The Role of E-commerce in U.S. Beverage Sales

The US internet market for drinking alcohol is entering a period of more moderate development as trading conditions return to normal, with customer demand shifting from pandemic necessity to novelty and convenience.While recruiting to the channel has slowed since the Covid-19 outbreak, there is still possibility for future expansion, particularly with Millennial and LDA Gen Z consumers.The channel also lends itself to higher-value alcohol transactions, with wine having a stronger online presence due to its existing D2C (direct to consumer) presence, however spirits and beer are projected to gain share in the coming years.However, due to continued economic challenges, internet shoppers are becoming more price-sensitive, preferring special offers and lower costs above speedier delivery times."The US online alcohol market achieved steady but slower growth of 1% [by value] in 2022, with a slight year-on-year decrease in the total number of online alcohol buyers," according to Guy Wolfe, Head of Ecommerce Insights, IWSR. "After substantial pandemic growth, online alcohol sales have stabilised as the on-trade recovers and consumers revert to more typical purchasing habits."

As it normalizes, ecommerce is likely to outpace the broader US total beverage alcohol market

IWSR expects a value CAGR of +7% for online alcohol sales from 2023 to 2027, compared to a total beverage alcohol (TBA) CAGR of +1% for the same timeframe. That would boost ecommerce's TBA share from 3.2% in 2022 to 3.9% in 2027.Although there has been a decrease in online alcohol purchases - in 2023, 14% stated they had shopped in the channel in the previous six months, down from 18% in 2022 - IWSR consumer research reveals that there is still plenty of growth potential in the United States."Recruitment has unsurprisingly slowed down since the pandemic, especially among Boomers, indicating that the channel is becoming more mature," Wolfe points out. "However, there is still room for growth, as one in every four internet buyers has been recruited within the last two years. Furthermore, the frequency of online purchasing has increased among individuals who utilize the channel.According to IWSR consumer research conducted in 2023, 44% of Millennials and 39% of Gen Z consumers who do not currently buy alcohol online are most likely to consider doing so in the future.High-spending MillennialsOnline alcohol customers in the United States are biased toward men, Millennials, those with better incomes, and those have broader alcohol repertoires - and 60% currently spend more on alcohol than they would in a store, up from 2022."IWSR research also shows that 67% of Millennials say they spend more online than in-store, significantly higher than the total sample," Wolfe points out. "This suggests they are key drivers of volume and value growth - so tailoring marketing strategies and product offerings to appeal to this group is an important part of any online strategy."Increasing price sensitivity.At the same time, people are growing more price-conscious while purchasing online, with special deals and cheaper costs becoming almost as essential to them as quick delivery times.

Delivery fees are also one of the most important impediments to customers purchasing alcohol online

"As online shoppers become more price-sensitive due to economic pressures, competitive and transparent online pricing strategies become increasingly important," says Marten Lodewijks, Director of Consulting - North America at IWSR. "Faster delivery is becoming lesscritical to consumers, and keeping delivery fees down is essential."Shifts in online behaviour can also be evident in site loyalty, with more consumers remaining loyal to their preferred brands rather than the site itself. Boomers are the exception, as they are significantly more likely to buy all of their alcohol from a single merchant. Gen Zs, on the other hand, are more prone to switch between internet retailers based on the occasion.Research online shopping indices before making a buy.More than four out of five respondents perform some research before purchasing a beverage online, more than any other shopping channel. Frequent internet consumers are more inclined to spend a long period investigating things online. This suggests that they are engaged customers rather than impulse shoppers. The primary motivations for conducting research before making a purchase are to learn more about a certain product, to discover something new and intriguing, and to get the best deal possible.Beer and spirits will cut into wine's share.Wine stands out as the most mature sector in US ecommerce, given to widespread acceptance and use of D2C: while wine has a 22% value share of TBA in the US, it accounts for 45% of TBA ecommerce sales. Spirits account for 37% of ecommerce (33% of TBA), followed by beer/cider/RTDs at 18% (44% of TBA)."Beer, cider and RTDs under-index online due to their widespread availability in physical channels, especially convenience," writes Lodewijks. "Wine's established D2C presence gives it larger online representation."However, both spirits and beer/cider/RTDs will gradually reduce wine's market share in the future years. While IWSR predicts ecommerce wine sales to fall somewhat (2023-27 value CAGR of -1%), spirits (value CAGR of +7%) and beer/cider/RTDs (+19%) are expected to grow.

Wine reaches a climax

Online's proportion of total wine sales by value in the United States peaked in 2021 at 6.6% and is now expected to remain around 6.1%. "Post-pandemic growth has been hard to come by across the wine market, including online, with consumer attention being pulled to other categories," according to Rogers.Following substantial expansion during the pandemic in 2020, D2C wine has since had two years of volume reductions. Recent losses are related to a reduction in shipments for brands priced under $30 USD, while growth continues for wines costing $100 or more."This illustrates a scenario where inflation disproportionately affects individuals with lower incomes, while those with higher incomes experience minimal impact from increasing prices," according to Rogers.Spirits seek to flourish.In terms of spirits, whisky dominates online sales with almost 50% value share in 2022, while fast-growing agave-based spirits are set to overtake vodka in 2024 and demand more than 20% market by 2027. Online's value share of US spirits sales is predicted to increase to 4% by 2027, up from 3.5% in 2022."Stricter state regulations on the online sale of spirits, compared to other beverage alcohol categories, have resulted in a relatively low but increasing ecommerce value share," according to Rogers. "In an intricate market landscape, spirits continue to find ways around restrictive state laws to meet consumer expectations and demand."Spirits industry organizations have worked together on the "Ship My Spirits" campaign, a grassroots coalition with the common goal of legalizing direct-to-consumer delivery of distilled spirits in order to achieve parity with the wine industry. While 47 states allow wineries to ship directly to consumers, only 11 states, including the District of Columbia, allow distillers to do the same. Any adjustment that achieves parity in spirits and wine D2C shipping benefits the spirits industry.