*

US drinkers spending less on expensive cocktails amid high

inflation, bar owners say

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Wholesaler sales of spirits expected to decline nearly 6%

this

year, trade group says

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Trend poses challenge to liquor companies such as Pernod,

Diageo ( DEO )

By Emma Rumney, Jessica DiNapoli

LONDON/NEW YORK, Dec 23 (Reuters) - Meaghan Dorman's

five New York bars look just as full as they always do in

December - packed with couples on dates, holiday get-togethers

and business meet ups. But when takings are counted, it's clear

that customers are spending less.

Dorman, bar director and partner of Raines Law Room and Dear

Irving bars, each with multiple locations, said customers were

buying fewer expensive craft cocktails, priced between $26 and

$40, before switching to a cheaper tipple like wine.

"You feel like you are busy all night, and we will be full

all night," but revenues are down versus previous years, she

added.

Difficult economic conditions, such as high inflation, have

left some U.S. drinkers, especially middle-income earners who

used to splurge during the holidays, looking for ways to rein in

their booze spending, three of the largest U.S. spirits

distributors told Reuters.

The trend poses a challenge for major spirits producers like

Diageo ( DEO ) and Pernod Ricard, for whom October,

November and December are critical to help drive annual sales.

Pernod, for example, made 30% of its annual sales during that

period last year.

Diageo ( DEO ) and Pernod declined to comment on current trading.

As well as buying less, some drinkers are switching to

cheaper liquor brands and venues or reducing the amount of

out-of-home celebrations they attend, Southern Glazers Wine &

Spirits, Republic National Distributing Company and Breakthru

Beverage Group, which count Diageo ( DEO ) and Pernod among their

suppliers, said.

Annually, wholesaler sales of spirits are expected to

decline by 5.65%, with year-over-year trends pointing to

potentially severe volume decreases over the festive period,

trade group the Wine and Spirits Wholesalers of America told

Reuters.

"Everything is slower," said Francis Creighton, the CEO of

the wholesalers' group. "Consumers have to pay for rent, cars.

There's a lot more competition out there for the last dollar in

someone's wallet than there used to be."

In bars and nightclubs, a shift away from more expensive

bottles to those in a price tier below was underway across

categories of spirits, data from the wholesalers' group showed -

challenging major producers' central strategy aimed at getting

consumers to shell out for more expensive liquors.

The companies are already struggling with a sharp downturn

in U.S. sales following a post-pandemic boom; a relatively weak

holiday season may compound their problems.

SOME CHRISTMAS CHEER

Not all markets are seeing the same trends. In Britain, for

example, large pub group Marstons ( MARZF ) reported Christmas

Day bookings up 11% on last year, adding it has seen consumer

spending recover.

In the United States, the biggest market for most major

Western liquor producers, Southern Glazers is expecting "one of

the more cautious, or challenging" holiday seasons in a while,

though all three distributors said they did not expect sales to

decline dramatically.

Sales of spirits for at-home consumption, while lower

margin, are up compared to last year. Higher earning consumers

also remain resilient, and cheaper restaurants are benefiting as

consumers seek value, Poelma said.

Casual dining chains Chili's ( EAT ) and Applebee's, for example,

offer holiday cocktails for between $5 and $7, with pricier

options of up to $13.

Those are unlikely to rival cocktails like the $28 Weaving

Weber - the take on an old fashioned at Dorman's Dear Irving in

Gramercy Park, New York, which contains artisanal tequila,

xila-spiced agave syrup and angostura bitters.

People tend to treat themselves to one such craft cocktail

nowadays, whereas they previously could have up to four, Dorman

said.

These trends were combining with longer-term shifts towards

drinking less or experimenting with alternatives like

THC-infused beverages, RNDC's senior vice president Emily Xu

said. Tetrahydrocannabinol (THC) is the psychoactive compound in

cannabis.

Joseph Gabelli, a portfolio manager at spirits investor

Gabelli Funds, said the U.S. trading raises questions over

whether spirits makers' bid to shift drinkers to pricier brands

could deliver sales at the same rate as it had in the past.