Homes, Not Bars, Stay Well Tended

Pricey Liquor, Wine Both Increased Sales in 2007, but Beer Share Fell Again

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Source: Discus
CHICAGO ( -- Consumers drank less at bars and restaurants last year, according to the Distilled Spirits Council of the United States, but still took their pricey bottles of Grey Goose and Patrón home with them.

According to the group's annual state-of-the-industry report released last week, total distilled-spirits case sales rose only 2.4% last year, compared with 4.1% a year earlier -- the smallest percentage growth for the industry since 2002. Likewise, total industry revenue rose 5.6%, the smallest annual-growth figure this decade.

The volume and revenue figures were both lower than the industry predicted last January, when it projected volume growth of 3.2% and revenue growth of 6.4%. And Discus is predicting that growth will slow even more -- but not decline -- in 2008.

Flat bar beer
The primary culprit in the underperformance, Discus economist David Ozgo told reporters and analysts, was the absence of growth in bar-and-restaurant consumption, which was basically flat. Off-premise consumption rose, though. "When you lose that big driver but still outgrow your competition, it's obviously a good year," he said.

Mr. Ozgo was half right: Spirits did grow its share of total alcohol consumption to 33.1% from 33%, as beer saw its share decline for the sixth consecutive year, to 50.1% from 50.5%. But wine grew faster than spirits, increasing its share to 16.8% from 16.5%.

Within spirits, virtually all of the growth occurred at the high end of the market. Volume of superpremium brands grew 11.3% last year, while value brands were essentially flat (and down in terms of revenue).

Mr. Ozgo connected the continuing growth of superpremium brands to the struggling economy, saying they were affordable luxury items consumers could cling to even as they cut back on other, pricier splurges. "You can't afford that $4,000 or $5,000 vacation, but, by golly, you can still afford that $40 or $50 bottle of vodka," he said. (However, that same small-splurge theory doesn't appear to be holding up in the cosmetics market.)

Vodka leads way
Looking at individual spirit categories, vodka continues to be the industry's growth engine. It was responsible for 31% of industry revenue growth, as well as nearly a quarter of total industry revenue. Whiskey, meanwhile, was a relative laggard. Scotch, bourbon, Canadian, Irish and blended whiskies account for 29% of spirit sales but grew less than 1% last year.

A potentially happier story line: High-end rums seem to be catching on. Diageo (10 Cane), Moët Hennessy (Oronoco) and others have launched pricier rums in recent years among hefty skepticism that the category could be liberated from the lower-end pirate and parrot brands that have typically defined it. Sales of superpremium rum grew 43% last year, according to the Discus data, and rum itself accounted for 18% of industry revenue growth, more even than the fast-growing tequila category (15%).

Looking ahead to 2008, Discus predicts revenue growth of 4.6% and volume growth of 1.9% -- each lower than in 2007 -- and pricing that's "likely to be softer."
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