The State of the Spirits Business

What’s behind the continuing growth of liquor?

Last week the Distilled Spirits Council of the US (DISCUS) presented its 2014 Market Report, which indicated that discus_logospirits (liquor) sales were up 4% to $23.1 billion and volume grew 2.2% to 210 million cases.

In addition, market share versus beer increased for the fifth year in a row. Overall, spirits sales share went up 6.4 points since 2000 to over 35% of revenue. Most interesting to me, supplier revenue in 2014 just about doubled from 2000. Sales went from $11.7 to $23.1 billion.

The DISCUS release went on to report a number of factors contributing to the industry growth, all of which make sense. However, I have my own take on the factors and trends that are driving liquor sales and they can be best summed up as changes in consumer attitudes and behavior.

Changing consumer taste preferences

Let’s take a brief trip down drinking memory lane.

From the 50s to the 70s, whiskey dominated drinking preferences. The ‘silent shudder’ that came from the first sip of an American or Scotch whiskey was worth the effort “once you got used to it.” From the 1980s to the 2000s, consumers stampeded away from whiskies into vodka, the ubiquitous alcohol that provided the kick but mixable with almost anything that masked or camouflaged the taste.

24875266_sOver the last ten years, a new generation of drinkers has turned to whiskey for its perceived greater depth of flavor and its newfound mixability thanks to the cocktail resurgence. (By the way, that desire for taste and depth of flavor is what is also driving the craft beer growth.)

Also, the vodka suppliers shot themselves in the foot with the flavor explosion that went from the sublime to the ridiculous; from citrus to esoteric, from serious to such choices as whipped cream and marshmallow. (See a previous posting on vodka.) The result has been the ability to purchase over 600 flavors and slower growth. Vodka sales are underperforming the overall spirits category as a new generation of drinkers goes back to what their parents or grandparents had rejected.

What’s in the bottle and how did it get there?

This new generation has brought with it a conversation about the craft of making spirits and, like many changing values, 29949289_mit has spread to other age groups. While once upon a time consumers focused on the alcohol effect, today the focus is on ingredients, process, the distiller and artistry among a host of other manufacturing factors.

In short, some categories of the spirits industry are becoming much like the wine business and craft beers with an emphasis on quality, taste and small batch production. In fact, DISCUS reports that small distilleries grew from 92 in number in 2010 to 700 in 2014 and from 700K cases in volume to 3.5 million today.

It’s not about mass production or even consumption. Quality rules. Are you listening Smirnoff and Budweiser? Run all the clever ads you like, you won’t stop this trend.

Women and whiskey

Let’s take another trip down memory lane. Once upon a time, whiskey was the domain of men and distillers tended to 33892845_mshy away from marketing and advertising toward women. It wasn’t until 1987 that DISCUS lifted a voluntary bam on advertising directly to women. In a recent article in Huffington Post, Meghan O’Dea of The Whiskey Women had this to say, “We’re seeing a move toward gender-neutral drinking.” (Check out her website, it’s interesting. The home page has this slogan, which I just love, “Fill your mother’s crystal decanter with your father’s drink of choice.”)

I think the days of “girl drinks” are over. And, I think that the recent tutti-frutti direction in vodka is a contributing factor. Again according to O’Dea:

Women are consciously realizing that the beverages you enjoy have a lot to say about who you are as a woman…women are shying away from drinks that infantilize them.”

Clearly, whiskies have benefited from this change in attitude and, while flavored whiskey may have played a role, it’s by no means the sole driving factor.

(For an interesting historical perspective on women and whiskey, see this article from The Denver Post.)

The outlook

George Washington Distillery
George Washington Distillery

With more positive attitudes toward spirits consumption among consumers, I expect that the growth of the category will continue. DISCUS does a good job in promoting market access and helping to change archaic purchase laws. After all, how do you tell the public that state after state is legalizing marijuana but you can’t buy liquor on a Sunday?

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Larry Ruvo: A True Renaissance Man

Distributor, Marketer, Philanthropist and an all around Mensch

Larry Ruvo, who runs Southern Wine and Spirits of Nevada, in my opinion, is the most extraordinary person in the booze business. He’s a distributor, an outstanding marketer and a philanthropist. If you Google Renaissance man, it might just as well show his picture – a person with many talents or areas of knowledge.

He started in his family owned restaurant in Las Vegas, worked as the GM of the LA Playboy Club, ran the Sahara and The Frontier, opened Caesar’s Palace and joined with Steve Wynn in starting a wine and spirits distribution company. That company became SWS of Nevada. So, most people think of him as Mr. Las Vegas.

