USA: Land of OpportunityBy Chris Mercer
The American dream is very much alive, and it’s supping super-premium spirits even as a Greek tragedy threatens to engulf much of Europe.
US bars are littered with big beer sales execs gazing wistfully at throngs of young adults keen to slug all manner of distilled liquids, be they flavoured, Irish, white or brown.
Diageo CEO Paul Walsh has even ventured to label the US an “emerging market” for spirits. It’s a deliberately provocative point, but perhaps it has legs when you consider that 3.5m Americans reach legal drinking age annually.
Without being too crude, this represents a huge pipeline, with one-fifth of the US population aged under 14 – compared to 17% in China.
“The most exciting aspect of the US spirits market right now is that we are able to recruit new 21-year-old consumers into the category,” said Sazerac Co’s spokesperson, Amy Preske. It’s a widely held sentiment. “The demographics are extremely favourable to spirits,” John McDonnell, chairman of the US Distilled Spirits Council (DISCUS) and COO of Patrón Spirits, told The Spirits Business.
Beer still accounts for 49.3% of US alcoholic drinks sales by value. Spirits’ share is 33.6%, but distillers clearly hold the momentum, having sucked up an extra five percentage points of share in the past decade.
In 2011, DISCUS figures show spirits sales in the US rose 2.7% by volume and 4% by value, to US$19.9bn, making a promising case for premiumisation following a sticky recessionary period that slowed sales momentum to a near standstill.
American hospitality fights back
Particularly pleasing to McDonnell is a rebounding on-trade sector, seen as a key platform for propelling consumers into higher priced spirits. “The number of employees in the hospitality industry is back to where it was before recession,” he says.
As for which spirits are winning, many of the trends from 2011 have continued into this year. Anything super-premium and above seems to be having a decent time of it. McDonnell says that Patrón Tequila depletions – sales from distributors to retailers – are up 10.5% for the first five months of 2012.
In Cognac, Bacardi feels confident enough to debut D’Ussé, a US$45-a-bottle VSOP that will be promoted by hip-hop star Jay-Z.
And beyond that? “Bourbon is exploding,” McDonnell says. There are also signs that bourbon is catching fire abroad, with exports up 10% in 2011 and on track to rise even faster in 2012.
Back home, the surging growth of flavoured whiskeys shows no sign of slowing. In June, Diageo announced a deal to acquire the Cabin Fever maple-flavoured whiskey brand from the Robillard family in the US.
That said, overlook vodka at your peril. Increasingly seen as a little passé by some, Euromonitor International figures have vodka volume sales pegged to increase by 10% in the US from 2012 to the end of 2016.
Analysts at Sanford Bernstein highlight that dessert-flavoured vodkas, such as the Pinnacle Whipped line recently acquired by Beam from White Rock, “are doing exceptionally well”.
Purity vodka founder Thomas Kuuttanen is similarly optimistic about the future of the top end of the market. “The ultra-premium segment of vodka is small, but we do see a consistent growth,” he says. “In the past, all brands were industrially made, neutral vodkas.
“As more hand-crafted, small batch brands such as Purity vodka have been launched, consumers have discovered the difference a high-quality vodka makes in cocktails.”
And Kuuttanen believes this trend will give a much-needed boost to the diversity of the sector as a whole, adding: “There are already too many taste-alike vodkas out there, yet too few interesting ones.”
Irish whiskey renaissance
Of all the categories, though, Irish whiskey is the one with real fire in its belly. Euromonitor researchers predict the sector will expand by 25% in volume within five years, albeit to a mere 21m litres – still a drop in the vodka and Scotch oceans. Yet, with William Grant taking Tullamore Dew and Beam snapping up Cooley, competition is hotting up.
Everyone, Pernod Ricard included, is keen to expand the sector beyond Jameson. The Jameson juggernaut, of course, cannot be ignored and is set to hit 1.5m cases in the US alone in Pernod’s fiscal year to the end of June.
“We’re still only just scratching the surface in many states,” reports Brendan Buckley, innovation and category development director at Irish Distillers (IDL). “Nevertheless, we’re looking at how we can optimise growth in the category in general.” At a global level, the firm remains committed to launching two new whiskeys every year.
Intriguingly, IDL’s Powers brand is growing volumes by 20% a year in the US thanks to a cult following that should send sales “well over” 50,000 cases this fiscal year. Then there is the firm’s single pot still range, much of which is on allocation due to limited stocks but which is being “prioritised” in the US.
Single pot still brands like Redbreast have “exceeded expectations”, but are projected to grow in a “gentle curve” until more spirit comes on line in several years’ time, Buckley says.
Leading the competition with IDL is William Grant & Sons. “We’re having a very good year, growing ahead of the category,” says Laura Gwilliam, US brand manager for Tullamore Dew.
Due to Jameson’s size, though, other brands are picking their battles. “We are 5-6% of the market in the US, so we’re not taking them on head-to-head,” Gwilliam admits.
