TLDR: You need to be crazy expensive or super cheap to win

We live in strange economic times.

The historical indicators of success (stock market, unemployment, etc.) are showing strength, yet many Americans are voicing that it's harder than ever to get by.

I’m no economist, but I know the spirits industry and it might be telling us something.

I keep a close eye on activity at the major alc-bev strategics, and it seems to me they think we are in, or are about to be in, a downturn.

The Barbell Effect

The “barbell effect” is a consumer phenomenon that shows itself during downturns.

The general idea is that products at the extreme ends of the pricing spectrum will perform the best during hard times.

Low-cost products thrive as budget-conscious consumers trade down.

Ultra-premium products stay resilient due to wealthy consumers' stable purchasing power.

That’s less intuitive, but if you own a yacht, you probably can still afford Whole Foods if the stock market is down 20%.

Hermès and Rolex were some of the better performers during the ‘08 crisis.

It’s the mid-tier products that struggle. Their normal consumer has gone to cheaper alternatives, but the luxury market isn’t trickling down to them.

Those products win in a downturn and that’s exactly where the strategics are focused

Michelin Star or The Liquor Store Counter

In 2024, the majority of the best-performing brands, both in getting acquired and internally at strategics, fell into one of two categories.

Either they sell in Michelin-star restaurants…

Or you find it on the counter by the register at the liquor store.

Sazerac bought both BuzzBalls and Svedka in 2024.

Diageo created a new business unit purely devoted to the ultra-premium products in their portfolio.

I’m not saying this is some harbinger of a collapse, but these spirits companies can be hundreds of years old. They are focusing their portfolios on the products that do well when things get bad and that’s worth noting.