Legacy alcohol brands losing happy hour buzz
- According to CB Insights, happy hour no longer belongs to the legacy brands of yore. Now, traditional beverages are in competition with craft spirits, cannabis-infused beverages and alcohol-free trends that offer innovative products to happy hour drinkers. Simultaneously, others companies are dissuading customers from going to the bar by making it easier to get their favorite drinks with subscription services, on-demand delivery or home appliances.
- To tap into the craft spirits and latest alcoholic beverages trends, major alcohol companies have started to invest in emerging brands and offering these smaller ventures access to their well-established distribution channels.
- The biggest threat, however, may not come from alcohol at all. As more and more states and countries legalize cannabis, people may shift their consumption from alcoholic drinks to cannabis-infused beverages.
Happy hour is turning decidedly unhappy as legacy alcoholic beverage companies face sales slumps with their traditional products. Even though a survey last year found millennials drink more alcohol than Generation X and baby boomers, the research shows that millennials experiment more often with alcohol brands and types. This makes it unsurprising that as traditional products lose their luster, craft spirits, alcohol-free drinks, cannabis drinks, on-demand delivery and celebrity drinks are coming in to fill the void.
Market research also has shown that high-end selections across the beer, wine and spirits categories are outperforming mainstream ones and, in some cases, premium brand growth is more than double that of the standard category.
Large liquor companies are already looking to invest in craft spirits operations, having learned from Big Beer makers' mistake of not jumping into craft production and M&A right away. Diageo recently announced a $1 billion deal for Casamigos, a high-end tequila owned in part by actor George Clooney, and Constellation Brands has purchased a minority interest in the Copper & Kings American Brandy Co., an independent distiller of brandy, absinthe and gin products.
Similarly, nonalcoholic options are gaining ground as people opt for the taste of their favorite beverages without having to worry about the effects of alcohol. Several of the larger beer companies now have their own no-alcohol products, including Heineken's 0.0% MAXX, Coors' Non-Alcoholic brand and Guinness owner Diageo's Open Gate Pure Brew. Carlsberg has been in the nonalcoholic beer game since 2015.
At the same time, a whole new category is coming into the mix: cannabis. With nine states and Washington, DC, now allowing recreational marijuana use, sales are beginning to climb as the stigma around the substance fades. Legal marijuana sales reached $9.7 billion in North America in 2017, and the market is expected to hit $24.5 billion in sales by 2021, rising at CAGR of 28%, according to BDS analytics.
Climbing weed sales likely means that alcohol sales will dry up. IRI analysts predict that if marijuana is legalized across the U.S., the beer industry could lose up to $2 billion.
Already sensing a shift in customer preferences, beer giant Constellation Brands signed on with its recent $191 million deal with Canopy Growth to develop cannabis-infused beverages. Similarly, Heineken-owned Lagunitas Brewing launched an IPA made with marijuana terpenes, the aromatic compounds of fragrant oils from the cannabis plant.
Making things even more difficult is the disappearance of traditional purchasing methods for alcohol. Financial service company Rabobank estimates online alcohol sales at $1.7 billion and said supermarkets should expect those who buy alcohol at brick-and-mortar groceries to gradually move those purchases online. And startups like Drizly are taking advantage of online sales by bringing those last minute wine pairings straight to customers’ doors as they finish cooking dinner.
While perhaps celebrity-backed liquors may be a passing trend, the rest seem here to stay. Legacy companies seem to be in agreement that the happy hour industry is changing and are accordingly bulking up their investment efforts as they seek to grow their market share through nontraditional avenues. After all, in some cases, if you can’t beat them, join them.