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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Social Media, Facebook and the Booze Business

Quite a bit of press about social media in general and Facebook in particular this week. All of which, of course, relates to the booze business.

First, in the US, DISCUS (Distilled Spirits Council of the United States) has rolled out new guidelines for marketing on social media sites and digital platforms. According to what I read in Wine and Spirits Daily, the European Forum for Responsible Drinking has joined DISCUS in that initiative. Among other things, the DISCUS code requires that 71.6% of the audience be of legal drinking age.

Guess what? Nielsen data shows that Facebook, Twitter and YouTube have legal drinking age audiences in excess of 80%. Nevertheless, the DISCUS guidelines (code of responsible practices) are clear and push hard in favor of responsibility. Those of us in the industry understand a basic principle in such matters – the appearance of impropriety is as bad as the impropriety itself. There are steps including “age gating,” monitoring of content and other restrictions. Good for you, DISCUS.

Next, we learned this week that Diageo and Facebook have worked out a multimillion-dollar deal to work together and share skills and resources for mutual benefit. The Guardian quotes a Diageo spokesperson as saying the deal will “drive unprecedented levels of integration and joint business planning and experimentation between the two companies.”

Translation – this is still a new medium and we can learn a lot from each other.

(This is one of those rare moments when I tip my hat to Diageo and applaud their initiative. Although, there was one item in the press that caught my eye and made me laugh. It was something like Diageo wants to tap Facebook’s large audience in markets like Brazil, where the two companies occupy the same office building in Sao Paolo. Oh, and if they were in a different part of town, no deal?)

In any event, in the UK, this new relationship did not go over well. From what I read online, the negative reaction ranged from “serious concerns” from the British Medical Association to “torches and pitchfork” rants from the anti-alcohol forces.

Come on people, Facebook and Diageo can target legal drinking age consumers and put up safe guards to keep young people out. You can’t do that with billboards or newspapers. Perhaps manufacturers should hand out blindfolds in front of every billboard in the UK where a young person is likely to walk past.

Finally, Facebook announced new features this week that include sharing more than just informing. They hope to become a “taste maker” and influencer of products and services. The reaction has been mixed with pundits and bloggers weighing in on both sides. An unscientific poll among Mashable readers indicates as much as 75% hate the news feed changes.

Time will tell whether the relationship between Facebook and Diageo is a smart move for both, or, Facebook will become the next social media darling to wane in its appeal. But with well over 300 million users worldwide, I continue to think that Diageo’s move was right on the money – despite how much it pains me to say that.

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