Beverage Handbook

Liquor Handbook 2015

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Liquor Handbook 2015 1 The Markets for Distilled Spirits National Trends & Statistics The Market for Distilled Spirits In 2014, the distilled spirits industry achieved its 18th consecutive year of volume growth through the addition of 3.1 million 9-liter cases. Last year's 1.5% growth rate brought the industry to 211.8 million 9-liter cases. The industry is going through somewhat of a transformation in regard to consumption trends. Years ago, the brands with the largest share of the market were typically the brands contributing the most cases to the industry, but that is no longer true when examining the 2014 results. While the major brands are experiencing difficulty with being at the top of consumers' minds while at checkout and/or ordering a beverage, other brands are making themselves more attractive and that is related to word of mouth rather than advertising spend levels. Word of mouth has never been as easily communicated as it is today due to social media platforms. These major brands make up the majority of the industry and as they struggle to increase volumes, the overall industry growth slows because they hold the lion's share of the market. The 'long tail' theory is in effect in that as more brands enter the industry, the growth eventually comes from the 'long tail' (brand of lesser volumes) rather than the 'head' (major brands). Collectively, the top five brands in the industry held a 15.0% share of the market in 2014 with an average growth rate of -1.7%. These brands lost a combined 563,000 9-liter cases last year. Furthermore, their share of the market went from 15.5% in 2013 to 15.0% last year, solidifying the notion that the growth is no longer coming from the 'head.' In addition, today's consumers are unlike at any other point in time because they are entwined with technology at their fingertips. Recent data published by ZenithOptimedia states that in 2014, people spent an average of 110 minutes online a day, up from just 60 minutes in 2010. Meanwhile, traditional media usage (print and broadcast mediums) declined from 402 to 376 minutes a day. Although television advertising consumption fell 6% between 2010 and 2014, the print industry suffered the most from the new digital competi- tion as newspaper and magazine consumption dropped by 26% and 19%, respectively. As this illustrates, the beverage alcohol industry is changing on a daily basis and suppliers and retailers are tasked with targeting consumers in this dynamic environment. This trans- formation will continue to occur because the general population will never be able to grasp the current state of technology, as "current" does not exist when dealing with technology. Some macro factors that impacted the industry in 2014 include the U.S. economy and its job market. The U.S. economy rebounded in the second half of the year, and the country had its best year of job growth in more than a decade. The economy generated 252,000 new jobs in December alone. The continued employment gains are likely to lead to better wage increases in the first half of 2015. Job and income growth may provide positive momentum for the housing market, and the low gas prices will further support household spending. Very low interest rates, at both the short and long end of the yield spectrum, are helping both consumers and businesses. The continued drop in the unemployment rate to 5.6% in December put the U.S. closer to the natural rate of 5.5%. The U.S. GDP has grown at an average rate of 2.2% through 2014 and is forecasted to grow to 2.6% in 2015. At the category level, consumers' interest in brown spirits, especially straights and bourbons, has been increasing while the vodka and rum categories struggle to achieve gains. Being that these domestic whiskies are seen as heritage-filled and authentic — both traits that play directly into the purchasing prerequisites of today's consumers — they are not only expanding their core consumer base, but the gentler-flavored offerings are also bringing new consumers into the category. Another growth factor for the distilled spirits industry is the rediscovered demand for the "call shot." What began with Jägermeister years ago with its unique fla- vor profile has evolved into concoctions of whiskey and cinnamon. Fireball Cinnamon Whiskey, a cinnamon-fla- vored Canadian whisky liqueur, has been the forerunner and has taken consumers by storm. Fireball's success has led to a plethora of similar style offerings from other major suppliers, all of which have been well received. Aside from whiskey offerings, handmade boutique spirits such as 100% agave tequilas, pot-distilled vod- kas, fresh-pressed rums and small batch gins have also contributed to the spirits industry's growth. These high- er-end products often source locally cultivated grains, potatoes, sugar cane and exotic botanicals which fit in with the "drink local" trend. For example, traditionally crafted styles such as the tahona-ground agave plants used for tequilas tie into consumers' interest in a prod- uct's heritage. At the company level, the largest acquisition in 2014 was Beam Inc. being purchased by Suntory Holdings Limited for $16 million dollars. The end result was to become a force in the global spirits business with sales exceeding $4.3 billion dollars. Completed in April of last year, Beam Inc. was renamed Beam Suntory Inc., cre- 2014 in Review

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