Discus Optimistic about 2008
Industry insiders have warned for months now that the rate of spirits growth is on the decline. Amidst an economic slowdown and rumors of a recession, consumers are more likely to stay home. But the question remains: will a recession encourage consumers to drink (much) less and trade down from the high end brands they have enjoyed so much in recent years? Discus says no.
In the trade group’s annual review and forecast, Discus president and CEO Peter Cressy opened the conference by saying, “market share continues to grow, however small, but continues to move in the right direction.”
In 2007, the industry gained market share from 33% in 2006 to 33.1% in 2007. Spirits has gained 4.4 points since 2001, worth $2.4 billion. Peter noted that market share growth slowed a little in 2007 in comparison to wine but not to beer which lost share for the sixth year in a row. In 2006, wine’s market share stood at 16.5%, according to Discus, and beer’s market share was at 50.5%. In 2007, wine held 16.8% of market share and beer held 50.1%. In all, wine had biggest share gain in 2007. Beer lost a little bit and spirits were somewhere in the middle.
Supplier revenues were up 5.6% in 2007. The industry has experienced an average annual growth rate of 6.5% since 2000. Spirits volumes grew 2.4% in 2007, with a 2.9% average annual growth since 2000.
The cocktail culture gained strength in 2007, said Discus, and lives on with help from the media and consumer fascination with “romancing” the role of spirits in history. Trading up trends continued to build momentum, with growing interest in Scotch, Bourbon, Cognac and Tequila. Several morning shows featured stories on the cocktail culture in 2007, along with the NYC spirits auction, participation in NASCAR and increased spirits marketing on TV. Peter noted that marketing continues with more TV expansion, including ESPN jumping aboard, and more regional broadcast contracts around the U.S.
Discus says it will continue to hold the line on new hospitality taxes and fight for new ways to gain market access. “Nothing’s been clearer than our effort on Sunday sales,” said Peter.
He also noted that Discus is “working very hard on nutritional labeling.” The trade group believes it is “very important” to have a clear serving facts panel that reveals the serving size of wine, beer and spirits.
“Obviously the reality of a softening economy will create new challenges in 2008. With the 75th anniversary of Prohibition repeal coming, it is important that we continue to eliminate archaic and inefficient blue laws and regulations. Improvements in market access have contributed to the industry’s growth,” said Peter.
INDUSTRY FIGURES FOR 2007. David Ozgo, chief economist for Discus, said volumes of value brands were relatively flat in 2007, up 0.3%. Vodka, rum and tequila prompted the majority of growth for value brands. High-end brands grew 4.5% and super-premium brands grew 11.3%. Premium brands were up only 2.2% in volume.
“This is a really good development,” said David. “If we go into a recession, then yes, I do have a concern about trading down.”
In 2006, spirits gained 4.1% in volume and only 2.4% in 2007. David said the loss of volume growth in 2007 is due to 2006 being such a strong year. In scenarios like that, it’s usually guaranteed that the growth trend will ease up the following year, he said.
He noted that the off premise was clearly the growth driver in 2007. On premise saw a weakening “simply because people were not going out.”
SPIRITS CATEGORIES. David also noted the following category figures: vodka, representing 24% of industry sales, saw a 7.65% revenue growth to $4.3 billion; rum, representing 18% of industry sales, saw 8.9% revenue growth to $2.1 billion; tequila, representing 15% of industry sales, saw 10.5% growth to $1.6 billion; and whiskey (Bourbon, Blends, Canadian, Scotch and Irish) representing 29% of industry sales, saw 3.8% growth to $5.2 billion.
In terms of vodka, all price segments gave strong performances: value ($31 million), premium ($60 million), high end ($57 million) and super premium ($155 million).
Super premium rum saw a birth in 2007, growing a whopping 43% in volume to 220,000 cases and generating $29 million in revenue. After seeing what super premium vodka has done for the industry, David asked the audience to imagine what super premium rum could do.
High end tequila volume grew 8.1% and generated $19 million in revenue. Super premium tequila jumped 14.8% in volume and generated $78 million revenue.
Overall whiskey volumes rose 0.8% due to uneven growth. High end and super premium whiskey segments grew 4.4% and 8.1% in volume, respectively, while value and premium brands were down -1.7% and -1.3%. Could this spell trouble for Jack Daniel’s in the U.S.? Whiskey sub-category volume growth is as follows: Irish (19%), Single Malt Scotch (6.7%), Super Premium Bourbon (14.6%) and Super Premium Blended Scotch (24.3%).
FORECAST FOR 2008. David expects to a certain extent there will be less trading up in 2008 due to the slowdown in the economy. He also says pricing is likely to be softer in 2008 as he expects price increases to be reduced by 50%. However, he said the strength of the spirits industry will allow volumes to grow and that trading up will still be a strong trend.
