Food & Beverage

How Do Smaller Alcohol Brands Break into Local Markets?

With the global alcoholic beverage market exhibiting respectable growth (4.09% CAGR), we’re seeing many small alcohol brands looking for ways to tap into what is generally a mature and highly-consolidated market. The gaps, which small alcohol brands are exploiting are coming off the back of the recent boom in craft brewing and distilling, which has disrupted local markets. This is not to say that the likes of Anheuser-Busch InBev and Diageo, which house a plethora of alcohol brands under one roof, are losing macro market dominance. However, we are seeing a trend of small craft brands burst out of their regional bubbles and gain a foothold in local and national markets in spite of their well-established and entrenched monolithic competition. 

While some small brands are still searching for the answers, others appear to have cracked the code. Whether that’s by taking a new approach to social media marketing, by departing from the tried and tested three-tier business model, or by abandoning alcohol altogether, some brands with small budgets are making some very loud noises in an industry that was long overdue a shake up.    


Social Media

Advertising alcoholic products is much more challenging than universal products due to the regulations surrounding the industry. The legalities of what brands can and cannot do with their marketing have forced brands to become creative. Many upstart brands have gone ‘all in’ on influencer marketing as a quasi-guerilla marketing strategy. For instance, New Amsterdam Vodka has partnered with lifestyle blogger and top male Instagram influencer, Aaron Marino, for a series of simple, yet engaging posts. Marino’s audience was a perfect fit for the aspirational luxury brand identity of New Amsterdam Vodka, which led to exceptional levels of engagement and brand awareness. As a result, the two parties have just concluded a deal to work on a content series set to premiere on his million-subscriber YouTube channel later this year.  

With the average Facebook (including Instagram) Cost per Click (CPC) ranking third most expensive behind the beauty and services industries, new and smaller alcohol brands have to make every click count. For that reason, many brands have shunned online advertising altogether. Research undertaken by social media influencer platform Socialbakers demonstrated that, despite being a relatively new brand, Tito’s Handmade Vodka is second in the world when it comes to mentions made by Instagram influencers. Household names such as Hennessy, Bud Light, and Michelob ULTRA have all been left behind. Tito’s has managed to achieve this success by making influencers and audience members part of their story. Rather than paying influencers thousands in sponsorship deals and collaborations, Tito’s has amplified its word of mouth marketing strategy by sharing User Generated Content (UGC) as much as possible. 

Starting with significant accounts with thousands of followers, before opening up the strategy to include the best posts on merit alone, Tito’s decision to include their customers as part of their online brand has paid huge dividends. The number of posts with the  #LoveTitos hashtag has grown 254% in the space of two years, and now the tactic has been expanded to include #vodkafordogpeople in a nod to their philanthropic arm that funds dog shelters in their home city of Austin, Texas. Today, thousands of fans post their pictures mentioning Tito’s in the hope of being featured. Every time someone is featured in their feed, they’re likely to share the feature on their own newsfeed, which in turn spreads the Tito’s branding to their friends, and so on. 

This well-thought-out word of mouth strategy has helped Tito’s give their fans an unrivalled authentic online brand experience. It has  also helped to appeal to a broad demographic without spending any advertising dollars. Involving customers in the storytelling of the brand has undoubtedly paid off financially too, with Tito’s knocking Diageo’s Smirnoff off pole position as America’s top-selling spirit in early 2020. Smaller brands should take note of the impact that Tito has had by including their customers within their brand journey.


Shifting the Alcohol Business Model

For decades, the alcohol industry has worked on what is known as the three-tier system, made up of importers/producers, wholesalers/distributors, and retailers. It used to be the case that without the help of a distributor, a small alcohol brand would never be able to scale. This was especially true given that distributors were the only ones with both intra and interstate commerce licenses for the sale and transportation of alcohol. Restaurants, bars, and liquor stores traditionally have exclusive agreements which prevent them from dealing with alcohol brands directly. 

However, recent changes to the laws governing the sale of alcohol in America threatens to unravel this business model once and for all. In many states, alcohol can now be shipped directly to a consumer, eliminating brands’ reliance on distributors who possess crushing negotiating power. The shift in focus from retail to end user has already been marked, with many startup brands now preferring to pursue a direct-to-consumer model instead. With the option to become retailers, small brands are now focusing on strategies to increase the number of direct shipments to their customers, cutting out the other pillars of the three-tier system altogether. 

