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The Americas

10 November 2022

The US “beer versus spirits rivalry”: spirits could be the winner

USA | Government affairs honchos from the largest US brewers are gearing up for battles with the drinks industry over what is called “tax equalisation” in several US states in 2023.

The Brewers Association too has warned that lobbying efforts by the drinks industry threaten the competitiveness of beer against spirits.

What the drinks industry wants is simple enough: it wants the tax load on spirits-based RTDs (eg canned cocktails) lowered to that of beer at both the federal and the state level, and to be able to enjoy the same market access for these RTDS as do malt-based RTDs.

Currently, spirits-based RTDs are taxed at a much higher rate than their malt-based counterparts, such as hard seltzers. Federal excise tax for a 12 oz can of a 6 percent ABV RTD beverage is USD 0.05 for a malt-based product, USD 0.10 for one with a wine base, and USD 0.15 for one with a spirits base, according to the website goodbeerhunting.com.

Excise taxes are also higher on spirits at the state level compared to beer or wine. This makes spirits-based RTDs more expensive to produce.

At the same time, the industry body DISCUS wants to make spirits-based RTDs more widely available. In many states, distilled alcohol can only be sold in liquor stores. Merely about a third of US states allow spirits to be sold in grocery stores.

Beer is losing share of throat to spirits

The brewing industry is up in arms against these efforts. It fears that beer will lose a 20-year-long battle against spirits.

Last year was the 12th consecutive year that spirits have taken away market share from beer in the alcohol market, according to a report by DISCUS.

In 2021, the beer category, which includes hard seltzers, accounted for 42 percent of the US alcohol market in terms of servings. A serving of wine is 5 oz; spirits is 1.5 oz; beer is 12 oz.

Spirits accounted for 41 percent, according to DISCUS. Wine accounted for 16 percent. At this trajectory, spirits are pegged to overtake beer in market share in the next few years, even though beer sales have grown.

Can brewers protect the status quo?

The brewing industry appears to be fighting a losing battle. It could not stem the rise of spirits while it enjoyed a tax advantage and wider distribution. It also seems to lack sound rational arguments why spirits-based RTDS should not enjoy a similar tax rate to malt-based RTDs – except that spirits have historically been taxed higher than beer.

Besides, to date, few craft brewers have joined the fight against tax equalisation. Boston Beer’s Chairman, Jim Koch, may have sounded the alarm bells last year, when he accused the spirits industry of having stolen his lunch and soon his dinner too. But, for the rest of the craft brewing industry, the drinks industry does not figure as “the enemy” yet.

Ironically, Boston Beer and all the many other craft breweries churning out canned cocktails would benefit greatly if DISCUS’ campaigns were successful.