In a year in which we seemed to be riding an economic roller coaster-turmoil followed by terrible news, followed by some rays of optimism, followed by uncertainty, 2009 left U.S. businesses in a defensive crouch from which they have not yet uncurled. To shore up balance sheets, cost-cutting has been brutal, leaving millions of workers without jobs, but public companies, at least, appear to be well on their way to recovery, as evidenced by the huge rebound in the stock market last year. There is hope that rehiring and new jobs will eventually follow, and with rising employment, consumer confidence also should increase. This would be a huge boon for the beverage alcohol industry, probably resulting in sales gains reminiscent of those in the middle of the decade. But it is way too soon to predict anything as rosy as that scenario. Indeed, few people will go on record predicting anything precise in the short term. As DISCUS CEO Peter Cressy said recently at the organization’s annual Distilled Spirits Review held in February in New York City, “Our data shows that there is light at the end of the tunnel. The question remains: How long is the tunnel?”
Still, when the world economy finally made it through the financial meltdown of late 2008 and early 2009, we all seemed to learn one major truth: The world is not coming to an end and neither is the beverage alcohol industry. As an industry we’ve taken some lumps, but overall things could have been a lot worse if the economy had not stabilized, even in its current weakened condition. Yet, the fallout has been significant. As the recession heated up, U.S. consumers held onto their discretionary dollars, reversing the decade-long trend of rocketing super premium growth among high end wines and spirits. In 2009, for example, spirits value brands gained 5.5 percent in sales volume while sales of high-end (above premium) brands decreased 3.5 percent and sales of super premium brands fell 5.1 percent, according to DISCUS. On-premise establishments were hit hardest, as consumers pulled back, eating out less frequently and choosing to entertain at home rather than splurge for pricey drinks at bars and restaurants. Retail outlets have benefitted from this shift, as consumers go into their “cocoons.” At the same time, value-priced brands of both wines and spirits have become the driving forces of volume.
“Everything has been about trading down,” states Eric Schmidt, research director for the Beverage Information Group (BIG), StateWays’ parent company. “And the shift encompasses an increase in sales of lower-priced domestic products, particularly among spirits.”
Despite the twists and turns, overall wine and spirits sales volume still increased in 2009, according to the latest statistics released in the Handbook Advance 2010, published by BIG. U.S. distilled spirits consumption rose by just over 3 million 9-liter cases to approximately 188.7 million 9-liter cases, representing a 1.7 percent gain. This follows the 2.1 percent increase in 2008 and is the slowest spirits volume growth since 2001. Spirits revenue growth-the combined dollar total of off- and on-premise sale-also kept pace, increasing 1.9 percent to $64.1 billion. In this context, it is important to remember that while above-premium and high-end sales were off compared to recent years, they still accounted for many billions of dollars in revenue, with numerous brands continuing to do well. Total U.S. wine consumption increased about 2.3 million 9-liter cases to just over 297 million cases, representing a 0.8 percent gain. It seems that sales of super premium wines suffered even more than those of high end spirits: the $4 to $6 price point, for 750 ml., appears to be the most dynamic, followed by wines costing up to and slightly above $10 retail. In addition, there has been considerable growth in large-size box wines, in the 3-, 4- and 5-liter sizes. In 2009, overall wine revenue decreased by 3.2 percent to $26.1 billion.
Even a deep recession cannot halt the vodka marketing machine. This monster spirits category rose another 5.7 percent in 2009, adding more than 3 million 9-liter cases for a total consumption of approximately 58.4 million cases. For the first time, vodka now represents more than 30 percent of all spirits consumed in the U.S. As every beverage alcohol professional knows, new vodka expressions, flavors and brands from around the world continue to proliferate. The only question is: Where are bar operators putting all these bottles?
The second largest spirits category, rum, saw consumption rise by a more modest 1.6 percent to 25 million 9-liter cases. Still riding the popularity of the Mojito, category activity also includes new spiced and flavored rums as well as a variety of aged expressions. Tequila also gained in popularity last year, with consumption up 1.3 percent to about 11.2 million cases. Largely driven by the Margarita, the category’s consumption trends also take into account the various levels-from premium to super premium to ultra premium-of a brand’s portfolio. The gin category barely eked out a .2 percent increase to just under 11.4 million cases. In keeping with the overall trends, the more expensive imported gins declined by 4.1 percent while the domestic brands grew by 2 percent.
Total American Whiskey edged up .6 percent, to 20.2 million 9-liter cases, with the higher-profile, higher-priced straight whiskies growing only .4 percent and the lower-priced blends-representing considerably less sales volume-rose 1.2 percent. For its part, Canadian whisky showed decent results, increasing 1.2 percent to a little less than 15.7 million cases. Interestingly, the higher-priced, foreign-bottled Canadians (up 2.1 percent) outperformed the value-priced U.S.-bottled brands (up .4 percent). The category of Irish and other whiskies once again gained in double-digits (up 13.9 percent) off of a small base. Driven primarily by the success of Jameson Irish Whiskey, the category reached almost 1.2 million cases. Overall Scotch declined barely at all (down .1 percent) to just over 8.9 million cases. Somewhat counterintuitively, though, the less expensive U.S.-bottled brands were off 1.4 percent while foreign-bottled brands were up slightly at .1 percent. Even more surprising was the fact that the higher-priced single malt segment gained 2.1 percent.
The third largest spirits category, cordials and liqueurs, fell to under 20 million cases (down 4.1 percent) in a year when most of the well-known, above premium-priced proprietary brands suffered because of the recession. Also losing ground for much the same reason was the brandy and Cognac category. The higher-end Cognac segment declined 4 percent while imported brandy declined 5.1 percent. Meanwhile, the less expensive domestic brandy segment grew by 2.4 percent.
Table wine now accounts for nearly 92 percent (272.6 million 9-liter cases) of all wine consumed in the U.S., with domestics representing more than two-thirds of that amount. In 2009, domestic table wine increased by 1.7 percent while the imports declined by 1.1 percent. This is the segment where the vast majority of wines on the U.S. market jockey for positioning, from the low to the high end. As the economy slowly recovers-and it eventually will-premium and super premium wine sales will pick up, though for now value table wine brands are determining the velocity of the marketplace.
Though relatively small, Champagne and sparkling wine increased by 1.5 percent last year to just over 13.8 million cases. Interestingly, domestic sparklers, with about twice the volume of imports, rose an impressive 5 percent to just over 9 million cases. Imported sparkling wine fell by 4.4 percent. Though small in size, the dessert and fortified wine category declined by 4.4 percent, while vermouth fell 1.8 percent.
Brands Maintaining Growth
Especially in this turbulent economic environment, it’s useful to recognize the many brands that have managed to navigate the rough waters. As we’ve said here before, there are beverage alcohol products in every category and at every price point that, for any number of reasons, that have either lagged behind or outpaced their respective competitors. Often, a combination of elements-among them solid distribution and retail support, supplier resources, marketing creativity, product heritage and brand equity, the right economic environment, a solid product in the bottle, advantageous price positioning and sometimes just plain luck-help lead to product success. This past year, the recessionary environment obviously played a large role, but that is hardly the only answer as to why many of these brands appear on the following pages. And though evaluating category consumption trends can provide the big picture, drilling down to actual brand performance provides the details. Thus, the reason for our annual Growth Brands report, which uses the most up-to-date industry results to highlight the wine and spirits brands with noteworthy growth over the past several years. Often they are the products that form the base upon which industry sales are built. They also are the brands worth watching, which may some day join those others as part of the base.