US Spirits Volume Climbed 2.7% In 2011, Trade Group Says

By John Kell January 30, 2012
--Industry's growth came as spirits makers continue to innovate by blending alcohol brands or flavors

--Sales jumped about 4% to $19.92 billion in 2011

--Since 2000, spirits' market share has expanded or held firm in every year except 2009

The volume of spirits sold in the U.S. jumped 2.7% in 2011 from the prior year and the industry took more market share from beer, according to a trade group's report, as the economy improves and product innovation drives interest in the category.

Analysts and industry executives say spirits makers are seeing stronger demand for premium-priced beverages, a trend that is often observed when the economy recovers from a recession. Bourbon, vodka and pre-mixed alcohol are expected to continue to outperform the overall category, according to analysts, due to a greater focus on innovation.

The Distilled Spirits Council of the United States, also known as Discus, on Monday reported that U.S. spirits volume totaled 195.8 million nine-liter cases last year, and that sales for the period jumped about 4% to $19.92 billion. The volume and revenue growth figures came in slightly below the pre-recession average between 2000 and 2007.

Spirits' market share on a revenue basis grew 0.3 percentage point to 33.6% in 2011, while beer fell 0.6 percentage point to 49.2%. Wine inched up to 17.1% from 17%.

Discus President and Chief Executive Peter Cressy, who presented the findings at a New York City presentation Monday, said market share gains are important as U.S. per-capita consumption is relatively flat. According to Discus senior vice president David Ozgo, each point of market share is worth $590 million for the industry.

The industry's growth came as a number of spirits makers are blending alcohol brands or flavors, aiming to take traditional products and alter them to appeal to a broader group of customers. Since 2000, the industry's market share has expanded or held firm every year except for 2009, according to Discus.

Between 2009 and 2011, Ozgo said the industry introduced over 1,800 new products, which generated 14.3 million nine-liter cases last year.

"Companies, even though we are in a bit of a downtime, they continue to invest in product development and it's really paying dividends," said Ozgo.

For example, Beam Inc. (BEAM), has introduced a Skinnygirl sangria and a white-cranberry cosmo after the original cocktail blend was a hit, while Brown-Forman Corp.'s (BFA, BFB) Jack Daniel's Tennessee Honey whiskey, which was launched last year, has created a halo effect for the rest of the Jack Daniel's portfolio.

Bill Newlands, Beam's North America president, said innovations like Red Stag and Jim Beam Devil's Cut were "bringing people to the bourbon category, and giving consumers compelling opportunities to trade up."
Constellation Brands Inc. (STZ) President and Chief Executive Rob Sands told Dow Jones Newswires that over the past several years, both wine and spirits makers have taken share from major U.S. brewers, saying the Discus report showed that if new products for wines and spirits were excluded, both categories would have seen volumes decline last year.

"Wine and spirits have been particularly aggressive when it comes to new products and innovations," while larger U.S. brewers are aiming to drive revenue through price increases but are sacrificing market share, Sands said.

Volume for what is known as super-premium categories of vodka, bourbon and Tennessee whiskey outpaced those segments' overall growth figures, the Discus report showed. The higher-priced category includes Crown Royal bourbon, Johnnie Walker Blue scotch and Grey Goose vodka.

Morningstar analyst Ken Perkins said some growth in the higher-price segments can be attributed to international growth and innovation that can attract new customers to a category they might not have previously considered. Broadly, Perkins said if a spirits maker can pull in a new customer, they can perhaps pick up repeat business.

Vodka, which accounts for 32% of industry volume, posted a 5.9% increase in volume, while the figure jumped 3.9% for bourbon and Tennessee whiskey. Tequila volume climbed 3.2%, though rum volume slid 0.7%.

Patron Spirits International AG Chief Operating Officer John McDonnell told Dow Jones the tequila maker continued to increase advertising spending during the recession, aiming to be better positioned for when the rebound occurred. He said while the recent launches of Patron's Gran Platinum and Gran Burdeos weren't efforts to reinvent the whole category, they were "adding different finishes, much in the way the single malt Scotch has done."

In prepared remarks ahead of the event, Cressy said efforts to open up new markets--such as the recent passage of the U.S.-South Korea Free Trade Agreement, which eliminates a 20% tariff on bourbon and Tennessee whiskey sold to South Korea--were helping to drive exports. Total spirits exports grew more than 16% last year, the group noted.

Davenport analyst Ann Gurkin said she was pleased to hear Discus report on-premise demand is strengthening, saying there were some concerns about the strength of consumer confidence. Gurkin projects spirits volume to increase 2.5% to 3% this year, while prices are seen rising in the low single-digits.