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“Whether you're an alcohol brand or a grocer, if you're not meeting the needs of the consumer — and you're kind of avoiding it, skipping it, or just sitting on your hands — you're going to miss out on this entire shift."
— Wayne Duan, VP of Ecommerce and Digital Commerce at Constellation Brands
Constellation Brands, which is behind well-known alcohol companies like Corona, Modelo, Kim Crawford, and Robert Mondavi, prioritizes this innovation, and Duan is clear about where the future is headed.
"The right lens is embracing and understanding that this is going to be a channel shift," Duan said.
The COVID-19 pandemic has disrupted nearly every industry sector, but the impact hasn't been uniform across the business world. In the alcohol beverage market, off-premise sales have soared 24.8% year-over-year, according to Nielsen.
Alcohol beverages have been one of the most significant growth categories during the pandemic, and consumers are using digital platforms to get them.
Duan shared his insights on how alcohol and beverage brands must innovate to stay ahead of market changes on the Unpacking the Digital Shelf podcast episode "How the Alcohol Beverage Industry Is Responding to the Surge in Demand From Digital Consumers."
“Brands can certainly go through relevancy channel challenges, but beverage alcohol is a category that consumers are definitely clamoring for and definitely continuing to demand during this time.”
“It's been really obvious which suppliers and retailers have prepared for this digital transformation or the shift towards ecommerce — whether it's through their fulfillment capabilities, how they think about the digital shelf, or how they think about marketing,” Duan said.
Though the alcohol beverage industry is seeing increased consumer demand right now, disruption doesn’t last forever. While the industry manages the rise in digital consumers, it’ll be interesting to see which trends that have emerged during the pandemic will have staying power and reshape how alcohol beverage brands engage consumers.
Here’s how the alcohol beverage market is faring during these unprecedented times and what it may mean for the industry long term.
Shelter-in-place orders across much of the U.S. caused restaurants, bars, wineries, casinos, and other establishments to close — effectively gutting on-premise sales channels for brands.
Duan said the pandemic has shifted sales to the off-premise channel, with more consumers drinking at home, pantry loading, and buying larger pack sizes to minimize trips to the store and their potential exposure. The rise in off-premise sales is helping to offset some of the on-premise losses.
Though some consumers may be hopping in their cars to drive to their local liquor store or grocer, many are turning online to meet their needs. Delivery services like Instacart and Drizly have been crucial as the industry navigates these uncertain times.
As some of the restrictions have lifted, more consumers are ordering alcohol with their takeout orders, as well — 14% of consumers did so over a two-week period in early June, according to Nielsen.
Duan said the industry is seeing a shift in consumer behavior and the buying patterns of different consumer segments. Constellation did a study two years ago that found about 65% of consumers who resided in states where it was legal to get alcohol delivered didn’t know you could buy alcohol online. This has definitely changed over recent months.
“Pre-COVID-19, beverage alcohol ecommerce sales were 1% of off- premise sales in the U.S. The data we're seeing over the past few weeks is showing that it’s now hitting about 3 to 6%. One of the fastest-growing online beverage shoppers right now is the 60-year-old plus cohort. And that is very much part of the safety that needs to be put in place for that group,” Duan said.
With restrictions on restaurants and bars, there’s now more brand awareness of delivery services and the convenience they offer. Duan said these services now provide “consumers the optionality, and these unprecedented times have really knocked down one of the main challenges for beverage alcohol online, which was the lack of awareness.”
Though online delivery is a growing off-premise channel, the shift in consumer behavior likely will force many alcohol brands and distributors to re-examine their business model. There’s now a huge opportunity for companies to launch brands that are more digitally-native.
“We all know coming out of this, that the kind of old playbook is still going to be there, but you're going to have to change it because the consumer is going to have very different behaviors.”
— Wayne Duan
Alcohol and beverage brands will have to be even more consumer-led going forward. They will need to constantly track data to keep on top of changing trends in consumer behavior and allocate their marketing dollars accordingly based on the segments they are trying to reach and where these consumers are engaging with their brand.
Shelter-in-place orders and social distancing guidelines also will change the restaurant and dining experience for the foreseeable future. More people are now drinking at home, but certain customer segments —particularly millennial consumers — were already opting for a personalized consumption experience as they entertained more at home.
Though Nielsen data indicates that 42% of consumers have visited food and dining establishments multiple times in recent weeks, the other 58% have visited less than two times, indicating that there’s still some hesitance among consumers to return on-premise and pay premium prices for alcohol when they can enjoy a consumption experience at home for much less — especially considering the current economic uncertainty in the country.
“Ecommerce is not just a sales channel right now, but it's primarily an audience reach and scale kind of marketing ecosystem.”
— Wayne Duan
If brands weren’t making significant investments in the digital shelf before, they now have no choice but to move in this direction.
Alcohol and beverage brands can focus on several strategies to drive sales in the future, including prioritizing search. Brands can put some marketing dollars toward sponsored placements within the search results for different online retailers or delivery channels like Drizly and Instacart.
Paid search can be a brand-building opportunity for alcohol and beverage companies, as consumers typically shop based on broader categories like Rose, Pinot Noir, or IPA rather than for specific brands.
However, investing in paid search could help to increase your brand’s visibility among consumers on platforms like Instacart, which keeps a record of past purchases and recommends previously purchased items to consumers every time they shop on the platform. These investments may help brands drive greater customer lifetime value as consumers become more familiar with them.
Consumers also may be more focused on convenience going forward, and brands will have to fulfill this need to maintain a competitive advantage.
“Everyone now has essentially gotten a taste of what it's like to have that convenience,” Duan said. “Consumers are going to continue to demand that experience.”
Duan added that the pandemic has ushered in a channel shift that now calls for brands to make greater investments into ecommerce and delivering a better omnichannel experience. We’re already seeing some brands experiment with things like product locators for online purchases, which are similar to store locators but for online retailers rather than brick-and-mortar stores.
The use of chatbots and artificial intelligence (AI)-based voice assistants to help consumers make online purchasing decisions on retailers’ websites, similar to how a sales associate helps customers in-store, may also be an approach the industry adopts to deliver an enhanced omnichannel experience.
We also may see more direct-to-consumer (D2C) wine and low-alcohol beverage brands emerge as a result of the current changes. D2C brands like Haus and Empathy Wines have launched in recent years thanks to legal loopholes within the traditional Three-Tier System in which producers must first sell to wholesale distributors who then sell to retailers.
With online liquor sales growing, new D2C alcohol and beverage brands also may benefit from increased awareness now that more consumers know they can buy wine and spirits online. If they have a great brand story to tell and a reasonable price point for more cost-conscious consumers, these brands may fare even better.
Duan said alcohol and beverage brands that want to future-proof their business need to embrace ecommerce now and use what they’ve learned during the current market disruption to prepare for the next generation of consumers, who may engage with brands predominantly online in the future.
“If you're a brand, whether you're an alcohol brand or you're a grocer, if you're not meeting the needs of the consumer and you're kind of avoiding it, skipping it, or just kind of sitting on your hands, you're going to miss out on this entire shift,” said Duan.
Listen to the full podcast episode to hear Duan discuss how the alcohol beverage industry is managing this rise in digital consumers and what of these new trends may stick and apply across other categories.