On-Premise Sales Key to Spirits Recovery

Distilled spirits may be recession resilient — as evidenced by 1.4 percent volume growth in 2009 and the trends experienced during and after previous recessions — but the trick now is to gain greater momentum as the industry moves from recession to recovery. So said David Ozgo, senior vice president, economic and strategic analysis for the Distilled Spirits Council of U.S. (DISCUS), during a presentation at the recent VIBE Conference in Las Vegas.

DISCUS’ analysis shows 2.6 percent average growth in 9-liter cases for the past decade, with dollar sales growing 5.2 percent annually on average during that time period. Value brands experienced the highest rate of volume growth in 2009 (5.5 percent), premium products were essentially flat (0.6 percent increase), high-end brands declined (3.5 percent) in volume and super-premium decreased the most (5.1 percent). However, value brands generated only 21.9 percent of total sales.

On-premise spirits volume

Given that on-premise sales were down 3 percent in 2009, Ozgo said, and the fact that premium to super-premium brand consumption primarily occurs in the on-premise segment, the trend is not surprising. While the growth in value brands, which occurred mostly in the off-premise channel, was significant, it does not make up for the premium, high-end and super-premium losses, which occurred in the on-premise channel. On-premise, he said, is key to recovery for the distilled spirits industry, especially as the economy begins its turn around.

On-premise spirits revenue

Looking at leading spirits categories:
•    Vodka accounts for 30 percent of volume and 24 percent of revenues; volume for value and premium brands increased 10.7 and 5.0 percent, respectively, in 2009, while high-end and super-premiums declined 2.3 and 5.8 percent, respectively.
•    Rum volume grew 1.2 percent while sales increased 0.8 percent; value rum grew 4.4 percent in volume, while premium gained 1.4 percent and high-end and super-premium lost 8.8 percent of volume.
•    Tequila revenues grew to reach $1.65 billion on 5.2 percent volume growth, driven by a 21 percent gain in value tequila volume and the fact that premium, and super-premium tequila volume expanded 1.5 and 1.0 percent, respectively; high-end tequila volume declined 0.3 percent.
•    Whiskey, which accounts for 28 percent of industry revenue and 25 percent of volume, declined slightly in 2009 (0.7 percent); Irish increased 10.2 percent, single malt Scotch by 2.5 percent and blended whiskey by 3.4 percent in volume.

Looking ahead, Ozgo said he would go out on a limb and say happy days may soon be here again. While the slower rate of growth and trading down trend is consistent with previous recessions, he noted that the high-end share of the market typically recoups losses post-recession, and today’s consumer has a taste for fine spirits.

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