Millennial Dining Preferences Shake Up Old Notions

FILED DECEMBER 20, 2012

Dear Client:

As trendy gastropubs, farm-to-market concepts and "foodie" culture in general continue to gain in popularity restaurant groups are beginning to shift their focus from ubiquitous chains to specialty restaurants. Darden Restaurants Inc., for example, says Capital Grille, Seasons 52, Eddie V's, Bahama Breeze and newly acquired Yard House are the brands "being built for today," according to Eugene Lee, Darden's Specialty Restaurant Group leader.


"Millennials are driving the dining trends," Christine Barton, a partner at Boston Consulting Group who heads up its Millennials research, told WSJ. For them, "eating out isn't just for nourishment, it is a social event," which calls for more bar space, communal seating and small plates for sharing, she says. In fact, Millennials go out to eat 3.4 times a week on average while the rest of the population averages in at about 2.8 times a week.

In five to 10 years Darden expects most of its sales growth in the US to come from the aforementioned specialty chains. As of last fiscal year, the group represented 5% of Darden's restaurants, and in comparison generated 37% of its total sales growth for the first quarter of fiscal 2013.

You may recall Darden acquired 40-unit chain Yard House in August. Darden says Yard House has the most potential to attract Millennials and plans to grow the brand up to 200 restaurants. One of the things that separates the specialty restaurant group chains is that they all have a "very high alcohol business" and live entertainment says Eugene, "which can be passed along to other brands in the Darden portfolio."

Darden is likely not the only company you'll see latching onto Millennial-driven trends. As more big restaurant companies try to capture the business of Millennials, "you'll see experimentation through how they evolve their portfolio--divesting in some brands and bringing in new ones," says Christine.

"It has been a while since we've seen this level of shake-up in dining habits, and big chains can't adapt overnight," she added. "I think we will continue to see the march for at least five years."

PERNOD STICKS WITH THE BASICS FOR KEEPING JAMESON ON TOP

Jameson has remained the leading brand in the Irish Whiskey category for some time now with as much as a 76% share. Globally, the brand just hit the 4 million case mark with the US now representing about 1.6 million cases. The brand has delivered 23 consecutive years of growth and the pace of growth is actually still accelerating, Wayne Hartunian, Pernod Ricard's vp of whiskies and Cognac recently told WSD in a sit-down meeting. Here is part one of the interview, as you, dear reader, are a fly on the wall.

WSD: Jameson has been growing double digits for a long time now. What are your plans to keep it the top Irish whiskey in the US?

Wayne Hartunian: If you look at the latest 12 months, versus six months, versus three, our volume growth rate is increasing, so we're doing extremely well. The brand health is just amazing. I'm confident there is a huge amount of upside on this brand and the category.

If you look at whiskey in general, whiskey is on fire in the US. If you look at the brands in total, Jameson is driving more dollar growth than any other brand in the entire whiskey category based on 52-weeks Nielsen through October.

On-premise our business is growing faster than off-premise, so obviously it's a good indicator of the health of a brand in this industry. We still have very strong advocacy with bartenders, which is one of the key things that has organically helped grow the brand for years. We've been able to maintain that and build upon it.

WSD: How do you sustain growth as other players get more competitive in Irish whiskey?

WH: It's just keeping with the basics, which has been a very successful formula for us. Our advertising is key. It's very creative and unique. It looks more like an excerpt from an epic film versus a traditional advertisement. Then also maintaining that advocacy with the trade, with the bartenders. For several years we've continued to evolve our Bartender Ball program, which is important for us. [Editor's note: Bartender Ball is a national program composed of a series of events hosted by Jameson meant to celebrate bartenders.]

On-premise trials are important, that's a piece of it. It's a mix of those things and really staying focused. And because the brand is growing so fast we increase our investment behind our brand every year. It's not just the unique marketing programs, but also the investment increases every year because the company recognized the future potential.

Black Barrel we launched about a year ago in New York. It's doing very well and we're expanding it to more markets. We just launched it within the last month or so in about four or five other markets in the Northeast. it's a trade up from Jameson and it's really geared toward our advocates, be it bartenders or consumers. It retails for about $35 for a 750 ml.

WSD: Is the brand headed for a nationwide rollout?