Tullamore Dew markets itself as a rebellious spirit and has a tight focus on New York, Philadelphia, Chicago and San Francisco.
Further below the radar in sales terms is a flourishing US craft distilling scene. “Attendance at our annual conference more than doubles every year,” says Chip Tate, a board member of the American Distilling Institute (ADI). “It’s a similar kind of environment to what we saw in the 1980s with craft brewing.”
Still, as with beer, the craft spirits sector is something of a labour of love. “It’s fun, but we’re broke,” admits Tate, who personally built and founded Texas-based Balcones Distillery in 2008. Unlike brewers, craft distillers receive no tax breaks.
Urban support for craft
Tate has been been catching a few eyes with whiskies such as Baby Blue, made 100% from roasted blue corn, which claims to be the first legal Texas whiskey since Prohibition. Balcones whiskies are priced between $40 and $70 per bottle.
“William Grant would buy it tomorrow, but I’m trying to get into the game, not out of it,” Tate says of his 2,300sqft distillery. He’s got one eye on moving to a 65,000sqft warehouse, but needs financing to make it work.
While craft brewers have largely relied on local consumers in order to gain a foothold in the market, craft distillers are getting significant support from urban bartenders keen to use high-quality and interesting spirits in cocktails.
Like many of his industry counterparts, Albert de Heer, MD of global brands at De Kuyper Royal Distillers, is optimistic about high-end spirits in the US. “We’re very interested to see if there are more opportunities and I think genevers could be one of them,” he says. “We have a very premium brand in our portfolio in Rutte, which we acquired a year ago.”
Meanwhile, the recent re-introduction of the Mandarine Napoléon brand into key bars in Miami and New York state is going well. “We’re taking it step by step,” De Heer says of the relaunch, which De Kuyper is doing independently of its partnership with Beam Inc.
From emerging trends to the seemingly eternal mainstays of the US spirits market: it would be improper to discuss the country’s prospects without referring to the Havana Club dispute. At stake is a US market that accounts for around 40% of global rum sales.
Since May, Bacardi believes itself in the ascendancy after the US Supreme Court refused to review a rule preventing Pernod Ricard and its Cuban business partner, Cubaexport, from renewing the registration of the Havana Club name.
A Bacardi USA spokesperson tells The Spirits Business: “As a matter of law, the United States Patent and Trademark Office (USPTO) will formally cancel the registration of Cubaexport for the mark in due course.”
You’re Havana laugh
Bacardi already claims the Havana Club trademark in US common law, after buying the rights to the name from its original owner, the Arechabala family, in the 1990s. It has had a federal trademark application pending since 1994 and, now, “we fully expect that federal registration will be obtained”, the firm says. It plans to expand US sales of Havana Club beyond Florida “in the near future”.
Pernod, meanwhile, has developed a plan B via a new rum brand called Havanista. “If we can’t have Havana Club, it will be Havanista,” a company spokesperson says. “We want to have a Cuban rum in the US.” Not that Pernod believes Bacardi’s USPTO application is cut and dried. “To date, the USPTO has always rejected Bacardi’s application,” points out Olivia Lagache, Pernod’s legal counsel for Havana Club. She highlights that Pernod and Cubaexport’s Havana Club sells 3.8m cases globally and has trademark rights everywhere except in the US.
But, before Pernod can do anything at all, the US Government would also have to lift a longstanding trade embargo on Cuban goods. If that does happen – and it’s still a sizeable ‘if’ – at least plenty of young adults look set to be thirsty. “If Greece goes down the toilet, then all bets are off,” says McDonnell of DISCUS and Patrón. “But, right now, the major US cities are vibrant and people are feeling good.”
Turn the page to discover Five Hot US Trends rocking the spirits world Stateside.
Five hot US trends:
Dessert vodkas: Beam’s newly-acquired Pinnacle brand, maker of the Whipped range of dessert-flavoured vodkas, saw depletions almost double in 2011, according to Bernstein analysts, citing Impact figures. Also look out for UV Vodka’s UV Cake and Smirnoff Whipped Cream and Fluffed Marshmallow
Whiskey wars: Bourbon is booming, but Irish whiskey is a fascinating four-way face-off between Pernod Ricard, Diageo, William Grant & Sons and Beam. Expect a wider range of whiskeys to hit back-bars and shop shelves as the big boys continue to slug it out.
Craft distillers carving a niche: The American Distilling Institute estimates that 50 craft distilleries are under construction, on top of the 350 already in existence.
Ultra-premium: Forget the economic malaise enveloping the world, DISCUS figures show gross value sales for US spirits suppliers in the high-end premium and super-premium segments up 28% and 17% respectively for 2011.
Celebrity brands: Sobieski is doing it with Bruce Willis, Cîroc is in the bath with P Diddy and now Bacardi has teamed up with Jay-Z for D’Ussé Cognac. Hungry for more celebrity-endorsed spirits? Click here to read our run-down of our faves.