Still, there are plenty of wine and spirits brands with 2008 numbers that are a cause for celebration. These companies continued to grow their business in the U.S. market, particularly during the latter half of last year. According to the latest statistics released in the Handbook Advance 2009, which just was published by The Beverage Information Group, U.S. distilled spirits sales volume rose for the ninth straight year in 2008, gaining nearly 4 million 9-liter cases to reach a total of 185.5 million cases, an increase of 2.1 percent.
For the second straight year, the overall growth trajectory of the spirits business slowed; during this decade, only 2001 and 2002 saw the segment grow at a slower pace. Given the economic backdrop, however, spirit results from 2008 must be considered a success.
While overall numbers are up, the industry is not spending much time celebrating. Consumer spending continues to tighten as unemployment rates hit 10-year highs. Bargain shopping and reduced spending have become the norm in many households. Warning that the spirits industry is recession-resistant but not recession-proof, Distilled Spirits Council of the U.S. (DISCUS) CEO Peter Cressy notes that spirits market share was holding steady but softened “substantially” in the fourth quarter.
Volume growth was up, but revenue growth was off. According to numbers from The Beverage Information Group, 2008 gross revenue growth was down 2.7 percent, totaling $19.8 billion, off from 6.7 percent revenue growth in 2007.
At its annual distilled spirits industry review in January, the generally upbeat DISCUS declined to make projections for the industry’s 2009 performance. This marks the first time in recent memory that this has occurred. It is a sign of how unsettled the industry is right now.
“These are very interesting times to say the least,” says Cressy. “Given the volatility of the world, we wouldn’t even consider [making projections] at this point; I don’t think any responsible industry would. We’re clearly starting to feel the impact of the recession.”
Two issues cause significant concern for distillers in the immediate future, says Cressy. One is the unsettled position of the hospitality industry. The other is the prospect of increased municipal and hospitality taxes.
Still, Cressy and other experts believe that premiumization is a spirits trend not likely to be reversed quickly—and this offers growth opportunity.
While most suppliers seem to have held the line, there is talk around the country that spot pricing cuts are occurring. This is worrisome, says Greg Baird, executive vice president of sales for wine and spirits distributor, Charmer-Sunbelt Group.
“This is a difficult stretch, but it will pass. We don’t like to see when the trade jumps off the branded premium and superpremium focus and dives into value plays because there is less profit there for everyone. It’s scary when suppliers begin to cut the price of premium or superpremium brands. Once they go down, it’s very difficult to get them back up.”
Wine: Growing, But Slower
Wine sales were more mixed than those in the spirits world. Total wine volume, including table wine, sparkling wine, fortified wine and wine coolers, inched up only 4.6 million 9-liter cases in 2008, a 1.6 percent increase and the smallest gain since 2001. Overall volume in 2008 stood at 296.7 million cases, however, a record level, and the increase marked the category’s 16th straight year of growth in the U.S.
Table wine grew 1.8 percent to 271.9 million cases. Domestic table wine jumped 3.1 percent to 202.6 million cases, while imported table wine dropped by 1.8 percent to just under 70 million cases. Clearly, the dollar’s weakness in 2007 and 2008, combined with the economic slowdown, affected the popularity of these generally more expensive wines. The American wine industry’s response to the phenomenon of yellow tail and other imported and branded “critter” wines also has had an impact, grabbing share of new and casual wine drinkers.
The furious growth that took place during the middle part of the decade has slowed. Still, international wine merchants are eyeing the U.S. with optimism. The U.S. will become the world’s biggest consumer of still wine within three years, according to a recently released study conducted for the international wine and spirits exhibition, Vinexpo. American wine consumption is also expected to grow over the next five years despite the current economic downturn, according to data from The Beverage Information Group. Americans are expected to consume 321 million cases by 2012.
At $21.8 billion, the U.S. already is the top market in terms of turnover for still wine sales. In volume, it is number three. It also is number one for sales of wine priced at more than $10 a bottle. The Vinexpo report predicts the above-$10 category will achieve maximum momentum over the next three years. Still, 2009 is expected to be an atypical year, says Vinexpo chief executive Robert Beynat. Some short-term softening in wine buying trends, either by volume or in dollars, should be no surprise.
The Vinexpo report also predicted a resurgence in imported wine consumption. That consumption is expected to pass the 100 million case threshold by 2012, an increase of 17.9 percent versus last year’s total. This should generate a turnover of close to $10 billion.
