Spirits Remain Inconsistent in the Summer

FILED SEPTEMBER 1, 2009

Dear Client:

Irish writer Jonathan Swift was right when he said: “There is nothing constant in this world but inconsistency.” That is certainly what we’re seeing in spirits sales in the 12 weeks to September 6 which spans almost all the summer months, according to IRI food and drug scan data. Spirits sales including prepared cocktails were rather soft but still posted dollar sales gains of 0.7%, while volume rose 0.4%. Depending on the category and price, each label seemed to be doing its own thing.

SCOTCH, CORDIALS AND PREPARED COCKTAILS POST DECLINES. Prepared cocktails, though, were one of the biggest losers in the period with sales down -4.6% and volume declining -5.7%. Scotch also did poorly, with sales down -4% and volume declining -6.7%. Could boycotts of Scotch stemming from the Lockerbie bomber contributed to these declines? It’s possible that Scotch could have taken a nosedive after August 20 when he was released, particularly since 4-week sales are also down in the mid-single digits. Another factor could be that Scotch producers took an average price increase per case of $4.90 from the same period last year.

Cordials were right up there with Scotch and prepared cocktails, with sales dropping -4.2% and volumes down -4.6%.

TRUSTED THREE AND IRISH WHISKEY BRING GROWTH. As usual, vodka performed the best out of the more seasoned categories, gaining a little over a share point in both dollar sales and volume. Share was flat for tequila and rum, but dollar sales grew 0.7% and 0.3%, respectively, while volume rose 3.1% and 0.8%, respectively. The jump in volume for tequila could be attributed to price cuts. According to IRI, the average price per case declined $4.61 in the period.

Irish whiskey posted double digit gains again, with dollar sales up 19.5% and volume up 18.6%, while shares were flat. North American whiskey grew 0.6% in sales and declined -1.3% in volume. Average prices were up $2.44 a case, which could have contributed to the decline in volume.

CONSUMERS STICK TO MID-LEVEL BRANDS. Ultra-premium spirits brands that fall in the $23+ range dropped off -3.1% in dollar sales and -3.9% in volume. Similarly, value spirits priced below $6 declined -0.2% in sales and -2.7% in volume, which suggests that consumers are not trading all the way down. Rather, they are stopping at the middle of the spectrum with brands in the $6-$23 price range. Strangely enough, luxury spirits priced above $50 are holding their own with sales up 15% from the same period last year and volume up 29%. This could be that companies are offering consumers great deals since pricing was down almost $91 a case on average. Super-premium spirits ($17-$23) dropped prices $2.80 a case, while ultra-premium spirits ($23+) increased prices by $3.19.

However, things get a little trickier once you get more specific. By scanning the data we noted some not-so-consistent trends among categories. Ultra-premium vodka ($22-$40 per 750ml) is declining in mid-single digits while other vodka price categories are up. Popular tequila ($10-$13), however, is down while the rest of the categories are posting growth. Interestingly, tequila producers took average price cuts all the price categories, most notable super-premium ($20-$40) and luxury tequila ($60+). Ultra-premium rum, which not too long ago was posting impressive growth, is now down along with super-premium, luxury and premium rums. Popular and value rums are posting the most growth in that category.

Premium gin ($9-$15) and luxury gin ($50+) are producing solid numbers in that category, perhaps due to almost an almost $20 price and $24 price decrease, respectively, per average case. North American whiskey showed growth in both dollar value and volume in super-premiums ($15-$22) but declined in ultra-premium ($22-$50) and premium whiskey ($10-$15).

Sit tight, we’ll take a look at the brands tomorrow...

WJ DEUTSCH APPOINTS FORMER TERLATO EXEC AS NEW PRESIDENT

W.J. Deutsch & Sons has appointed Tom Steffanci as their new president. Recall that Tom most recently served as coo of Terlato Wines International. He will report directly to chief Peter Deutsch and replaces outgoing president Jim Mello, who will retire but remain on the board of directors.

Over the past three years as coo of Terlato, Steffanci increased revenue by over 25% at their fine wine division through a strategic reorganization of the company and its business practices.

"Tom's vast experience in every function of the drinks industry including production, sales, marketing, distributor management, and business and financial planning, make him the ideal choice to lead our company to even greater success," said Peter Deutsch. "His ability to simultaneously increase revenue and build brand equity, coupled with his proficiency at internal and distributor management make him a great asset to W.J. Deutsch."

James, meanwhile, has been with W.J. Deutsch for 30+ plus years. According to the company he added over $20 million in revenue, and oversaw the additions of the Ascentia U.S. portfolio, the Spanish Zamora portfolio, the new Spirits Division and Yellow Tail.

RESTAURANTS CUT COCKTAIL PRICES WITH HOPES OF DRAWING IN CONSUMERS

WSJ published an interesting article on restaurants dropping prices on their cocktails as much as $1.25. Some establishments are offering happy hour deals similar to Haru Sushi’s Scorpion punch (a mix of vodka, sake and Soco) and charging $7 for a bowl that serves four. Other restaurants, meanwhile, are mixing their drinks with cheaper spirits, hoping to maintain margins. We’ve certainly seen signs of this in our hometown of San Antonio: restaurants offering great deals on meals and drinks, along with extended happy hours. On a positive note, this could help wholesalers and producers by sparking sales, but could cheapen the image of the brand if it’s priced too low.

According to Technomic Inc., beer, wine and spirits constitute about 10%-15% of total sales for casual dining chains, and 20%-30% for fine dining restaurants. Drinks are relatively cheaper and less time consuming to prepare than food so profit margins are higher. Unfortunately, consumers are trying to save money by one, not dining out at all, or two, skipping out on alcoholic drinks.

Are the days of expensive cocktails over? Skyy Spirits chief Gerry Ruvo thinks that might be the case. He was quoted in the article saying, "The $15 cocktail might be a thing of the past." Interesting indeed. Speaking of Gerry, we conducted an interview with him this afternoon so tune in next week to see what he says about Skyy Infusions and Wild Turkey, the on-premise and distributor consolidation...

WSD BRIEFS:

FOSTER’S GROUP SOLD ITS FIRST MAJOR VINEYARD ASSET on the market to the original owner, Bob Oatley, who sold the 862 hectare Cumbandry vineyard to the company 4 years ago. Further details of the sell were undisclosed. Recall that following its 8 month wine review, Foster’s announced plans to sell 33 wine properties in Australia, where there are already a lot of vineyard assets on the block.

FOSTER’S APPOINTS NEW CLO. Foster’s has appointed Paul Conroy to the role of chief legal officer and company secretary. "Paul has acted in this capacity since June 30 and I am delighted to confirm his appointment on a permanent basis," said chief Ian Johnston.

FRENCH WINE CONSOLIDATIONS. Last week it was announced that France’s Jeanjean will absorb Laroche along with its net debt of 28 million euros. Today, Boisset confirmed it has purchased Antonin Rodet from Sequana for an undisclosed price.


Until tomorrow, Megan

“We don't see things as they are, we see things as we are.”
Anais Nin


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