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Spirits consumers are increasingly adopting a “drink less but drink better” outlook, as they seek products that offer superior craftsmanship, unique flavors, and premium ingredients.

Premiumization, convenience, a generational shift in consumer preferences, and the influence of AI are profoundly shaping the direction of new product development and marketing strategies in the spirits industry, leading to the evolution of next-generation beverages, according to a new study by GlobalData, a leading data and analytics company.

The study, entitled: ‘Next-Gen Beverages: Bridging Affordability, Sensory, and Gen Z Preferences’, explores the premiumization trend in the spirits market; how convenience is driving innovation across FMCG, including spirits; how Gen Z’s growing presence in the workforce and rising income levels make them a lucrative target for spirits brands; and the profound impact that AI-led innovations are expected to have on the future of the spirits industry.

Premiumization of spirits is on the rise

In the global beverages industry, the spirits market is expected to achieve a faster value (9.4%) and volume (3.6%) CAGR over the next five years (2023-2028F) than all other beverage sectors such as Beer & Cider, Wines and Soft Drinks—with Spirits value CAGR projected to be more than double volume CAGR over the period.

In recent years, the global beverages industry’s ‘Premium and Super Premium’ segments have posted strong positive volume growth globally, while the ‘Mainstream and Discount’ segments have experienced declines. This premiumization trend is anticipated to maintain its momentum and continue to drive sector growth, as consumers are increasingly adopting a “drink less but drink better” outlook, seeking products that offer superior craftsmanship, unique flavors, and premium ingredients.

Convenience is a strong sales driver in the spirits sector

Along with premiumization, convenience has emerged as a pivotal factor in the spirits sector, as modern consumers, particularly younger demographics, prioritize ease of access and on-the-go options.

This has led to the rise of flavored ready-to-drink (RTD) spirits and cocktails in portable, single-serve formats, with flavored alcoholic beverages (FABs) projected to achieve the fastest volume CAGR (6.7%) among all alcoholic beverages sectors for the period 2023-28F.

These products claim to offer the same quality and complexity as traditional spirits but with added convenience, catering to busy lifestyles and the growing demand for immediate consumption. The convenience trend is further supported by advancements in packaging technology and an increased focus on affordable prices and sustainability.

Key spirits consumers’ generational shifts

Millennials and Gen Z consumers are the next-gen spirits consumers and bring distinct preferences to their buying behavior, prioritizing authenticity, innovation, and responsibility in their beverage choices. Unlike previous generations, they are more attuned to their own preferences and priorities than to brand loyalty. These consumers are more explorative in their tastes, often seeking out new and unconventional spirits flavors, as well as exploring craft and niche brands, relying on social media and online communities to discover and share their experiences.

AI is becoming a major influence in the spirits industry

AI-led innovations are expected to have a profound impact on the future of the spirits industry by meeting growing consumer demand for premiumization and convenience, while also supporting the increasing drive for efficiency. AI applications in the spirits industry currently include product formulation, packaging design, route optimization, and customer service.

Nisarga Save, Senior Consultant and Beverages Analyst, at GlobalData, comments: “The study highlights that premiumization is a growth catalyst in the spirits market and brand innovation is responding to this with premium ingredients, artisanal craftsmanship, and exclusive production techniques to appeal to consumers seeking luxury products. The convenience trend is leading to the growth of the FAB and RTD cocktail categories, which offer consumers premium, bar-quality drinks in inexpensive, pre-packaged formats, catering to socializing at home or independently.

“Gen Z’s growing presence in the workforce and rising income levels make them a lucrative target for spirits brands, and a significant challenge for alcoholic beverage marketers due to their different preferences and priorities compared to previous generations. The study also features GlobalData’s ‘Alcoholic Beverages Thematic Scorecard’, which highlights that spirit companies with high AI capability are also the leaders in the sector. As consumers become more demanding, AI will play a crucial role in delivering both seamless experiences and operational excellence.”

To read GlobalData Beverages Consultant’s new study, ‘Next-Gen Beverages: Bridging Affordability, Sensory, and Gen Z Preferences’ in full, please download your free copy, here