He projects revenue to grow 4.6% to $19 billion and volume will increase 1.9% to 185 million cases in 2008. “Despite the apparent economic downturn, I am confident spirits revenue will grow in 2008,” he said.
“We are anticipating a slowdown and not a recession,” said David during the question and answer portion of the conference. “We’re actually pretty confident. We really do think the cocktail phenomenon is driving tremendous interest.”
He says people will continue trading occasions from beer to spirits, but there will be a “bit of a cap on the premiumization number.”
David pointed out that spirits volumes were still up higher then beer in 2007 despite a decline in on-premise consumption. “Clearly, when you lose a big on premium driver and still beat your competition, it’s still a very good year.”
“People still traded up in 2007...the trading up phenomenon is an underlying trend...even if people can’t go on vacation or sit in a villa overlooking the beach sipping a high end spirits brand you can still sit at home at your desk overlooking the swing set and drink your $40 or $50 bottle of vodka of $50 or $60 bottle of Scotch.”
ABSOLUT CLOSES FIRST ROUND OF BIDDING
The games have finally begun. The Swedish government closed the first round of bids yesterday, said the Wall Street Journal according “to people familiar with the situation.” Pernod said it submitted a nonbinding offer. Two Swedish companies – a joint-venture between private equity firm EQT Partners AB and Investor AB – also made a joint offer. Analysts estimate that Absolut could be valued at $5 billion to $6 billion.
The current turmoil in global financial markets won't affect the sale because Absolut "has such a strong brand," government spokeswoman Mia Widell said according to the WSJ.
The government plans to hold a second round of bidding in about six weeks, which is expected to be completed in the first half of the year.
Spokeswomen for Bacardi and Diageo declined to comment, said the WSJ. A spokesman for Fortune couldn't be reached.
TRUTH SQUADERS, PIPING ALL HANDS. It’s that time of the year, time to take a quick WSD Truth Squad survey. It’s very helpful to us to understand where you stand on a few important issues, and we’ll report the general results in the next couple of weeks. All answers are kept anonymous. Just click here to take the survey: http://tiny.cc/nnda6
STAY TUNED on Monday for coverage of Fortune’s full year result.
Until Monday, Megan
“As a well-spent day brings happy sleep, so life well used brings happy death.”
Leonardo da Vinci
--------- Sell Day Calendar ----------
Today's Sell Day: 18
Sell days this month: 22
Sell days this month last year: 22
This month ends on a: Thur
This month last year ended on a: Wed.
YTD sell days Over/Under: 0
In the trade group’s annual review and forecast, Discus president and CEO Peter Cressy opened the conference by saying, “market share continues to grow, however small, but continues to move in the right direction.”
In 2007, the industry gained market share from 33% in 2006 to 33.1% in 2007. Spirits has gained 4.4 points since 2001, worth $2.4 billion. Peter noted that market share growth slowed a little in 2007 in comparison to wine but not to beer which lost share for the sixth year in a row. In 2006, wine’s market share stood at 16.5%, according to Discus, and beer’s market share was at 50.5%. In 2007, wine held 16.8% of market share and beer held 50.1%. In all, wine had biggest share gain in 2007. Beer lost a little bit and spirits were somewhere in the middle.
Supplier revenues were up 5.6% in 2007. The industry has experienced an average annual growth rate of 6.5% since 2000. Spirits volumes grew 2.4% in 2007, with a 2.9% average annual growth since 2000.
The cocktail culture gained strength in 2007, said Discus, and lives on with help from the media and consumer fascination with “romancing” the role of spirits in history. Trading up trends continued to build momentum, with growing interest in Scotch, Bourbon, Cognac and Tequila. Several morning shows featured stories on the cocktail culture in 2007, along with the NYC spirits auction, participation in NASCAR and increased spirits marketing on TV. Peter noted that marketing continues with more TV expansion, including ESPN jumping aboard, and more regional broadcast contracts around the U.S.
Discus says it will continue to hold the line on new hospitality taxes and fight for new ways to gain market access. “Nothing’s been clearer than our effort on Sunday sales,” said Peter.
He also noted that Discus is “working very hard on nutritional labeling.” The trade group believes it is “very important” to have a clear serving facts panel that reveals the serving size of wine, beer and spirits.
“Obviously the reality of a softening economy will create new challenges in 2008. With the 75th anniversary of Prohibition repeal coming, it is important that we continue to eliminate archaic and inefficient blue laws and regulations. Improvements in market access have contributed to the industry’s growth,” said Peter.
INDUSTRY FIGURES FOR 2007. David Ozgo, chief economist for Discus, said volumes of value brands were relatively flat in 2007, up 0.3%. Vodka, rum and tequila prompted the majority of growth for value brands. High-end brands grew 4.5% and super-premium brands grew 11.3%. Premium brands were up only 2.2% in volume.