Wine drinking in the U.S. grew more than 13.1 percent in the five years from 2003 to 2007, according to The Beverage Information Group. It is forecasted to continue growing over the next five years, albeit at the comparatively slower rate of 10.1 percent.
Other recent studies bode well for the wine business. One that was released by the California-based Wine Market Council found that two-thirds of survey respondents reported no change in their current wine spending habits; 15 percent said they were spending less. Just over 40 percent said they were ordering at the same price and frequency level in restaurants.
Overall, the report found consumers cutting spending, dining out less frequently and drinking less. All of these factors are contributing to the flattening in wine consumption growth.
Where is the wine growth coming from? During January’s 2009 Unified Wine & Grape Symposium, Gomberg, Fredrickson & Associates principal Jon Fredrickson said that 2008 category growth occurred mainly in the under $7 segment. He added that it accounts for 61 percent of the market for California wine by volume.
The On-Premise Storm
Suppliers are notably worried about the state of the overall restaurant business. Several food service companies have filed for bankruptcy (Bennigan’s, Black Angus Steakhouse), closed locations (P.F. Chang’s, New York’s B.R. Guest) and/or reported freefalling traffic and sales (Cheesecake Factory). Chain restaurants have been hit hardest. Over the past 10 years, they have been instrumental in establishing premium and superpremium brands as gold standards. They also have fueled the popularity of contemporary cocktails and daily wine consumption.
According to the National Restaurant Association, between July and December, 2008, the restaurant industry shed more than 104,000 jobs. The overall slowdown prompts Fredrickson to estimate that restaurant wine sales declined as much as 12 percent last year, and most operators expect their sales to decline in 2009.
On-premise spirits volume sunk 2.5 percent in 2008, according to The Beverage Information Group; off-premise volume grew 3.7 percent, showing the broad trend toward more consumption at home. Some operations, such as Chicago-based Morton’s The Steakhouse, plan to stay the course. But other companies are beginning to evaluate their broad spirits selections and reduce both inventories and SKUs.
On the bright side, there are numerous cultural and demographic trends that may help the industry stay vibrant. As the saying goes, when times are good, people drink; when times are tough, people drink. Among the keys that might help, for wine at least, is its role in a healthy diet. This was reinforced by a recent 60 Minutes report on the benefits of resveratrol, a compound found in red wine.
Better market access, particularly increased Sunday sales in many states, also has helped keep sales figures up. Other drivers include the thriving cocktail culture, a spirits- and wine-savvy public that is responding to increasing product education, a focus on making beverage alcohol more approachable, and a drinking age population that is growing (immigration is contributing to that growth).
Behind the dark clouds are sunny days ahead.
Spirits and Wine Category Overview
Despite an overall economic slowdown, many spirits categories showed increases in 2008, with vodka leading the charge in market share. Vodka sales exceeded 55.1 million 9-liter cases, a 4.9 percent gain over 2007. The category now accounts for nearly 30 percent of total spirits sales in the U.S.
As new vodka brands continue to flood the market, entrepreneurs and foreign companies hope to catch lightening in a bottle. The phenomenal growth of vodka is reflected in the number and volume of vodka brands in our annual Growth Brands list: 23 of the 53 brands are vodka.
Rum, now the second largest spirits category, showed slower growth but still increased by 2.7 percent over 2007, hitting more than 24.5 million 9-liter cases. Tequila surged 3.8 percent to more than 11.1 million cases as the category continued to evolve from its U.S. role as “frat house ritual” to that of a more sophisticated sipping beverage. Consumers are welcoming high-priced iterations with open purses.
Whiskies (American, Irish and Scotch) climbed 1.7 percent to exceed 45.9 million cases overall last year. Imports performed better than domestics—up 2 percent versus 1.4 percent for American whiskey. Within the category, Irish continued its boom from a small base, up 18.1 percent and finally exceeding the 1 million case mark. Of the larger categories, Scotch and straight whiskies both increased 1.5 percent—Scotch to more than 9.1 million cases, straight to more than 14.9 million. Canadian whisky crept up 1.3 percent to more than 15.6 million, and blends grew 1 percent to just under 5.2 million cases. This makes 2008 a banner year for whiskies overall, as all showed better returns than in 2007.
One recipient of the resurgent cocktail culture is gin. For the second year running, gin turned around years of decline, adding 1.5 percent growth to reach nearly 11.4 million cases. Significantly, the superpremium end of the gin business, admittedly small, grew nearly 50 percent.
