Alternative Indicators: What Pinched Consumers Are Buying at the Liquor Store

Nadine Sarwat (0:00)

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Alex Ossola (0:15)

There's nothing that brings out my inner bargain hunter quite like a trip to the liquor store.

Nadine Sarwat (0:20)

Hi there.

Alex Ossola (0:21)

Just those two. Oh no, I got one.

Nadine Sarwat (0:23)

Thanks.

Alex Ossola (0:25)

I'm always tempted to buy those big bottles of liquor. Less money per ounce, right? In some ways, it's the thrifty choice. But even so, I usually don't get them because I get sticker shock. 60 bucks for a bottle of gin? Why not get the same gin in a smaller bottle for less money? Turns out I'm not alone in thinking this. Some of the biggest liquor companies in the world are reporting a rise in the sales of their smallest bottles. Here's the CEO of Diageo, the company behind brands like Johnny Walker, Smirnoff, and Don Julio Tequila, on the company's fiscal 2025 earnings call in August.

SPEAKER_3 (1:03)

I think the small format that we have of the 50 CL in, you know, the Don Julio 1942 has been doing amazingly well, because you might not see that in the volume numbers, but you see that in the transactions, because people really are able to use that from an affordability play or a cash outlay play, but still will be able to enjoy what is great liquid.

Alex Ossola (1:28)

And the CEO of Jack Daniels' parent, Brown Foreman, on the company's third quarter and year-to-date earnings call back in March.

SPEAKER_4 (1:35)

I do think something that is new at least, or at least new to me, but that we have noticed recently is how much the small sizes are driving momentum and share in the US market.

Alex Ossola (1:47)

The rise of small liquor bottles is particularly notable because US liquor sales overall have been on the decline. In the past few months, Diageo, Brown Foreman and French distiller Peno Ricard have said that their US sales have fallen. So, I wanted to understand, is this a trend and if so, what's driving it? I talked about it with Nadine Sarwat, a director and equity research analyst at brokerage firm Bernstein. First, though, we needed to establish what size liquor bottles we were talking about. What's the technical term for that? Because I've heard like nips, I've heard airplane bottles, what do you call them?

Nadine Sarwat (2:22)

I just refer to them as a smaller format bottle. I think the nips or airplanes are likely the very small ones.

Alex Ossola (2:28)

It's part of Sarwat's job to track what's going on with these big liquor companies. She said that during the six years she's been covering this space, she's never seen consumers behave the way they are right now. But is it because of short-term economic pressure, or are they changing their habits for good? And what can it tell us about the broader economy?

This is a special episode of What's News. I'm Alex Ossola for The Wall Street Journal. This is the fourth and final installment of our series on alternative economic indicators. In our first three episodes, we dug into Nevada's employment rate, copper prices and heavy truck sales to provide different snapshots about how the US economy is doing. Now, we're turning to liquor sales as a way to glimpse into consumers' minds and their wallets. At the end of this episode, we'll zoom out and consider what all of these indicators together show us about the state of the US economy. Here's my conversation with Nadine Sarwat. I had been reading there was a rise in the small bottles of liquor in the spirit space. Yeah.

Nadine Sarwat (3:38)

The three sizes where we have seen growth ahead of the overall market have been 50 milliliters, 100 milliliters, but also the 375 milliliter bottles. So that is all smaller than the standard 750 milliliter bottle that you would normally associate with full strength liquor.

Alex Ossola (3:59)

And are you seeing this across the companies that you cover, that there's growth in these sort of smaller sizes, or only among certain ones?

Nadine Sarwat (4:05)

We are hearing that from all of the sparrows companies that we covered, and to be perfectly honest, we are seeing similar behavior in beer as well. So this does seem to be a broad behavior that we are observing in the consumer, or in the alcohol space more generally.

Alex Ossola (4:19)

So of course, my question is, what's driving the rise in this size?