WSJ What’s News - Alternative Indicators: What Pinched Consumers Are Buying at the Liquor Store

Episode Date: November 19, 2025

We all want a little treat—even if we’re on a budget. That desire may be part of what’s shaping U.S. liquor sales; big spirits companies are seeing growth in the sales of their smaller bottles of liquor, while sales of the pricier larger sizes decline. What does that tell us about how consumers are feeling about their wallets? Host Alex Ossola discusses with Nadine Sarwat, director and equity research analyst at brokerage firm Bernstein. And finally, in this last episode of our alternative economic indicator series, WSJ investing columnist Spencer Jakab joins Alex to take stock of all four indicators in this series—Nevada employment, copper, heavy trucks and liquor—and the picture they paint about the broader U.S. economy.  Sign up for the WSJ's free What's News newsletter. Further Listening Alternative Indicators: Can Nevada Employment Predict Where the Economy is Headed? Alternative Indicators: What’s Dr. Copper’s Prognosis for the U.S. Economy? Alternative Indicators: What Big-Rig Truck Sales Reveal About the U.S. Economy Learn more about your ad choices. Visit megaphone.fm/adchoices

There's nothing that brings out my inner bargain hunter quite like a trip to the liquor store. Hi there. Just those two. Oh, no, I got one, thanks. 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, Smyranoff, and Don Julio Tequila, on the company's fiscal 2025 earnings call in August. I think the small formats that we have of the 50CL 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. And the CEO of Jack Daniels' parent, Brown Foreman, on the company's third quarter and year-to-date earnings call back in March. 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 U.S. market. The rise of small liquor bottles is particularly notable because U.S. liquor sales overall have been on the decline.

In the past few months, Diageo, Brown-Fourman, and French distiller Pinot Ricard have said that their U.S. 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 Sarwatt, a director and equity research analyst at brokerage firm Bernstein. First, though, we needed to establish what's

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. Like, what do you call them? I just refers to them as a smaller format bottle. I think the nips or airplanes are likely the very small ones. It's part of Sarwatt'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 Osala 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 U.S. economy is doing. Now, we're turning to liquor sales as a way to glimpse into consumer's 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 U.S. economy. Here's my conversation with Nadine Sarwatt. I had been reading, there was a rise in the small bottles of liquor in the spirit space. Yeah, so the three sizes where we have seen growth ahead of the overall market have been 50, 1, 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. 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? We are hearing that from all of the sparris companies that we cover.

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 in the alcohol space more generally. So, of course, my question is, what's driving the rise in this size? So what's interesting is what we are seeing consumers today is death by thousand cuts on the back of inflation for many years. At the end of the day, alcohol is a staple product, but it has discretionary elements. It's not toilet paper. It's not laundry detergent. So what we're observing is a consumer that has a pressured wallet, groceries, or more expensive.

and many other things are more expensive, especially if you're thinking of a low-income consumer and increasingly a middle-income consumer. Now, the consumer today is saying, I still want to purchase premium brands. I do not want to downtrade the quality or type of brands that I am buying. I'm just going to buy less. So data from the Bureau of Economic Analysis implies that the share of wallet that is being spent on alcohol is actually flat to slightly up versus 29. but people are getting less volume for their buck now.

They're choosing to keep that premium consumption and not downtraight. Have you seen other fluctuations like this? No. This is so unprecedented. We look at the great financial crisis. What we saw is that volume was impacted in spirits. However, you didn't see meaningful decline. Instead, what you saw is people chose to downtrade instead of buying a super premium vodka,

you're going to buy premium vodka. Instead of premium, you're going to buy mainstream vodka. Instead, today, what you're seeing is consumers want to keep the brands that they love, but are going to consume less. This is a break in the pattern. And this is why we're hearing a lot of questions as to how much of this volume decline is cyclical versus structural, which is questions on health and wellness, et cetera. I was going to ask about that because my understanding was that people are generally drinking less in sales, of at least the bigger sizes are going down. Where does that fit in with this trend? There are a couple of ways to answer that. The first is that if you thought that the weakness we're seeing in the alcohol market today

was all about this health and wellness moderation trend, we would expect all sizes of liquor bottles to be downed. Instead, we're seeing a discrepancy between which are doing better and which are seeing most of the decline. One answer could be that people are simply socializing differently today. Another is that your wallet is pressured, and you still want to show up to your friend's barbecue or party with a very good quality liquor,