The third-largest distilled spirits category, cordials and liqueurs, saw a hefty decline last year, losing 2.6 percent, or more than half a million cases, to hit just over 20.7 million cases. At the same time, the prepared cocktail segment once again decreased. It was down 2.4 percent, ending 2008 at just above 6.1 million cases.
Finally, Brandy and Cognac, essentially flat last year, dropped .2 percent to just over 10.5 million cases. The category should continue having trouble growing until it updates its image for current market trends.
On the wine side, domestics gained 6 million 9-liter cases in 2008, up 2.8 percent to 221 million cases, with imported wine declining 1.7 percent to fall to 76 million 9-liter cases. Domestic table wine now comprises more than two-thirds of the entire U.S. wine market.
Champagne and sparkling wine experienced slight increases last year, up 1.1 percent in total. All the growth came from domestic sparklers, up 1.7 percent, to end the year with more than 13.7 million cases. Year-to-year volume declines on vermouth, down 3.4 percent, and dessert and fortified wine, down 2.7 percent, accelerated.
Why Growth Brands
As in many industries, brand equity is perhaps the most valuable asset a product possesses. This is especially true in the beverage alcohol area, where sudden changes in consumer tastes and trends can propel or erase a brand’s prospects rapidly.
Grey Goose Vodka, for example, did not exist until 1997. In 2000, it broke the 200,000-case mark. Today it enjoys an annual volume of nearly 3.5 million cases and is the preferred cocktail ingredient at many bars and restaurants.
It may be no surprise that there are beverage alcohol products in every category and at every price point that, for any number of reasons, have lagged behind or outpaced their respective competitors. This is the rationale behind Growth Brands, our annual feature that uses the latest industry results to highlight those wine and spirits brands that have demonstrated noteworthy growth over recent years. These are the brands that, in many instances, provide the backbone of the wine and spirits business for operators. They are also the brands to watch as they grow beyond their natural competition and stake their own successful claims in the marketplace.
Identifying the Growth Brands
The three Growth Brand categories are designed to organize in a meaningful way the wine and spirits brands demonstrating notable growth so that retailers, restaurateurs and the industry at large can discern the existing and emerging trends and tap the opportunities available. Our Growth Brand criteria remains the same as last year for distilled spirits and wine.
Fast Track Brands: The brand must have exceeded 100,000 9-liter cases in 2007, with double-digit growth in each of the past four years. All brands must be at least five years old.
Rising Stars: The brand must be less than five full years old,
and must have exhibited notable growth in the
past few years.
Established Growth Brands: The brand must be a top seller, moving a minimum of 400,000 9-liter cases annually. It must also have grown moderately or substantially in each of the past four years.
Spirits Fast Track Brands (See Chart)
Of the 14 Fast Track brands from 2008, three (Grey Goose, Patrón and 1800) have “graduated” to become an Established Growth Brand. To show how trajectory matters, the remaining 11 of last year’s Fast Track brands are returning to the list, joined by newcomers Cîroc, Don Julio and Coconut Jack Flavored Rums.
The dominance of vodka, evident in the total figures, is demonstrated in this set of awards. Nine out of the 14 Fast Track winners are vodkas, three are rums, and Tequila and Irish whiskey each are represented by one. Of the vodkas, three are domestic—Seagram’s, UV and Tito’s. Svedka comes from Sweden, Three Olives from England, Pinnacle and Cîroc from France, Pearl from Canada and Van Gogh from Holland. Point of origin may be a way to separate a brand from the pack, but it does not guarantee success. Roughly half the vodkas are premium or below. Only Cîroc and Van Gogh qualify as a superpremium.
Leading the pack is the Svedka line of flavored vodkas, which hit 2.1 million cases with a stunning 37.6 percent increase last year. The brand now is the 17th leading spirits brand in the country and the fifth leading vodka. Last year, its performance surpassed that of Stolichnaya, Ketel One, McCormick, Popov, Barton and Skol.
