Wine and Craft Beer now in Direct Competition


Dear Client:

There is many an industry expert out there that has noted the similarities in the craft beer and wine industries. We know there's some crossover between the two categories, but to what extent are the two competitors? According to a new study out from Frank, Rimerman + Co. (FR+C), a regional accounting and consulting firm for the industry, craft beer has become a direct competitor to the wine market . In fact, craft now represents about $12 billion in the US market, making it roughly the same size as the ultra-premium ($14 plus) segment. In this report, FR+C delves into the similarities and differences between the two categories and how they can learn from each other.

CRAFT AND WINE FLAVORFUL ALTERNATIVE: The beer category is largely dominated by two companies (Anheuser-Busch Inbev and MillerCoors) and lager style beer, which usually lacks in both flavor and story. The four largest lagers represent over 44% of the category's volumes. FR+C claims both craft beer and wine offer a flavorful alternative to "big lager," as they share many of the same consumers and "are both part of the growing movement in America of premium, authentic and flavorful food and beverages."

WINE GETS A 15-YEAR HEAD START: Currently, both the number of wineries and craft breweries are growing steadily. The number of wineries began to grow at a steady rate beginning in the 1970's, while craft beer didn't really take off until 1985 and subsequently went through a downturn in the '90s. So the craft beer industry is essentially on a parallel track with wine, just 15 years behind, claims FR+C.

FR+C writes that if the evolution of wine is any indicator of where the beer industry is headed, premium "flavorful" (i.e. craft) beer could gain a much greater share of the beer market than they have now. This is significant because wine is highly fragmented with about five large wine companies holding a significant share of the market, compared to beer's two. Could the beer category eventually look more like wine? It's possible, according to FR+C, who believes the craft beer market will eventually double in size.

SKU PROLIFERATION NOT LIKELY TO AFFECT DEMAND: The beer industry often refers to the proliferation of (namely craft beer) SKUs at retail as a problem, but the number of wine SKUs makes beer SKUs look like small potatoes. FR+C estimated that there are six times as many wine SKUs as beer SKUs distributed in retail channels. Though that estimate does not include the number of beer SKUs in production, nor the wineries that sell only direct-to-consumers. "The continued introduction of new brands has not had a negative impact on consumer demand for wine," writes FR+C. "We expect the demand for craft beer will continue to grow, supporting the growth in breweries and craft and 'crafty' beer SKUs." But the consulting firm does acknowledge that the growth in number of SKUs may put pressure on craft breweries to develop direct-to-consumer channels.

While craft beer consumers embrace a variety of different formats including: four packs, 22 ounce and 750 ml bottles, and 16 ounce cans, all of which have their respective occasions. Wine, on the other hand, doesn't have the same packaging flexibility. "The 750mL provides a cold, hard standard by which consumers easily compare pricing between wines," writs FR+C. Though we would contend that wine consumers are now more accepting of non-traditional packaging than ever before. Both Tetra Paks and the 3-liter box offerings are doing quite well. So while craft beer may have the advantage for now, we think wine could eventually give it a run for its money in this department.

Success in the wine industry is no longer about just making good wine. As FR+C puts it good wine is "just the price of admission" to the market. Brands live or die by their marketing and distribution methods. With that said, the wine industry is very familiar with the "hand-sell" method often used by sommeliers, servers or a knowledgeable liquor store sales person etc. to help a consumer choose wine based on occasion or preference. It's a method that will "likely become increasingly important in craft beer as well," writes FR+C. That begs the question, will on-premise establishments have both a sommelier and its beer equivalent, the cicerone, or will we see more people having both titles?

"Despite growing competition, it is our belief that craft beer and wine will both thrive in the coming decade and both will take market share from the large domestic lager brands. Although they are fundamentally different in important ways, we also believe craft brewers can learn from the experience of the wine industry, and in turn, wineries can learn from the dynamic changes taking place in the beer industry, craft beer in particular," writes FR+C.

This is an interesting topic we'd love to hear more thoughts on. If you have any you'd like to share, email me at


Following a strong 8.2% organic sales increase in Campari's first half results, sales growth for the nine months ended September 30 were up 3.7% in the US. Although Campari did not divulge third quarter results for the US, overall sales for the Americas region was down 1.2%.

The big news this morning is that the company has gained the distribution rights for super premium, independent Bulldog London Dry Gin. Beginning in 2014, Campari will distribute the 60,000-case brand in both duty-free markets and most of the markets where they have their own marketing and sales organization.