But that doesn’t begin to describe the kind of man he is.

An intuitive marketer

The myth that suppliers (manufacturers) would have you believe is that distributors/wholesalers are a necessary burden. The law mandates them, they’ll tell you, but all they really do is move your box from their warehouse to the trade. Let me tell you, folks, in Larry’s case, nothing could be further from the truth.

When I was running US marketing at Seagram, the senior executives made biannual market visits. On the tour were the top brass, the sales guys, the finance folks and the marketing guy – me. Truth be told, I never really learned anything on these Tunnel of Love tours that I didn’t already know. That is, except for the visits to Las Vegas and the opportunity to talk with Larry about his brand building and marketing ideas. He was willing, no make that eager, to talk about what motivates consumers, bar owners and bartenders and the best ways to get a brand featured and showcased. I learned a ton from Larry Ruvo.

Did I mention gracious and warm?

I can’t remember how many Seagram sales incentive and achievement trips my wife and I took when I was with the company. But, whenever Larry and his wife Camille (whose birth date I share) were on it, we knew it would be special. Whether it was a dinner in the kitchen of an amazing restaurant in Bilbao, best places to shop in Hong Kong, lunch on the Amalfie coast – Larry knew the places to go, what to see, where to eat, how to make it more enjoyable. And, he delighted in sharing them.

Philanthropy

Larry Ruvo
Larry Ruvo

Larry Ruvo does things with passion and total commitment, so when he turned his attention to fighting brain-damaging illnesses, it’s not surprising that wonderful things began to happen.

He is the founder and chairman of Keep Memory Alive, a foundation that built and supports the Lou Ruvo Center for Brain Health in Las Vegas (also known as the Cleveland Clinic Lou Ruvo Center for Brain Health). Its mission is to treat patients with such brain disorders as Alzheimer’s, Huntington’s, Parkinson’s, ALS, and Multiple Sclerosis. Since its inception, the foundation has raised over $235 million and treated over 23,000 patients.

It all started in 1995 on the one-year anniversary of his father Lou’s death from Alzheimer’s. Larry gathered 35 friends for a private dinner at Spago to “laugh, reminisce and tell Lou Ruvo stories.” As the night wore on, it turned from an event to honor his father to a call for action to defeat the disease that took his father’s life. They raised $35,000 and the foundation was born.

The biggest challenge was being taken seriously since Las Vegas is not top of mind for world-class health and wellness facilities. But, in the last 10 years, thanks to Larry’s marketing, packaging and brand building skills, it has become just that.

Clinic
Cleveland Clinic Lou Ruvo Center for Brain Health

To meet the challenge, he created the Power of Love Gala in Las Vegas and raised money to fund his plans. He convinced Frank Gehry to design the building and it is  truly amazing. Next he signed a deal with Cleveland Clinic to operate it. But, he also needed a super star to run it. So he turned to Cleveland Clinic and said, “I’m giving you Yankee Stadium… I want Babe Ruth.” What he got was Dr. Jeffrey L. Cummings, a world-renowned leader in research and treatment of brain disorders.

That’s what happens, my friends, when you mix determination, passion and marketing skills.

His foundation, Keep Memory Alive and the Cleveland Clinic Lou Ruvo Center for Brain Health, holds an annual fundraising event in Las Vegas. It’s called The Power of Love and in the past has honored Mohammed Ali, Quincy Jones, Sir Michael Caine and many others.

This year’s event is on October 11 and is billed as an evening with Michael Bublé. You can find out more at here.

When Larry Ruvo sets his sights on something, great things happen.

LR 2

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The Columbian Exchange Part 2

What influence has it had on international alcohol beverages?

(The earlier posting on the Columbian Exchange generated a great deal of comment and emails and I invited Mr. Desmond Nazareth of Agave India Industries Pvt. Ltd to share some further thoughts on the subject. So, here is a guest blog posting from him. In this article Desmond introduces a wide array of local alcohol products from around the world, some of which were new to me.)

The Columbian Exchange between the so-called ‘Old’ World (mainly Eurasia) and ‘New’ World (the Americas) was more than an ‘event’ – it was a ‘process’ that started in the 16th century and continues in a more generic sense even today.

In this guest blog, I would like to discuss the impact of this Exchange process on international alcoholic beverages and, make some suggestions for ‘opening up’ alcobev categories.