“This is a really good development,” said David. “If we go into a recession, then yes, I do have a concern about trading down.”
In 2006, spirits gained 4.1% in volume and only 2.4% in 2007. David said the loss of volume growth in 2007 is due to 2006 being such a strong year. In scenarios like that, it’s usually guaranteed that the growth trend will ease up the following year, he said.
He noted that the off premise was clearly the growth driver in 2007. On premise saw a weakening “simply because people were not going out.”
SPIRITS CATEGORIES. David also noted the following category figures: vodka, representing 24% of industry sales, saw a 7.65% revenue growth to $4.3 billion; rum, representing 18% of industry sales, saw 8.9% revenue growth to $2.1 billion; tequila, representing 15% of industry sales, saw 10.5% growth to $1.6 billion; and whiskey (Bourbon, Blends, Canadian, Scotch and Irish) representing 29% of industry sales, saw 3.8% growth to $5.2 billion.
In terms of vodka, all price segments gave strong performances: value ($31 million), premium ($60 million), high end ($57 million) and super premium ($155 million).
Super premium rum saw a birth in 2007, growing a whopping 43% in volume to 220,000 cases and generating $29 million in revenue. After seeing what super premium vodka has done for the industry, David asked the audience to imagine what super premium rum could do.
High end tequila volume grew 8.1% and generated $19 million in revenue. Super premium tequila jumped 14.8% in volume and generated $78 million revenue.
Overall whiskey volumes rose 0.8% due to uneven growth. High end and super premium whiskey segments grew 4.4% and 8.1% in volume, respectively, while value and premium brands were down -1.7% and -1.3%. Could this spell trouble for Jack Daniel’s in the U.S.? Whiskey sub-category volume growth is as follows: Irish (19%), Single Malt Scotch (6.7%), Super Premium Bourbon (14.6%) and Super Premium Blended Scotch (24.3%).
FORECAST FOR 2008. David expects to a certain extent there will be less trading up in 2008 due to the slowdown in the economy. He also says pricing is likely to be softer in 2008 as he expects price increases to be reduced by 50%. However, he said the strength of the spirits industry will allow volumes to grow and that trading up will still be a strong trend.
He projects revenue to grow 4.6% to $19 billion and volume will increase 1.9% to 185 million cases in 2008. “Despite the apparent economic downturn, I am confident spirits revenue will grow in 2008,” he said.
“We are anticipating a slowdown and not a recession,” said David during the question and answer portion of the conference. “We’re actually pretty confident. We really do think the cocktail phenomenon is driving tremendous interest.”
He says people will continue trading occasions from beer to spirits, but there will be a “bit of a cap on the premiumization number.”
David pointed out that spirits volumes were still up higher then beer in 2007 despite a decline in on-premise consumption. “Clearly, when you lose a big on premium driver and still beat your competition, it’s still a very good year.”
“People still traded up in 2007...the trading up phenomenon is an underlying trend...even if people can’t go on vacation or sit in a villa overlooking the beach sipping a high end spirits brand you can still sit at home at your desk overlooking the swing set and drink your $40 or $50 bottle of vodka of $50 or $60 bottle of Scotch.”
ABSOLUT CLOSES FIRST ROUND OF BIDDING
The games have finally begun. The Swedish government closed the first round of bids yesterday, said the Wall Street Journal according “to people familiar with the situation.” Pernod said it submitted a nonbinding offer. Two Swedish companies – a joint-venture between private equity firm EQT Partners AB and Investor AB – also made a joint offer. Analysts estimate that Absolut could be valued at $5 billion to $6 billion.
The current turmoil in global financial markets won't affect the sale because Absolut "has such a strong brand," government spokeswoman Mia Widell said according to the WSJ.
The government plans to hold a second round of bidding in about six weeks, which is expected to be completed in the first half of the year.
Spokeswomen for Bacardi and Diageo declined to comment, said the WSJ. A spokesman for Fortune couldn't be reached.
TRUTH SQUADERS, PIPING ALL HANDS. It’s that time of the year, time to take a quick WSD Truth Squad survey. It’s very helpful to us to understand where you stand on a few important issues, and we’ll report the general results in the next couple of weeks. All answers are kept anonymous. Just click here to take the survey: http://tiny.cc/nnda6
STAY TUNED on Monday for coverage of Fortune’s full year result.
Until Monday, Megan
“As a well-spent day brings happy sleep, so life well used brings happy death.”
Leonardo da Vinci
--------- Sell Day Calendar ----------
Today's Sell Day: 18
Sell days this month: 22
Sell days this month last year: 22
This month ends on a: Thur
This month last year ended on a: Wed.
YTD sell days Over/Under: 0
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