Expectations Low this Holiday Season

FILED SEPTEMBER 1, 2009

Dear Client:

It’s only mid-September but the holidays are already on everyone’s minds, looming in the not-so-distant future. Will the industry be able to make up for lost sales in October, November and December (OND) or will they see declines? A large chunk of sales are made that time of year so it’s no wonder that the industry is apprehensive or eager, depending on your perspective, though most of our respondents seem like they would be happy with flat “growth.”

It’s all about price this holiday season. Price wars are practically inevitable and so are fights over shelf space at retail. Suppliers seem to feel good about wine and spirits brands priced below $20, with wine doing especially well in the $10 range. As a result, expect heavy discounts, an increase in coupons and mail-in rebates, and less holiday gift packs. It’s also likely that distributors will further cutback inventory on high-end wines.

Recession weary consumers will likely be slow in dropping cash, so our readers expect a late start in holiday spending. Champagne, cognac and cordials are expected to take a hit, along with the majority of luxury brands (but that’s nothing new). The off-premise will continue to benefit from consumer shifts although some restaurants are already booking holiday parties and corporate gatherings.

Respondents to our “Gauging the Industry” survey had a lot to say when we asked them about the holidays and here’s sample of some that stood out:

Large retailer: “Good, Distributors are dealing. We have had a $4.00 decrease in the price of Jim Beam and $2.00 decreases on Smirnoff and Seagrams gin.”

Wine supplier: “Preparing for the holidays as usual, putting in aggressive pricing and programs to drive displays and consumer interest with our value line and increasing programming on our premium line, looking to drive cases to the floor and to the consumer.”

Spirits supplier: “Competitive pricing and increases in heavy advertising through all consumer vehicles. Prices will show a $1 to $2 decrease vs prior periods and OND LY. Retailers seem to be waiting longer to program in an effort to gain additional dollar supports. Fewer brands are being promoted and focus is primarily against top 5 spirits/wine companies.:

Wine supplier: “We feel bullish about products that we can get out the door <$20 retail. The trick is seeing how low the competition is going. Retailers are now insisting that pricing needs to be rolled back to what we had 3 - 4 years ago if we are going to get any type of share of mind vs. the competition. The days of fattening margins on a regular basis (at least for suppliers) are gone for at least the next 2 - 3 years, IMHO.”

Wine and spirits distributor: “We are on-premise oriented and have reason to believe that there will be a dearth of large, corporate functions. However, our restaurant customers are creatively building business and there is a feeling that smaller parties and other on trade celebrations will make up for some of the loss of corporate spending this year.”

Wine and spirits distributor: “I am anticipating large displays for products such as Svedka, Clan MacGregor, Grants, Three Olives, etc. Probably won't be seeing any wine stackers for $18 or even $15 a bottle...”

Distributor: “We are still struggling to get the mindset of some of our retailers changed to accept that there will continue to be a shift in consumer buying habits even during the holiday season. I expect a very strong holiday season.”

Spirits supplier: “The consumer is already setting budgets for holiday purchasing. The season will start very cautiously, peak in late November, and then slowly fade. Last years’ sales volume will be met, with dollars spent being down 2-5%.”

Distributor: “Preparations have been targeted, concise, and heavily discounted. Each and every year we want to get as much "share" as possible on retailers’ floors, cold boxes, and shelves. The market is saturated with deep discounts, winery direct items, and eye popping margin makers. I expect that this holiday selling season will be equal or less than the sales data we saw during the same months in 2008.”

Wine supplier: “We have a perfect storm set up here in Columbia, SC. The football team has 4 straight home games through to Halloween which brings us right into Thanksgiving and then Christmas. We will do very well.”

Spirits supplier: “Preparations are going well and on track. I expect a pricing blood bath, discounting on major brands will fall to make up for volume. Beam completely missed the pricing model and paid for it dearly with volume continuing to go to Jack Daniel's, Buffalo Trace and the Heaven Hill portfolio. I cannot imagine that Beam will want to end the year down as much as they are.”

Restaurant owner: “Holiday season is somewhat sketchy. With continuing jobs cuts nationwide, I expect the holiday season to be a bit off of last year.”

Small/medium retailer: “Expectations for the 2009 holiday season are good. I think it will be a late start, not getting into full selling until late November, but I think it will be good.”

Distributor: “Gearing up with plenty of Value Added Packs, deeper discounts and lower pricing on wines. We should finish the year strong as we do 35% of yearly business in OND.”

Distributor: “It's tough. We're mostly concerned with getting displays on the floor for a dramatic presence, rather than the quantity of cases.”

Spirits supplier: “To be very competitive, but likely to be an OK selling season as consumer will look towards a nice affordable luxury item to give as a gift. Spirits are a nice fit here. The biggest issue will be, with the consumer going into the Holiday season already weak, do they really pull back in early 2010 after struggling through the Holidays? Americans always spend money during the Holidays!”

Distributor: “I think it is going to be more competitive than ever to obtain floor space in the retail/grocery world. Coming from IL, most stores are jam-packed with product that was allocated to avoid the tax increase that went into effect September 1. Now it is a matter of getting that product out of the backroom and on the floor in order to sell through and sell more. This leaves many important brands behind as a store's space is limited and consumed by the allocated product and all types of other store merchandise. I expect that both suppliers and distributors are going to push champagne and holiday-focused beverages earlier than ever this year in order to avoid under purchasing in high season. We need to secure floor placements NOW and maintain through the holidays.”
Small/medium retailer: “I am totally scared the premium products are dead and I want to have much smaller inventory of gift items.”

Distributor: “I expect lots of heavy discounting on premium brands, both spirits and wine. Deep coupon amounts on spirits. High end wine suppliers have inventory to unload with current harvest ready to move into the system. Steep discounts and free goods deals on pallet buys available from most all high-end wineries.”

Distributor: “Just like normal although there will a lot of price jockeying amongst the different levels of wine pricing. The $7 - 12 range is going to extremely volatile with a lot of brands coming down from the mid to upper teens into this range.”

Restaurant owner: “Somewhat surprisingly, lots of holiday party reservations have been made, with deposits!”

WSD BRIEF:

KOSTA BROWNE OWNERS SOLD a controlling interest to investment equity firm Vincraft for an estimated $40 million, Wine Spectator is reporting. Kosta Browne is located in Sonoma and known for its pinot noirs.


Until tomorrow, Megan

Make visible what, without you, might perhaps never have been seen.
Robert Bresson

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