Online-only alcohol brands like Haus, Empathy Wines and One Vodka (owned by Pernod Ricard) are forging a new growth playbook by marketing and selling directly to prospective end users. Even those with the traditional distributor model in place are looking to switch, as alcoholic products’ e-commerce sales increased by 61% year-on-year in 2019. Rabobank put the online alcohol industry at $1.7 billion in the US alone in 2018, with that figure set to rise to as much as $15 billion within the next few years. This explosion in sales has been caused by a perfect storm of the relaxation of the commerce laws governing the sale of alcohol, the increasing consumer preference for convenience, and traditional retailers desperately innovating to remain relevant as the three-tier system begins to crumble. 

The COVID-19 crisis has only accelerated this specific market shift, with on-premises alcohol sales unsurprisingly decimated. Those without the direct-to-consumer infrastructure in place have suffered, while those who’ve pivoted to e-commerce are reaping the rewards. According to Nielsen, weekly alcohol sales for onsite locations were just 26% of what they were a year ago, whereas online sales at 477% ahead of where they were last year. Drizly, an alcohol ecommerce platform (nicknamed the “Amazon of Alcohol”) operates in over 100 markets across the United States and Canada and saw a 300% rise in sales during the lockdown. These figures underscore the role online retail has to play in the future growth of the alcohol industry. For new brands entering the market from 2020 onwards, it will no longer be unusual for brands to shun distributors completely.


“Healthy Alcohol” is Set to Take Over

While it may seem counterintuitive, the most significant growth segments within the alcohol market are represented by healthier alternatives, none more so than low or non-alcoholic beverages. With the issues surrounding alcoholism so well-documented, those from the Gen Y and Z in particular, are looking for adult beverages that don’t have the negative consequences associated with excess alcohol intake. Two in ten of the UK adult population are already teetotal, with two-fifths of consumers already drinking no or low-alcohol drinks in pubs, bars, and restaurants, rising to over half in 18-34 year-olds.

The trend is taking place right across the spectrum of alcoholic beverages. The research group, Kantar, reports that non-alcoholic beer sales were up 58% last year, while non-alcohol spirits have seen their sales volume and value increase by 407% and 419% respectively over the same period. Non-alcoholic-only brands such as brewers Nirvana and spirit-producers Seedlip are making veritable names for themselves within the industry. The major players in the industry are all too aware of this fact, and are scrambling to play catch up. Becks, Fosters, Estrella Damm, Budweiser, and Brewdog all now sell low or non-alcoholic variants of their beers. Whilst it’s true that the low or non-alcoholic market still represents a small slice of overall sales, the growth is not set to slow down any time soon given the global prevalence of teetotalism across 18 to 24 year-olds (as much as 33%). Not to mention that non-alcoholic drinks are not subject to duties and taxes levied on alcohol, allowing teetotal brands to undercut traditional rivals.   

But the ill-effects of excess alcohol are not limited to the alcohol itself. The high calorie and sugar content of alcoholic drinks is another growing reason for the avoidance of alcoholic beverages. With the average margarita coming in at 360 calories, casual drinkers only need to have a few before they’ve consumed over 1,000 calories through their drinks. This is of particular concern to female alcohol drinkers, who are increasingly turning to innovative products for their social engagements.

Some brands have already capitalized on this trend, such as White Claw, a hard seltzer brand. Hard seltzer has exploded in the US in particular to meet the demand for healthier alcoholic beverages. This sub-category has grown by 200 percent in the past year alone and is expected to be a $2.5 billion industry by the end of 2021. The makeup of this popular drink (carbonated water, alcohol, flavoring) hits a perfect intersection of trends within the alcohol industry. It meets the demand for lower-alcohol products and healthier, natural options, along with a surge in ready-to-drink (RTD) beverages. It’s expected that the hard seltzer trend led by brands such as White Claw, Truly, and Bon & Viv will hit the UK during 2020 and begin to take off the following year.

Smaller alcohol brands looking to break into the market should include (or even lead with) a low or non-alcoholic product to cater for Millennial and Gen Z drinkers looking to distance themselves from the problems associated with drinking alcoholic and calorific drinks. With that in mind, many will look to steal a march on bigger competitors by including new-age ingredients such as CBD and other trending health products to widen the appeal of their products. With the explosion of RTD packaging, we expect to see more ‘hard’ versions of traditional soft options, such as hard coffees, sodas, juices, and tonics.

It’s undoubtedly an exciting time in the alcohol market. The most significant growth opportunities lie in thoroughly shaking up the accepted business model and approaching consumers directly with an innovative health-conscious alcoholic beverage. For smaller alcohol brands with a less innovative product offering, refocusing online marketing to become more authentic via the leveraging of influencers could help them acquire significant market share in local markets and beyond but they need to ensure that their distribution channels enable appropriate fulfillment to capitalise on the uptick in demand be this DTC or via more traditional distribution models.