A Closer Look at Holiday Promotions

FILED DECEMBER 1, 2009

Dear Client:

In response to our newsletter yesterday, several readers gave other suggestions for why $20+ wines grew especially strong in October based on IRI scan data. For one, comparisons were pretty easy. October 2008 is when the economy bottomed out and luxury wine sales took a nosedive that continued through the rest of the holiday season. In October 2008, $20+ wines saw dollar sales decline -6.3% and volume drop -6.2%, based on IRI scan data in food and drugstores. Wowsa. And just for fun we looked at October 2007. Dollar sales of $20+ wines gained 3.6% and volumes were up 2.4%. The same period in 2009 saw dollar sales rise 16.8% and volume grow 21%.

It may also mean that the $50 bottle of wine was discounted and sold in the ballpark of $25, causing the high-end wine category to appear as though it’s recovering with producers still feeling the pain. UBS supports this claim in a recent note, saying "price/mix is deteriorating on increased promotional activity." We’ve heard that retailers in California, for example, are offering an additional 10% discount on purchases of 4 or 6 bottles that are already deeply discounted. The spirits industry is facing the same predicament. To battle on-premise softness, the spirits business is focusing much more heavily off-premise and launching innovative products and packaging.

“We’ve seen lots of heavy discounting on premium brands for spirits and wine, with deep coupon amounts on spirits. High-end wineries’ main goal seems to be unloading inventory as the new harvest moves into the system. Retailers are finally starting to accept that consumers aren’t going to purchase like in past years,” one distributor exec told us.

The million dollar question is, will consumers accept price mark-ups once the economy rebounds? My colleague at Beer Business Daily, Harry Schuhmacher, points out that the beer industry has used the “promotional” tactic for years now. He compares it to a drug, claiming its hard stop once you start:

“Now, as unemployment deepens, they've learned to hit the price button, that last bastion of beer industry marketplace tactics. And like a drug addict they've learned, as we once did, that they have to hit the button more often and harder each time to get the same effect. Ironically, as brewers have been weaning themselves off of the discount drug, spirits companies are getting more hooked. As the pie has gotten smaller for everyone, turf battles ensue, and pricing is a relatively new weapon the high octane guys are utilizing.”

Thoughts? Let us know at megan@beernet.com.

WASHINGTON LIQUOR BOARD BANS REFERENCES TO ENERGY DRINK COCKTAILS IN STATE STORES

The Washington State Liquor Control Board has approved a new policy that prohibits any references to combining energy drinks with alcohol on point-of-sale materials in its states stores, including but not limited to bottle labels, back-cards, bottle neckers, shelf talkers, posters, displays, unique displays, price signs, recipe cards, and rebates.

In a statement, the Board acknowledged that “there is an emerging consensus among scientists and medical professionals that the combination of energy drinks and alcohol is not safe, and poses a potentially serious public health risk.” Suppliers and brokers are responsible to ensure their compliance by January 1, 2010.

They proposed the policy in mid October and requested stakeholder and public comments through October 20, 2009. On October 28, 2009 the Board considered the two written comments received, and voted to approve the policy.

WSD BRIEFS:

A SURVEY OF CHEFS belonging to the American Culinary Federation say locally produced beer and wine is the fifth most popular trend on restaurant menus in 2010, according to the National Restaurant Association (NRA). Culinary cocktails and artisan spirits both rank in the top 20. Other alcohol trends expected in restaurants next year include organic beer/wine/spirits, food-beer pairings, craft beer, bar chefs/mixologists, gluten-free beer, specialty beer, and organic cocktails.

BACARDI LIMITED has achieved the “Triple Crown” certification for its production facilities worldwide by meeting the standards for quality, environment, and health and safety. Bacardi is the only major spirits company to achieve certification under ISO 9001, ISO 14001 and OHSAS 18001 for all its production facilities globally, says the company.

A COOPERAGE OWNED BY J. WRAY AND NEPHEW caught on fire this week in Jamaica. Luckily the warehouse only contained empty rum barrels and there were no reports of injury. The fire eventually spread to another section of the Wray and Nephew complex but spirits inventories were not hurt. The cause of the fire remains a mystery.


Until tomorrow, Megan

“The love of truth lies at the root of much humor.”
Robertson Davies

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