Spirits Not That Strong in the Face of Recession

Once Scorching-Hot Brands Are Experiencing Pronounced Slowdowns as Consumers Shift to Bottom-Shelf Booze

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CHICAGO (AdAge.com) -- Spirits sales are said to be recession-proof, but recent data suggest that the slowing economy is beginning to take its toll on the trading-up trend that has helped fuel the category's growth over the past decade.

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Source: Nielsen
"There is evidence ... that the weaker U.S. economy has impacted spirits," Citi Investment Research analyst Philip Morrisey wrote in a recent report. "We expect it to get worse before it gets better."

Indeed, growth of superpremium brands is slowing while bottom-shelf brands are picking up, according to data from AC Nielsen. Among the once scorching-hot brands now experiencing pronounced slowdowns are Grey Goose vodka, Johnnie Walker Scotch whisky, Hennessy cognac and Patrón tequila.

Analysts said consumers simply aren't going out as much, which is fueling slowing or declining sales in bars and restaurants. That shift hurts spirits marketers twofold: first, because retail shoppers, who tend to drink at home, are less likely to trade up to a flashier brand than someone enjoying a night out, and, second, drinkers who do still head out are less likely to be influenced by marketing efforts in bars and restaurants, where companies are increasingly putting their focus, rather than traditional media.

"When people are going out, they'll still buy these aspirational luxury brands," said John McDonnell*, chief operating officer of Patrón Spirits Co. "But in a store, it's a bit different, and you do see the lower end growing."

Relative slowdown
Mr. McDonnell said Patrón's slowdown was only relative to its remarkable growth. The brand is now growing in the low- to mid-double digits, down from the solidly mid- to high-double-digit range it was posting a little more than a year ago. He attributes the resilience to a cable-TV-heavy media campaign that has reduced emphasis on bars and restaurants.

Executives at Brown-Forman -- maker of Southern Comfort and Jack Daniel's -- said earlier this year they intend to shift resources to in-store display to capitalize on consumers' going out less and being more concerned with value.

But not everyone agrees the trend is widespread. Executives at Fortune Brands, parent of Beam Global Spirits & Wine, said in April they didn't see any trading down outside of the most housing-depressed markets, such as Florida and California. "Our basic research says the cocktail is still an affordable luxury," said Fortune CEO Bruce Carbonari. "People aren't willing to give that up."

That case got a boost last week, when a Nielsen poll of 3,500 consumers found 80% were spending the same amount on alcohol as they did last year.

Richard Hurst, Nielsen's senior VP-beverage alcohol, said spirits were perhaps more recession-resistant than recession-proof, able to grow through a downturn but subject to trading down.

What's less clear is whether the full impact of that has been felt. "Spirits and wine drinkers tend to have higher incomes," he said. "And higher-income groups tend to get hit last."

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CORRECTION: In an earlier version of this story, the chief operating officer of the Patron Spirits Co.'s name was misspelled.
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