Liquor sales have been on the rise at a rate of about 4% in each of the last two years. One reason for the growth might be a larger selection of product.
If you haven’t been to a bar or a liquor store in a while, you might notice shelves full of strange new concoctions like vodka that tastes of toasted marshmallow, or cotton candy. Some might think these are combinations that should never be consumed, but according to Brian Sozzi, CEO of Belus Capital Advisors, it’s giving liquor companies a leg up on the traditional industry leader: beer.
“If I’m looking out five to ten years where’s most of the innovation coming from, it’s coming from these liquor companies,” Sozzi tells Breakout. All these new flavors, the Belus chief says, mean these companies can charge more.
But customers are winners too, Sozzi argues. “The consumer can get drunk quicker off of liquor, so they’re getting better bang for their buck than spending $15-20 on five beers; get scotch on the rocks.”
The growth of liquor and movement into new flavors seems to be catching on enough to impact the companies’ stocks too. Beam, Inc. (BEAM) is up 7% year-to-date as is Diageo (DEO), owner of brands like Bailey’s and Smirnoff.
The growth has allowed companies to expand marketing of the strange new concoctions too. “Diageo’s marketing budget was up 11% (in Q2),” Sozzi says, which leads consumers to think, “’I haven’t had liquor in a while, let’s try that new cocktail or infused drink, it looks interesting.’”
Further aiding in the growth of such libations is an improvement in the business models of traditional watering holes. “Bars and nightclubs have gotten much more efficient in how they run their operations,” Sozzi says. “Because these flavors are so interesting and they’re able to push it and command a higher price point, they’re willing to take that inventory onto their books.”
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