WH: It probably eventually will. I can't tell you exactly when though.

WSD: Does the bulk of Jameson's growth continue to come from the coasts? Is it picking up in the Midwest and the South?

It's pretty much everywhere. Even in markets where we don't support the brand it's growing. There's a lot of organic growth that's driving it. It's not just commercially driven growth. In a lot of markets down South, in small markets even, where we don't support it at all, it does extremely well.

WSD: How is Cognac doing in the US and what is Pernod doing to compete?

WH: Cognac is faring best in the major metropolitan areas on both US coasts, and that's where we are concentrating our efforts with Martell. While Martell is not as big a brand in the US as others in our portfolio, we have some profitable opportunities, particularly in California, which is our primary focus. However, it's certainly fair to say that the Far East is much more of a priority market for the industry and Pernod Ricard when it comes to cognac.

KDM GLOBAL PARTNERS PROMOTES ALTERNATIVE DISTRIBUTION THROUGH DTC

Sales of wine shipped direct-to-consumer broke records this fall and hit nearly a quarter-billion dollars in value. In October the $222 million in sales set a record and then was subsequently broken by sales of $224 million in November, according to the ShipCompliant/Wine&Vines model. November sales represented a 12% increase in value and a 13% increase by volume.

Although a very small part of the industry, DTC sales continue to grow every year. You may recall our report that KDM Global Partners private label firm had entered the DTC space. This week KDM released a letter to clients on why DTC is opening new doors for wine brands and we think it represents the way an increasing number of industry players are beginning to think.

MARKET ACCESS: KDM says, before DTC, wine brands did not have access to a retail shelf unless a distributor or wholesaler took on the product. "And, as large wholesalers consolidate their businesses nationwide, their power over the market access has grown to the point where the wholesalers (and the heavily-promoted 'national' brands) act as gatekeepers and 'shelf sheriffs' at most large retail chains."

DTC offers a more "democratic (and efficient)" market solution for these brands because it enables "a more diverse and properly-priced array of wine products to reach the market," according to KDM.

However we should note, KDM is clear to say the rapid rise of DTC does not signal the beginning of the end for the three-tier distribution system. "To the contrary, store sales and on-premise sales remain strong and will not go away."

"What DTC offers is an alternative distribution avenue that, overall, works to the benefit of the brand - and even helps to buttress store sales. Customers will continue to use the Web, even while they are using bricks-and-mortar stores for their purchases."

WSD BRIEFS:

TRINCHERO LAUNCHING NEW BRAND. On January 1 Trinchero Family Estates will be adding new brand Echo Bay to its portfolio of more than 30 brands. Echo Bay's first vintage will be a 2012 New Zealand sauvignon blanc. New Zealand wines are up 24% with sauvignon blanc as the No. 1 varietal from the country, per Nielsen. The suggested retail price for the new brand is $13.

DEUTSCH REVAMPS CIGAR ZIN. Deutsch Family Wine & Spirits is partnering with Sonoma's Vintage Wine Estates to relaunch Cigar Zin in the premium California zinfandel segment. Available nationwide in January, the brand has received new packaging and a new marketing campaign with taglines like "You're gonna need a bigger steak." The marketing campaign will be supported with in-store point-of-sale and grassroots sampling. Suggested retail price for the brand is $18.

VIRGINIA SALES BREAK RECORDS IN 2012. For the 14 th consecutive year, Virginia hit record-breaking sales of spirits, wine and beer. In its annual report, the Virginia Department of Alcohol Beverage Control highlighted sales of $734 million - a $41 million increase from 2011. The ABC contributed the growth in sales to allowing Sunday sales and a recovering economy. Jack Daniel's 7 Black, Smirnoff 80,Grey Goose Jim Beam and Crown Royal were the five best-selling brands.

CLOS DU VAL LOSES WINEMAKER. Head winemaker John Clews will be departing and his role will be filled by one of Clos Du Val's other winemakers Kristy Melton. "While it's never easy to bid farewell to a longstanding member of the GWE family, we are fortunate to have Kristy on-board to continue the important work she has started at Clos Du Val," commented ceo, Adam Torpy.

Until tomorrow, Emily

"You can't use up creativity. The more you use the more you have."
- Maya Angelou

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