Inflation is an overall increase in the cost of services and goods consumed by households. In 2021, inflation rose 7% in the United States, while rates typically range between 1% and 3%.
How Does Inflation Affect the Alcohol Industry?
Rising energy prices cause increases in the cost of raw materials, packaging, and deliveries. They can also lead to supply chain backlogs. For example, alcohol producers have to worry about paying more for their glass bottles but might also get to a point where bottles are temporarily unavailable.
To cover the costs of production, producers increase their selling prices. However, high prices can result in a decrease in sales. Alternatively, manufacturers develop ways to make the same product at a lower cost.
How Does Inflation Affect the Consumer?
The alcohol industry includes producers of products like beer, whisky, gin, vodka, and rum. It also includes businesses that sell the finished product to the consumer. When industry costs increase, consumer pricing follows suit.
Alcohol Price Increases in Restaurants and Bars
Most restauranteurs operate a low-margin business. Inflationary increases in the cost of food and beverages force them to push up prices on their menus. Therefore, consumers will either have to spend more for the same drinks they were buying previously or look for affordable alternatives.
However, price changes tend to affect the demand for beverage purchases consumed off-site (supermarkets and liquor stores) more than on-site consumption locations such as bars and restaurants.
How Inflation Affects Alcohol Sales in the Retail Space
In the retail space, inflation does not lead to a proportionate increase in the price of all drinks sold. The price increase of beverages such as beer and table wine tends to be less than spirits.
In addition, some retailers will buffer the effect of inflationary increases on more popular products and packaging sizes. For example, a supermarket may increase the price of a popular product sold in large volumes by only 1% (with inflation at 3%) and increase the price of a more expensive product by 4%.
Prepare for These Changes by Being Proactive
With an increase in the cost of living, many consumers become more selective about how they spend their hard-earned dollars. During times like these, it’s vital to be competitive with your product offering.
Alcohol producers who want to stand out in the crowd should provide beverages with unique flavor profiles, translating to better value.
How Can We Be a Partner to Your Successful Business?
Next Century Spirits is the proverbial “one-stop-shop,” helping you streamline your production process.
Are you a small brand exploring the idea of creating your unique line of distilled liquor products or a large brand looking to expand your product portfolio? With our economies of scale and patented technology, we can assist you in custom blending bespoke spirits so you get to market, quickly and cost-effectively.
Get a competitive edge in the drinks market by reducing production costs. If you are in the bulk volumes league, we can help you reduce supply chain issues while producing consistent quality spirits.
How can we support you?