JACK DANIELS GETS THE COLD SHOULDER AT HOME
During its first quarter results, Brown-Forman noted that profit for the quarter was down due to an increase in distributor inventory levels. In other words, B-F shipped more product to wholesalers than was sold to retailers, which is generally an indicator of lowered consumer demand. However, inventory levels were not as high as the same first quarter last year, and B-F maintained that by the end of July inventory levels were balanced.
Overall, the company’s brands saw more growth internationally than in the US, with most brands falling behind the 2007 growth rate. Jack Daniels depletions were in the high-single digits internationally, but experienced low-single digit growth in the US. Meanwhile, Soco, Finlandia and the company’s premium and super-premium portfolios followed in a similar pattern, with Canadian Mist once against seeing declines.
What’s to blame? Well, according to the company, a lot of things. B-F cited the economy, brand price hikes and a general downslide in the distilled spirits industry.
TROUBLE FOR SPIRITS? Phoebe Wood, cfo, remarked that several US retailers “have highlighted a softening consumer environment in their recent earnings announcement,” due to declining home prices, higher gas prices and a volatile stock market. These components, she said, have likely “shook consumer confidence” when it comes to shopping for spirits.
“While our results don’t reflect a significant weakening in the trading environment of distilled spirits domestically, we’re cautious like virtually everyone else doing business in the US today regarding our outlook,” she continued.
In regards to the overall US distilled spirits environment, chief Paul Varga said he thought share was down as much as a point and a half versus 12 months ago, with volume was up only 3%. The biggest problem, he said, came from the value segment.
The premium segment “generates business from a pretty narrow demographic and a pretty small base, so I think that will continue to grow in the 15% to 20%...it’s the larger volume you tend to focus on in these tighter disposable income times.”
“High end holds up pretty well in this arena mainly because it’s a narrow demographic and socio economic group that gets pinched less from higher gas prices, ect.”
In an interesting note, Paul said that California in particular is suffering from the current disposable income pinch.
SOCO AND JACK. Both Soco and Jack saw a slowing growth rate in the US during the first quarter, which Paul blames on price hikes and a lack of disposable income.
When it comes to Soco, Paul said that recent price increases are partly responsible, particularly in Soco’s largest 1.75ml size, which is also its value size.
“We’ve been doing a lot more on our largest size and that’s the value size...when the prices are going up some of them [consumers] will leave you.”
Jack is also hurting from a combination of the distilled spirits dip, said Paul, and its overall brand image.
“I do think Jack is a unique brand in the US distilled spirits market...Its one of only a couple brands in the entire industry in the US that has above a $20 price point in the 750ml size and has several million cases. It’s difficult for brands of that price to sell even 1 million cases, not to mention 5 million.”
As a result of the “pinch going on right now in disposable income,” consumers are opting for a less expensive beverage.
However, Paul said the company will continue implementing moderate price increases, with brands such as Canadian Mist and Soco undergoing a current price repositioning.
BACK TO BEER. Paul seems to think that it makes sense for consumers to turn back to beer in these hard times.
“It’s logical to assume during the time we’re looking at right now people might trade down to beer, it makes sense from the stand point of out-of-pocket.”
However, he indicated that it’s a temporary phenomenon, and that once the environment returns to normal, people will go back to trading up from beer to spirits.
HERRADURA. Meanwhile, she said B-F has finished integrating El Jimador brands into the US distribution network and that progress is on track and results are in line with the target.
Phoebe noted that when it comes to Herradura, the company will work on pricing overtime but that sales in the US will determine its mix. She declined to give a timeline, but Paul estimated Herradura sales should pick up in the last two-thirds of the year.
Overall, the company’s brands saw more growth internationally than in the US, with most brands falling behind the 2007 growth rate. Jack Daniels depletions were in the high-single digits internationally, but experienced low-single digit growth in the US. Meanwhile, Soco, Finlandia and the company’s premium and super-premium portfolios followed in a similar pattern, with Canadian Mist once against seeing declines.
What’s to blame? Well, according to the company, a lot of things. B-F cited the economy, brand price hikes and a general downslide in the distilled spirits industry.
TROUBLE FOR SPIRITS? Phoebe Wood, cfo, remarked that several US retailers “have highlighted a softening consumer environment in their recent earnings announcement,” due to declining home prices, higher gas prices and a volatile stock market. These components, she said, have likely “shook consumer confidence” when it comes to shopping for spirits.
“While our results don’t reflect a significant weakening in the trading environment of distilled spirits domestically, we’re cautious like virtually everyone else doing business in the US today regarding our outlook,” she continued.
In regards to the overall US distilled spirits environment, chief Paul Varga said he thought share was down as much as a point and a half versus 12 months ago, with volume was up only 3%. The biggest problem, he said, came from the value segment.
The premium segment “generates business from a pretty narrow demographic and a pretty small base, so I think that will continue to grow in the 15% to 20%...it’s the larger volume you tend to focus on in these tighter disposable income times.”
“High end holds up pretty well in this arena mainly because it’s a narrow demographic and socio economic group that gets pinched less from higher gas prices, ect.”
In an interesting note, Paul said that California in particular is suffering from the current disposable income pinch.
SOCO AND JACK. Both Soco and Jack saw a slowing growth rate in the US during the first quarter, which Paul blames on price hikes and a lack of disposable income.
When it comes to Soco, Paul said that recent price increases are partly responsible, particularly in Soco’s largest 1.75ml size, which is also its value size.
“We’ve been doing a lot more on our largest size and that’s the value size...when the prices are going up some of them [consumers] will leave you.”
Jack is also hurting from a combination of the distilled spirits dip, said Paul, and its overall brand image.
“I do think Jack is a unique brand in the US distilled spirits market...Its one of only a couple brands in the entire industry in the US that has above a $20 price point in the 750ml size and has several million cases. It’s difficult for brands of that price to sell even 1 million cases, not to mention 5 million.”
As a result of the “pinch going on right now in disposable income,” consumers are opting for a less expensive beverage.
However, Paul said the company will continue implementing moderate price increases, with brands such as Canadian Mist and Soco undergoing a current price repositioning.
BACK TO BEER. Paul seems to think that it makes sense for consumers to turn back to beer in these hard times.
“It’s logical to assume during the time we’re looking at right now people might trade down to beer, it makes sense from the stand point of out-of-pocket.”
However, he indicated that it’s a temporary phenomenon, and that once the environment returns to normal, people will go back to trading up from beer to spirits.
HERRADURA. Meanwhile, she said B-F has finished integrating El Jimador brands into the US distribution network and that progress is on track and results are in line with the target.
Phoebe noted that when it comes to Herradura, the company will work on pricing overtime but that sales in the US will determine its mix. She declined to give a timeline, but Paul estimated Herradura sales should pick up in the last two-thirds of the year.
posted at 1:04 PM
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