Three Olives, the premium line of 14 vodkas with flavors such as root beer, was second in percentage and in actual volume growth last year among Fast Track brands, adding 260,000 cases to surpass the 1.1 million mark. Seagram’s Vodka added 90,000 cases to stay on the Fast Track list, reaching 980,000 overall. UV, produced by Phillips Distilling, is offered in a plain version as well as in eight flavor extensions that include grape and lemonade. Volume grew 30 percent to reach 662,000 cases. White Rock’s Pinnacle returned to the list by more than doubling its sales to 600,000. Tito’s Handmade Vodka, a small business success story, continues its growth. It is the only spirit produced by micro-distillers to make the Growth Brands lists. Made in Texas and built on newspaper ads and word of mouth, the brand reached 252,000 cases, up 26 percent.
Cîroc has benefited from its connection with Sean “P. Diddy” Combs. Diageo made the rap star part owner of Diageo in return for his work promoting and developing markets for the grape-based vodka. The strategy seems to be working. The brand, which had been chugging along beneath the 100,000 case mark, soared more than 250 percent last year to reach 245,000 cases.
Pearl Vodka, in plum, blueberry, coconut and pomegranate flavors—in addition to its unflavored version—surged more than 39 percent to reach 195,000 cases. Also, Vincent Van Gogh now offers 18 different flavors. Volume grew by 25.4 percent last year to hit 153,000 cases.
Jameson Irish Whiskey continues to drive the Irish category, accounting for 90,000 of the 155,000 cases the category added last year; Jameson now is at 678,000, a jump of more than 25 percent.
The two rums that returned to the Fast Track list both are spiced—Admiral Nelson and Sailor Jerry. Nelson held its own with a 24.2 percent bump to 410,000 cases. But Sailor Jerry is coming up fast, jumping 61.5 percent to 344,000 cases. Newcomer Coconut Jack Flavored Rums soared last year from 38,000 to 131,000. Don Julio, the only Tequila on the list, is the second Fast Track brand from the house of Diageo, the company’s superpremium entry in that category.
Wine Fast Track Brands (see chart)
Many are purely modern wines designed for high recognition. Brands like Barefoot Cellars, the latest phenomenon, have soared in popularity. Barefoot, which is characterized by low prices and casual consumption patterns, sold 6 million cases this year and experienced a 50 percent burst. It also entered the top 10 domestics overall.
Other Fast Track brands, like Ménage à Trois, Fish Eye, 7 Deadly Zins, Relax and Big House (now owned by the Wine Group), have focused on fun and festive imagery. They have fulfilled the longstanding wishes of sellers that winemakers de-mystify their products.
Other brands, such as Castle Rock, straddle the price range and imagery game. Crane Lake won with its value pricing, as have slightly higher priced Liberty Creek and Salmon Creek.
Significantly, a boxed wine, Black Box, broke through the 1 million case mark last year, blazing the way for wines like Bota Box, which hit the list at 345,000 cases, up 66.7 percent. These two are harbingers of things to come. Both economic and environmental concerns have pushed winemakers to explore packaging that carries a lower carbon footprint and incurs lower transportation costs than do heavy glass packages.
While most of the wines come from traditional winemaking regions, one, Duplin Wine Cellars, comes from North Carolina, with a large range of wines made from Muscadine and Catawba grapes, fruits and berries.
Among imported wines, two that bucked the trend were Segura Viudas and Mionetto, imported sparklers showing strength in a flat category. Of the imports on the list, two are from New Zealand (Nobilo and Kim Crawford showing the continuing strength of that country’s white wines), two from Italy (Castello di Gabbiano and Mionetto), one Spain (Segura Viudas), one from Argentina (Doña Paula), one from Chile (Casillero del Diablo), one Germany (Relax) and one from France (La Vielle Ferme).
Spirits Rising Star Brands (see chart)
Rising Stars are brands that have been on the market for less than five full years but have shown notable growth the past few years. Sixteen made the list for 2008. Returning brands from last year include New Amsterdam Gin, Sobieski, p.i.n.k. and St-Germain. Of the Rising Stars, seven are vodkas (six imports, one domestic), five are cordials, two are gins, and both Tequila and absinthe categories each have one.
New Amsterdam from E. & J. Gallo now is among the top five domestic gins, adding 350,000 cases to hit 450,000. Sobieski, the Polish rye vodka marketed as a low-cost, quality alternative, has made a big hit off-premise, jumping to 255,000 cases by adding 205,000 last year.