but you have less money to spend on it. And so you will get a smaller bottle size. That doesn't imply that people are anti-alcohol. That's actually more an indication of pressured on wallet. Coming up, we hone in on what other factors might be tipping the sky, scales on liquor sales. That's after the break. We're back with Bernstein analyst Nadine Sarwad, talking about liquor. My next question for her, how can we tell if the fall in liquor sales more broadly is because of changing long-term habits

like consumers who stop or cut back on their drinking, or short-term, financial pressure? Oh, that's the billion dollar question. So if we start really high level, the number one question is the health of the American consumer spending. We're starting to see points of pressure, low-income consumers, mostly it seems to be spreading to some middle-income consumers. So from that perspective, anything that relates to consumer health are important things to watch. When it comes to alcohol in particular, the one thing is we're going to get a new set of dietary guidelines this month or any day now. And that was a key vocal point of what is the recommendation going to be on alcohol. So back to that high-level data that you were talking about.

That's part of the reason I wanted to take a look at this because consumers feel generally frowny face. But they keep spending. Looking at that high-level data, are you going to be looking for one of those things to shift? I think the discrepancy between those two data points is the best indication we have that Americans are feeling the pinch differently today. Higher income, Americans have a huge amount of savings, they are in high paying jobs, and therefore many companies that are exposed to that consumer are doing well. If you then turn to low income and middle income consumers, that's where you have seen a lot of the squeeze. And we never even had that deficit during the great financial crisis. So I think the only way you can make sense

of the disconnect is to say that Americans are experiencing the economy differently. There are any other factors or variables that could be affecting these lower volume sales, like immigration, like tariffs, are those factoring in here? Immigration absolutely is. You look at beer consumption, compilation brand, the company that I cover, has super premium Mexican imports, and their core consumer is Hispanic. and a lot of Hispanic consumers for fear of immigration craft towns are not shopping and socializing. So that is clearly another factor that is driving weakness in alcohol from the beer perspective. The other consideration tariffs, many surveys have consumers worried about inflation in the coming quarter or months.

You know, since G.A. just put out their September survey that showed that the number one reason for some people cutting back on alcohol was health and wellness, but the number two reason and a very close number two with economic and financial constraints. And that number was even higher for young Americans who are experiencing the pinch even stronger. That was Nadine Sarwatt, director and equity analyst at Bernstein. Up next, what do all four indicators we've looked at in this series show us about the current state of the U.S. economy? That's out to the break. Throughout this series, we've focused on indicators to take the temperature of the U.S. economy, especially during the government shutdown when the normal data that can do that has been unavailable.

We've looked at Nevada's flat year-over-year employment rate to understand how consumers are feeling about spending. Dr. Copper's high prices as a sign of global economic activity, falling heavy trucks, as a glimpse into the manufacturing sector, and, as you just heard, growing sales of small liquor bottles which show what kinds of corners pinched consumers are willing to cut. So what kind of picture are they painting all together about what the U.S. economy looks like right now? I brought this question to WS.J. Investing columnist Spencer Jacob. I think the story that those indicators are telling about the economy is that you have pockets of extreme strength, which many people are focusing on, for example, a boom in data center

construction, AI, everything. And then you have general moderation to even weakness in almost everything else. People are not feeling too confident. Normal people and not very wealthy people are not spending freely, are feeling a bit anxious, a bit pinched for various reasons. Let's talk about that for a second, because that's something that came up in the series as well, this sort of K-shaped economy. The wealthy are doing fine, the not so wealthy are doing not so fine. Does the data that you've seen for these and other indicators back that up? It absolutely does back it up that the wealthier are doing better than the rest of people. And specifically, if you look at the top 10% by income or by wealth versus the other 90%,

about half of personal consumer spending is happening from that 10%. Everyone else is the other half. So someone who's wealthier, their likelihood of spending is very much tied to their wealth. stock market wealth and housing wealth, both of which could hit a reversal. Stock market obviously can turn on a dime. You've had this epic boom, especially in tech stocks. If that reverses, they might pull back spending a bit. And since they are such big spenders now, that is going to have a big effect on the whole economy.

That was WSJ Investing Calmness, Spencer Jacob. And that's the end of our Alternative Indicators series. Today's show is produced by Julie Chang with supervising producer, Hannah-Haron. I'm Alex Ossela, and we'll be back this evening with a brand new show. Until then, thanks for listening.