Americans have cut back in many areas of spending, but Brown-Forman CEO Lawson Whiting thinks that there are areas where consumers won’t make sacrifices.
When it comes to tequila, he believes that prices matter and shared that cheaper brands, like his company’s El Jimador, have benefitted from that.
“So if you take the tequila category, and if you just take 750, so don’t lock down on one size across, the category, pricing-wise, is down between 1% and 2%. A lot of that — what is happening within the tequila world is you are seeing trade down. So if you look at the different price points within tequila, over $30 is tough. And that’s where Herradura is and a lot of the other big brands that you all know,” he said during his company’s first-quarter earnings call.
In tequila, he noted, price has mattered more than brand loyalty.
“If you look at the $20 to $30 or even $15 to $30, it’s actually still growing. And so El Jimador is benefiting from that. Interestingly, I didn’t know that El Jimador, within that price point, that $15 to $30 price point or $20 to $30. It was — this time last year, it was the #9 brand in that price point. Today, it’s #4,” he added.
When it comes to whiskey, however, specifically his company’s Jack Daniel’s brand, Whiting shared that consumers aren’t trading down, but they are spending less.
Jack Daniel’s fans show loyalty
While tequila drinkers have been willing to make substitutions, Jack Daniel’s fans have stuck with the brand.
“Okay. Well, as I think we’ve been talking about, and I’m not sure when this trend really started, but it is a couple of years ago now where smaller sizes started growing much faster than big sizes,” Whiting said.
That has given Jack Daniel’s drinkers more options to stick with the brand.
“And we’ve always cited it’s — that’s an economic thing where a consumer, if they’ve got a $20 bill in their pocket and they want to go and they love their Jack Daniel’s, they would rather buy a smaller size bottle than have to go to a cheaper brand or whatever else they might do. So that’s been kind of a macro thing now for years. So I think that’s interesting,” he said.
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Americans have been trading down
Jack Daniel’s consumers have proven loyal, but their choice to opt for smaller sizes is not unique, according to Supermarket News.
“Consumers have engaged in a variety of tactics to ease the impact of inflation, including both trading down to smaller, more affordable pack sizes, and in some cases buying larger pack sizes to save money over the long term,” the website reported.
Sally Lyons Wyatt, executive VP and practice leader at Circana, told Supermarket News that one practice has become more common.
“In general, within food and beverage and also in other categories outside of food, we have seen a ‘trade down’ mentality to fight higher prices,” she said.
McKinsey consumer research found that nearly one in four consumers globally said that when trying to save money, they would buy their preferred brand in smaller quantities rather than switch stores or brands.
“The top way that consumers trade down is that they will look to purchase the same product, but they will purchase a smaller size or a lower quantity of it,” McKinsey analyst Christina Adams said.
Of course, some consumers simply decide they can’t afford their favorites.
“In some instances, they have just walked away from categories because they cannot afford them at any price,” Wyatt said.
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