year Amazon launched its ‘Luxury Stores’ division in the US. Currently limited to fashion and beauty products, it’ll be interesting to see if the concept grows to encompass drinks. Consumers are often concerned about authenticity when buying expensive alcohol through a third party. Amazon’s Luxury Stores, however, links shoppers directly to high-end brands and authorised retailers.

At the start of the pandemic, management consultancy McKinsey urged luxury goods suppliers to “accelerate digital investments and shift media spending to online channels”, focusing on “customer activation rather than brand-building”.

Brands need to think creatively about premiumising online buying.

A big question for upmarket drinks brands looking to increase their presence online will be: How do we translate the luxurious bricks-and-mortar experience to the digital sphere?

So often, a beautiful display, individual expert guidance and - crucially, for drinks - tasting opportunities are what secures sales. Brands will therefore need to think creatively about how they can premiumise the online buying experience, which can often feel purely transactional.

McKinsey’s advice is to “step up your personalisation efforts in digital marketing”. The company adds: “Luxury consumers are accustomed to a high standard of service in stores. The emphasis, then, should be on creating a personalised digital experience of the same quality.”

Online members’ clubs are a good way to achieve this sense of personalisation and exclusive service. Pernod Ricard’s Redbreast Irish whiskey brand, for example, offers limited quantities of special edition bottlings through its Birdhouse private members’ club, some of which can only be secured via a ballot. 

The platform also features exclusive content, which aims to generate a deeper connection between consumer and brand. It’s easy to see how online tastings could also be offered as part of such membership schemes.

After a large-scale crisis, consumer preferences shift toward ‘silent luxury’.

As the weight of the pandemic starts to lift, brands would also be wise to take note of how the notion of ‘luxury’ may have changed in the minds of consumers. McKinsey notes that after times of crisis, more expensive purchase decisions are often driven by a different set of values.

“Experience … suggests that, after a large-scale crisis with a heavy emotional toll, consumer preferences could shift, at least for a time, toward ‘silent luxury’ - paying more attention to classic elements, such as craftsmanship and heritage, and less to conspicuousness and ‘bling’.”

For luxury spirits, this has been the direction of travel for some time, and, like many other trends, will be hastened by the pandemic.

Now, more than ever, concepts of togetherness, wellness and mindfulness define premium drinking experiences, thereby thrusting new categories into the luxury limelight. While status spirits were once largely restricted to whiskies and brandies, RTDs and low- & no-alcohol drinks are now carving their own niche in the high-end area.

For those long-established luxury categories, consumers will be keen to see new launches marketed tactfully in the near term – a multi-thousand-dollar Scotch packaged in crystal and gold will perhaps come across as crass.

As COVID accelerates market evolution, such ostentatious displays of luxury may become a thing of the past, anyway.