Fermented beverages across the world

business_1100010245-012914-intContemporary scholarship tells us that up to the 12th century AD or so, most cultures around the world consumed various forms of naturally fermented beverage. These were typically what we today call ‘wines’ (fermented grapes, fruit and berry juices), ‘beers’ (assorted cooked and fermented grains), and fermented natural sweet liquids (fermented palm sap, agave sap, nectar from flowers, honey).

The introduction, and role, of distillation

In the Old World, using various fermented beverages as their substrates, distilled (and infused) potable alcohol began around the 12th century AD, giving rise to the plethora of ‘spirits’ and ‘liqueurs’ of today – the technique used initially was ‘pot-still’ distillation and later included ‘column’ distillation.

The New World knew nothing of distillation techniques until the 16th century AD, when it was introduced there by Old World colonizers.

With distillation being part of the technology that featured in the Exchange, it was applied to the variety of fermented beverages in the New World, including those made from ‘dramatis botanae’ that were local, and others that came with the Exchange.

Among the botanical species introduced to the New World, sugarcane (and the by-product, molasses) was by far the most important – the basis for light and heavy rums. Grapes, of course, became the basis of countless ‘local’ New World wines and spirits.

Species introduced to the Old World included cashew, potatoes, sweet potatoes, cassava, agave and corn – cooked and fermented, either alone or in combination with other local substrates (and sometimes a substitute ingredient), these became the basis of so-called ‘local’ distilled spirits.

Cashew fruit
Cashew fruit

The advent of claims for ‘local’ beverages: GIs, AOs…

In today’s world, various regions and countries lay claim to a ‘privileged’ status for a variety of  alcoholic beverages, with the recent introduction of ‘international trademarks’ in the form of Geographical Indications (GIs) and Appellations of Origin(AOs), which are protected by the WTO and affiliates. Examples of these abound: Scotland’s ‘Scotch’, USA’s ‘Bourbon’ , Mexico’s ‘Tequila’, Brazil’s ‘Cachaça’, Goa’s ‘Feni’, etc.

 

 

Consider some ‘local’ alcobev that resulted directly from the Columbian Exchange:

Cassava plant, an edible starchy tuberous root.
Cassava plant, an edible starchy tuberous root.
  • grape based ‘pisco’, with Chile contesting Peru for ‘ownership’
  • grape based wines in California, Chile, Argentina etc.
  • grape based spirits like ‘singani’ in Bolivia
  • cashew apple based ‘feni’ in Goa, India
  • agave based spirits in India
  • molasses and sugarcane based rum and cachaça in the Caribbean, and South america
  • cassava based spirit in sub-Saharan Africa
  • single-malt whisky in Brazil, Japan and many other countries
  • potato based ‘horilka’ in Ukraine, vodka in Poland and Germany, ‘akvavit’ in Scandinavia, ‘poitín’ in Ireland, ‘tuzemák’ in the Czech Republic
  • rye based whisky in Canada
  • sweet potato using ‘soju’ in Korea & ‘shōchū’ in Japan
  • the list goes on…

Now, in none of these countries or regions can one say that they produce only the product whose ‘localness’ they are trying to protect – in general, a variety of alcoholic beverages ‘originating’ from all over the globe are made ‘locally’ in most other parts of the globe.

In an increasingly connected, globalized world, does this sort of ‘protectionism’ make sense?

The question raised by Agave India

India -- Deccan Plateau
India — Deccan Plateau

A case in point is the artisanal, small batch agave spirit that Agave India officially makes in India (since 2010), from blue-green agave that has been growing ‘locally’ on the Deccan Plateau for at least one hundred years. We would like our agave spirits to compete internationally with agave spirits made in Mexico – but the international competitions recognize only ‘Tequila’ or ‘Mezcal’ and do not allow us to compete within those ‘protected name’ categories. We’ve tried to make an argument for a larger category, ‘Agave Spirits’, in which ‘Indian agave spirits’ can go up against ‘Mexican agave spirits’, but so far to no avail.

We also make an artisanal, small batch sugarcane spirit in India, that we call ‘Pure Cane’ – but we cannot compete with ‘Cachaças’ in their category for the same reasons – should we not have an international category of ‘Sugarcane (or Cane) spirits’? It would make the many international producers of fine cane spirits happy to be recognized.

Perhaps, one day, globalization will remove meaningless barriers and productive exchanges of all kinds will take hold – some of which have very ancient geological and human histories.

(Acknowledgements: to the amazing, globalized and free resource that we know and love: ‘Wikipedia’)

Thank you, Desmond.

Desmond Nazareth and an Indian Agave plant.
Desmond Nazareth and an Indian Agave plant.
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