"For us, the rationale is quite straightforward. [Bulldog] will enable us to become a key player in this attractive new segment of super premium gin." said Campari chief Bob Kunze-Concewitz in the earnings call. "It will complete our portfolio and will enable us to really offer consumers the ultimate Negroni cocktail with Campari with a new upcoming red vermouth by Cinzano as well as Bulldog gin. Last but not least, it continues premiumizing our brand portfolio as well as increasing our relevance in the on-premise."

Campari has also agreed on an option to acquire the Bulldog's assets by 2020. For further reading on Bulldog, see our recent interview with founder Anshuman Vohra here: WSD 06-14-2012.

As for the company's leading brands, Wild Turkey was up 15.4% in the US for the nine months largely in line with the category. "We're still not outperforming the market. But we're building momentum from month-to-month," said Bob. Innovations like Wild Turkey Spiced and Wild Turkey Forgiven introduced in the third quarter are helping to increase the momentum, along with the brand's largest ever campaign with the #Nevertamed tagline. Wild Turkey Forgiven, which you'll recall is a bourbon-rye blend, hit the market as a limited edition, but Bob says they're considering making it a permanent SKU.

Albeit on a smaller scale, Campari liqueur is also doing very well. It's US sales were up nearly 18% for the nine months.

Campari's biggest brand in the US, Skyy vodka was flat for the nine months and negative for the quarter, compared to 3.4% growth in the first half. Bob attributed its performance to shipment phasing. Though he claims Skyy is slightly outperforming its competitors. "We are probably doing better on a volume standpoint and a little bit less on a value standpoint because of the mix on the core brand. Like many of its competitors, Campari doesn't see much room for pricing in vodka, but they are increasing price on whiskey and tequila.

You'll also recall Campari acquired the Appleton Estate rum range a year ago (see WSD 09-04-2012). Over the past year they've spent some time repositioning the brand (increasing pricing), which caused its growth to slow a bit. But in September and October it began to move in the right direction again, said Bob.

Due to the sluggish performance of the on-premise in the third quarter, the company's US performance was not as high as they initially expect. "But overall, especially compared to all other key markets in the industry, the US is in good shape, and there's good momentum behind brown spirits, the bourbons, the dark rums, as well as tequila," said Campari cfo. Paolo Rinaldo Marchesini.


Total Wine & More has never been shy about the fact that they like to participate in the politics of any market they enter, which occasionally lands them in the courtroom. Recall our report on their lawsuit in Texas ( see WSD 09-23-2013 ). This strategy has backfired in Bloomington, Minnesota, where Total Wine was scheduled to open its first store there on December 5. The city council in Bloomington has delayed a vote on the chain's liquor license after it received a stack of Total Wine-related court cases in other states, reports the Star Tribune. "It's a massive amount of data," says Bloomington City Attorney Sandra Johnson, "but we have to review it before we can grant a license."

Just as in Texas, Total Wine attributes the delay to anti-competition from other retailers. "[Other retailers] hate our low prices and fanatic adherence to providing incredible service to our customers," says Ed Cooper, vp of public affairs and community relations for Total Wine. He added that many of the other lawsuits are also attempts to prohibit Total Wine from offering such low prices.

The city council will now vote on the chain's liquor license on December 16, which will make it hard pressed to get the store open by the end of the year.


AFTER AN ANEMIC THIRD QUARTER, the restaurant industry has shown some signs of improvement in the 4 weeks to November 3. Traffic was down around 2% in the third quarter, but improved to a 1.3% decline in the 4 weeks, according to data from GuestMetrics. This represents the best figure for overall traffic since August. As for alcohol, volumes were down around 3% for the 4 weeks, which is actually an improvement over the 3.7% decline in the third quarter. Volumes were still in negative territory for each alcoholic beverage category, but each delivered a slight improvement. Spirits volumes were down 2.4%, an improvement from the 3.1% decline in the quarter, while wine volumes were down 0.4%, compared to the 1.3% decline in the quarter.

BROWN-FORMAN IS ROLLING OUT ITS limited edition Sinatra Select expression of Jack Daniel's -- previously only available in duty free retailers and Tennessee-- to more select US cities and states this year. The ultra-premium edition celebrates the relationship between crooner Frank Sinatra and Jack Daniel's. The box and bottle set will be available in Chicago, Las Vegas, Los Angeles, Miami, New York City, San Francisco, New Jersey and Tennessee, between now and the end of the year for a suggested retail price of $165.

Until tomorrow, Emily

"Never interrupt your enemy when he is making a mistake."
-- Napoleon Bonaparte

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