State of the spirts industry (Part 2)

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NEW YORK, NY -- One of the bright spots in a slow year for the spirits industry is the "premiumization" of the field.

"Premiumization continues," with many consumers "trading around, not trading down," Peter Cressy, CEO of the Distilled Spirits Council of the United States (DISCUS), said yesterday at the industry organization's annual review for media and analysts at the New York Yacht Club.

He cited growth in premium rums, high-end premium and super premium American, Canadian and Irish whiskeys, and super premium tequilas. He also noted continued growth in the largest category of sales, vodka, which accounts for about 24% of all spirits sales.

My question for Cressy (right) was, given that this is not an industry that makes quick, sharp turns in different product directions, how does DISCUS view the near-term health of what I see as an industry push toward super premium priced spirits? Will distillers pull back from that push, given the way consumers are cutting back in so many other aspects of discretionary spending.

"Well, it's difficult to speak for the industry in the aggregate," he said, "and premiumization has slowed, but it still continues. We no whave three categories for that -- premium, high end premium and super premium. Even though the economy was weak in 2008, we still saw some increases in sales in those niches, so I suspect many distillers will continue considering them as a strong option."

In the overall distilled spirits industry, 2008 showed growth, albeit slower than in 2007, in spirits sales, with revenue growth of 2.8%, or $18.7 billion, and volume growth of 1.6% to 184 million cases. That is well off the average annual industry growth rate of 6% since 2000.

In his remarks, Cressy cited several key factors in the industry's recession resiliency, One of them was "the continuing fascination with the cocktail culture and spirits premiumization."

From my own perspective, spirits in the premium, high end premium and super premium niches are getting a major share of industry advertising and marketoing efforts. Part of that stems from the perceived profit margin such products offer, but part of it also stems from stiffer penalties for drinking in driving in virtually every state. Consumers may be drinking less in volume, but they are spending their money on better quality offerings.

In addition, the graying of America is making its influence felt. As the population ages, more people reach legal drinking age.. And, many of those who have been legal consumers longer tend to move toward pricier labels as their tastes mature and they experience more possibilities.

As the chart above shows, even when some pricier niches falter a bit overall, some of the super premium niches continue experiencing double-digit growth. Thus, it stands to reason that in an industry that must plan years ahead to allow for maturation of much of its inventory, the outlook is for continued creation of the highest-priced expressions.

DISCUS is the national trade association representing America’s leading distillers and nearly 80% of all distilled spirits brands sold in this country. It also serves as the distillers’ voice on policy and legislative issues in Washington, DC, and state and foreign capitals.

Cressy became DISCUS president and CEO in 1999 after a career in the military and in academe. He is a retired U.S. Navy rear admiral and for six years was chancellor of the University of Massachusetts Dartmouth. He also was president for two years of the Massachusetts Maritime Academy as well as numerous teaching assignments.

He is a graduate of Yale University, has a master's in international affairs from George Washington University, an MBA from the University of Rhode Island, and a doctorate in education from the University of San Francisco.

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