Beer Monopoly




    International Reports






Posted October 2012

In fine spirits

U.S. spirits market | Drinks companies are raising glasses to the American consumers. Their homes may be worth less than their cars and their jobs prospects dim, but when it comes to trimming the fat from their budgets, Americans would rather eat less than drink less. In fact, they continue to show an unabated interest in high-end spirits. How better to enjoy a presidential campaign thatís turned into a tit-for-tat-mudfest on the telly than with a glass of booze?

Admittedly, there are more agreeable places to go for a summer holiday. This August, when the U.S. was baking in the heat and the mercury refused to drop below the triple digits - Fahrenheit, that is - I felt close to swooning as I stood right next to a gushing still at the Jack Daniel's distillery in Lynchburg, Tennessee. That's when I wished I had gone to Scotland instead. That very moment, the idea of getting soaked through to the bone in the cold rain held enormous appeal.

I should have known better than to go on the Bourbon Trail at the height of summer. At the time it sounded like a great plan. Visiting a dozen or so bourbon distilleries in Kentucky and Tennessee, pretending to be an ordinary tourist, would provide me with some first-hand insight into the U.S. spirits market, I thought.

Not that I am particularly fond of brown spirits or any spirits for that matter. But I had read that bourbon, though a smaller category than Scotch whisky in the U.S., had been instrumental in driving a whisk(e)y renaissance of late, surpassing domestic sales of 16 million cases in 2011 for the first time. Much of the dynamism surrounding the bourbon segment has focused on recent flavour extensions like Jack Danielís Tennessee Honey and Jim Beam Red Stag.

However, Impact Databankís 2011 survey of the top bourbon brands in the U.S. shows that the categoryís core brands have also been enjoying steady gains. The six leading bourbon brands - Jack Daniel's, Jim Beam, Evan Williams, Maker's Mark, Early Times and Wild Turkey, in that order - shared over 70 percent of sales. Between 2008 and 2011, they sold an extra 700,000 cases despite the U.S. economy being in a tizzy.

As if this was not reason enough to go on to the Bourbon Trail, a nagging question at the back of my mind finally clinched it for me: why would the world's major drinks companies rather step on each others' toes in the U.S. than send out their armadas to conquer the rest of the world? Seeking an answer, I went off.

For more than a decade, brewers AB-InBev, SABMiller, Heineken and Carlsberg have gone round bragging about their emerging markets growth stories, all the while the drinks behemoths Diageo, Beam, Bacardi, Pernod Ricard and Brown-Forman quietly and steadily reaped stupendous profits in the United States. In 2010, Diageo made 41 percent of its profits there and Beam well over 50 percent. What is more, the U.S. spirits category has enjoyed such a momentum since 2000 that it sailed through the recession without suffering any declines.

Unless you were a dedicated follower of "sin stocks" you would not have known this. And this is just how the spirits guys liked it. In the brewing industry, you don't have to crack the Da Vinci Code to access data for global beer volumes and global beer profits. In 2011, brewers the world over produced some 1.9 billion hl beer and the beer profit pool, as measured in EBIT, stood at perhaps USD 31 billion. That's probably why brewers have given up being economical with the facts and have voluntarily taken to ranking themselves according to volumes and profits. That way any Tom, Dick and Harry can work out who is besting whom.

Ah, not so in the spirits industry. To befuddle the casual observer, volumes are measured in cases of 9 litres each. Not enough, spirits companies like to rank themselves by how much western-style spirits they sell. This does not allow for easy comparison as different market researchers apply different methodologies to this category. Moreover, western-style spirits represent only a fraction of the world's market for booze. Estimates vary. Perhaps a quarter of global spirits consumption falls into this category. Experts reckon that another 25 percent is accounted for by cheap western-style spirits and a staggering 50 percent by local traditional spirits, mostly Asian. As a consequence, gauging the world's spirits consumption is plain guesswork. Or has anybody got a good idea how much moonshine is sloshing around?

If global spirits volumes are mystery, what do we call global spirits profits? A riddle inside an enigma? That may be, but not in the United States. According to the Distilled Spirits Council (DISCUS), an industry body, industry revenue in 2011 was USD 19.9 billion, up 70 percent on 2000. That makes the U.S. the biggest market for western-style spirits and larger than the next five markets - UK, France, Germany, Spain and Venezuela - combined. Add to that brewers' and wine companies' U.S. revenues and you've got an alcohol market worth USD 60 billion in revenues to the suppliers.

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