Other vodkas are rising fast: Russian Standard wheat vodka sells for about $24 and returns to the list after hitting 85,000 cases following an 88.9 percent growth rate. Another Russian vodka, Ruskova, is produced using pot stills. Its standout is price—the brand retails for around $10. That pricing moved 65,000 cases last year, up 22.6 percent.
p.i.n.k., a Dutch vodka made with caffeine and guarana, reached 20,000 cases, up 25 percent. Ultimat, a blend of Polish potato, wheat and rye vodkas, nearly doubled volume to 9,000 cases. Now owned by the Patrón Spirits Company, it is packaged in a distinctive blue glass decanter and retails for around $40.
Zodiac, a potato vodka distilled in Idaho from Rocky Mountain spring water, retails for about $26 and hit 18,000 cases. Tenure, a low-cost Polish vodka retailing for about $10, debuted with 15,000 cases. Pinnacle, another White Rock product, is the English gin sibling of Pinnacle Vodka. It has a suggested retail price of $16 and hit 18,000 cases in its debut.
Lucid, an absinthe from Viridian Spirits, was one of the first out of the block in the gold rush caused by the change in rules controlling absinthe’s production. The brand hit 25,000 cases last year. Among the cordials, Sweet Carolina Sweet Tea, the third Rising Star from White Rock, became the first of its breed to make the list, reaching 29,000 cases. The French elderflower liqueur from Cooper Spirits International, St.-Germain, reached 20,000 cases and has won the hearts of many bartenders, as has Maurice Cooper et Cie’s Domaine de Canton Ginger Liqueur, a blend of ginger, eau de vie and VSOP and XO Cognacs that moved 11,000 cases last year. The latter retails for about $30.
Schwartzhog is a new entrant into the German bitters category. It is made with herbs, spices, fruit and hog root, which helped it sell 22,000 cases. Lunazul, a 100 percent agave Tequila from Heaven Hill that is produced at the La Certeza distillery, is priced at around $20 and moved that many thousands of cases in 2008. Ty Ku, which reached 10,000 cases, is a 20 percent ABV blend of soju, citrus, melon, Asian pears, ginger, tea and other ingredients that retails for above $27.
Wine Rising Star Brands (see chart)
The brands in this category run the gamut: superpremium imported whites (Martín Códax, Polka Dot and Clean Slate), and imported reds (Don Miguel Gascón), superpremium domestics (Paso Creek, Line 39), food brand extensions (Newman’s Own), sub-$10 domestics (Coastal Vines Cellars, Twisted), value domestics (Rockbrook Cellars) and imports (Hob Nob), sparklers from the Loire Valley (Veuve Moisans Brut) and organic wines (Cuma). Twenty-two of the Rising Stars come from California, including regions like Lodi and Lake County. Five come from France, three each from Argentina and Chile, two each from Australia, Germany and Spain, and one each from Washington State, Italy and New Zealand.
Significantly, all but one of the brands on this list come from companies that have a predominant wine focus. Suppliers showing savvy marketing with these new brands include Gallo (with seven on the list) and DFV (with five). Five companies each have three brands on the list: Bronco Wine Co., Click Wine Group, Constellation, Terlato and The Other Wine and Spirits Company.
The fastest growers in volume were Tin Roof (up 91,000 cases), Don Miguel Gascón (up 90,000), Gnarly Head (up 65,000), Five Oaks (up 60,000), 14 Hands (up 60,000), Pinot Evil (up 60,000) and Redtree (up 61,000). A number of brands displayed instantaneous success: Nine entered at 10,000 cases and above in their first year on the market. Most notable were Newman’s Own, Starborough, Two Hands and Veueve Moisan.
The largest percentage gains came from Red Rock (81.8 percent), Line 39 (81.8 percent), Polka Dot (84.6 percent), Martín Códax (71.4 percent), Root: 1 (66.7 percent) and Chamarré (62.5 percent).
Spirits Established Growth Brands (see chart)
Among spirits, not all the best-known brands make it every year. Brands suffer dips when they leave one company for another (Absolut), get caught in a category downturn (Hennessy) or otherwise take a slight dip in sales while the overall category grows (Jack Daniel’s). But all the Established Growth Brands are mature brands that have won wide acceptance and deliver profits consistently.
These 23 brands are the spirits powerhouses. They account for more than 55 million cases in 2008, in excess of 30 percent of total spirits volume in the U.S. Established Growth Brands rarely fluctuate by large percentages. Only Burnett’s, up 14.7 percent, and Juárez, up 14.5 percent, broke into double-digit increases. Seven of the brands are vodkas, four are Tequilas, three are rums, three are Bourbons and two are Canadians.