Premiumization Is Still Working. But the Consumer Is Starting to Make Choices.

For the better part of a decade, premiumization was the most reliable narrative in the American beverage alcohol industry. Consumers were consistently trading up. They were spending more per bottle, more per glass, more per occasion. The premium and super-premium tiers were outperforming value, and brands that had positioned themselves at higher price points were reaping the benefits of a consumer who seemed willing to keep reaching.

In 2022, that narrative ran into something it had not encountered in a long time: sustained inflation, rising interest rates, and a consumer whose pandemic-era savings were starting to thin.

The data coming out of the back half of 2022 told a more nuanced story than either the optimists or the pessimists wanted to acknowledge. Premiumization had not reversed. But it had become selective in ways that matter enormously for how beverage brands position themselves going into 2023.

What the Data Actually Showed

The National Beer Wholesalers Association's Beer Purchasers' Index, one of the most reliable forward-looking indicators in the industry, showed a notable split in late 2022. Premium imports remained strong. The import segment consistently posted the highest index readings of any beer category throughout the year. That is a data point worth pausing on.

Consumers under genuine financial pressure were still choosing Modelo over domestic alternatives. They were still paying a premium for the brands they had made part of their identity. What they were pulling back on were the brands that had not earned that kind of loyalty, the ones that had benefited from category momentum without building a reason for the consumer to choose them specifically when spending got tighter.

The value and below-premium segments showed the sharpest declines. These are the categories where consumers trade down to from premium when money gets tight, but in 2022 even these were underperforming expectations in some markets. What consumers were doing instead was making fewer occasions rather than simply trading down. They were drinking less overall and choosing more deliberately when they did drink.

That distinction matters. A consumer who trades down from a $45 tequila to a $25 tequila is still in your category. A consumer who decides not to buy anything this week because it is not a priority is a different kind of challenge.

The Brands That Held Through the Pressure

Looking at the brands that maintained velocity and consumer loyalty through the inflationary pressure of late 2022, the pattern is consistent and instructive.

The brands that held were the ones with genuine consumer identity. Modelo did not grow to become the best-selling beer in the country by accident. It had built a real consumer relationship over decades, and that relationship held when spending got tighter. Consumers who had made Modelo part of their identity, part of how they thought about themselves and what they enjoyed, did not trade it away when things got harder.

The brands that struggled were the ones whose growth had been primarily driven by category momentum or promotional activity rather than genuine brand loyalty. When the category tailwind softened and the promotional spend was not enough to compensate, the consumer moved on without much sentiment about it.

This is the same dynamic that plays out in every economic softening. The consumer does not abandon brands they genuinely love. They abandon brands they were purchasing by default.

What Premiumization Actually Means

The mistake many beverage brands make with premiumization is treating it as a pricing decision rather than a brand-building one. They raise their price and call it premiumization. What they have actually done is raise their price.

Genuine premiumization is when the consumer understands and agrees with the value of what they are paying. It is when the gap between your price and the next option on the shelf is justified, in the consumer's mind, by something real. That something real might be quality, it might be provenance, it might be a brand story that resonates, it might be the experience of buying and consuming it. Usually it is some combination of all of those things.

The brands that hold through inflationary periods are the ones that have built that consumer agreement. The brands that lose velocity when the consumer has to choose more carefully are the ones that never established it.

In late 2022, the industry was getting a clear read on which of its brands had genuinely earned their price points and which had simply benefited from a consumer flush with cash and pandemic-era openness to spending. Those are very different foundations to be building on.

The Opportunity in the Middle

One of the more interesting dynamics emerging from the late 2022 data was the relative resilience of the $15 to $30 price tier in spirits. This is the range where the consumer feels they are making a considered choice, buying something with genuine quality and character, without the kind of commitment that a $50 or $60 bottle represents in a tighter budget environment.

For emerging brands, this is worth thinking about carefully. The window of opportunity in ultra-premium has not closed, but the consumer scrutiny that comes with it has increased. The $15 to $30 tier, positioned right, with a compelling story and genuine quality, has significant room for brands that can execute.

The brands that will win in this tier are the ones that can make the consumer feel genuinely good about their choice. Not just that they bought something cheap, but that they bought something smart. Something with character and quality that happens to also represent genuine value. That is a distinct brand positioning that requires real work to build, but it is one of the more durable positions available in the current market.

What This Means Going Into 2023

The premiumization story is not over. But it is more complicated than it was, and the brands that will thrive in the next phase of the market are the ones that understand the difference between a consumer who is paying a premium because they cannot imagine not and a consumer who is paying a premium because the economic environment has not yet required them to think harder about it.

Building the former is the work. It is slower, more expensive in the short term, and requires genuine investment in the brand beyond the label and the price point. But it produces something that holds when the consumer has to choose, and that is the only kind of brand worth building.

That has been the consistent principle behind the work we do with founders at Liquid Opportunities since 2015. The brands we are proudest of are the ones that earn their place in the consumer's considered set, not the ones that got there by default.s that got there by default.