A new report by an industry group shows people drank more but turned to cheaper brands. They also drank more at home and less in pricier bars and restaurants.
Industry growth slowed in 2009, with the amount of liquor sold by suppliers up 1.4 percent. That's the smallest increase since 2001 and below the 10-year average of 2.6 percent.
Last year, the lowest-priced segment, with brands such as Popov vodka that can go for less than $10 for a fifth, grew the fastest, with volume rising 5.5 percent, after edging up 0.6 percent in 2008. Meanwhile, the most expensive price range, roughly $30 or more for a 750 ml bottle (think Grey Goose, owned by Bacardi), fell the most, tumbling 5.1 percent.
The Distilled Spirits Council of the United States said in its report Tuesday that liquor suppliers reported flat total revenue of $18.7 billion last year.
Kenneth Jolly of Milwaukee has been swapping his favorite, pricier liquors such Patron tequila, for cheaper brands such as Jose Cuervo to stay on top of his budget. For him, it's simple math.
"If you consume a lot on a regular basis and you have people come to your house, you have to adjust," said Jolly, a 27-year-old network technician in Milwaukee who buys liquor every other week. "If your body can take it, you might as well buy the cheaper liquor."
Sales in stores - which make up three-quarters of liquor sales - rose about 2.1 percent, while sales in restaurants fell 3 percent.
"People still want to entertain themselves, they still want to get together with family and friends, so a lot of people will move from a restaurant to their living room," council President Peter Cressy said.
Vodka remained Americans' favorite liquor, accounting for almost a third of all spirits sold and sales of $4.56 billion.
Sales volume for the cheapest versions of tequila rose 21 percent, the fastest of any type of spirit. That's most likely because entertainers are using pre-made margarita mixes to serve at home, said David Ozgo, the council's chief economist. Plus you can mix it before guests arrive, so they don't know what brand you use, said Joan Holleran, director of research at research firm Mintel.
Cressy said the fact that people were still drinking more spirits bodes well for the industry, still recovering from a long decline from the 1980s through the mid-'90s, when liquor sales fell by a third as drinkers turned to beer. Since then, an ever-increasing array of expensive liquors have fueled rapid growth.
The industry's goal to keep people drinking spirits - no matter the price - and it can then get them to pay for higher-priced drinks when the economy recovers. Most major liquor manufacturers make brands in a variety of price ranges. For example, industry giant Diageo plc, based in London, makes vodka brand ranging from cheap Popov to midpriced Smirnoff to expensive Ketel One and Ciroc.
Mintel's Holleran expects people to start going out more this year, as they get bored staying home and want to treat themselves to little luxuries - like a night out. "You want to go out and have someone do all the work for you," Holleran said.
Of course, switching brands isn't the only way to economize.
Matt McCluskey, a 28-year-old researcher in Santa Monica, Calif., started buying most of his alcohol at Costco, trying to save money by buying bigger bottles. Now he spends $36 for 1.75 liters of Maker's Mark bourbon, rather than $25 for less than half that at his local liquor store.
"It's a lot harder to pour. That's the only drawback," he said.