US “still evolving” out of Prohibition

The Distilled Spirits Council of America (DISCUS) represents America’s leading distillers and 70% of spirits brands sold there. Its CEO Peter Cressy talks about the resurgence in spirits and the legacy of Prohibition.

Peter Cressy, CEO of DISCUS believes the US is still moving on from Prohibition, 80 years later

This year marks the 80th anniversary of the 21st Amendment that pulled the plug on US Prohibition. You would have to be pushing a hundred to have been personally affected by the ‘noble experiment’ that promised utopia when introduced in 1920, but instead gave the country speakeasies, bootlegging and Al Capone.

Yet for all the distance of time, it still casts its long shadow over the American spirits market as Peter Cressy, president and CEO of DISCUS, explains: “We continue to evolve our way out of Prohibition. Coming out of it, beer was very much regarded as the working man’s drink and politicians were loath to overtax it. Wine, as a drink for the elite or ethnic groups, was ignored, so spirits took the brunt of the control, and our taxes were higher.”

By the time Cressy joined DISCUS in 1999, spirits’ share of total beverage alcohol in the States had shrunk to around 28%. “I think we’d gone through a period where spirits were on the backside of a curve and had not made an effort to turn that around,” he says.

“We’d been facing two head winds – one of course was the massive growth in wine, the other, as a matter of our own self-regulation, was the decision not to advertise on TV since 1948. In a sense we got left culturally behind.”

Whether the big distillers misjudged the power of television, or were somehow squeezed off the airwaves by the beer barons who monopolised the medium, is unclear. Either way it took until 1996 for the first spirits ads to appear, and for Cressy that was a big mistake. “I feel confident that if we’d made the case in the early fifties, that we had a strong code and were going to be responsible in our marketing, I think we could have been on TV and, yes, it would have made a fundamental difference.”

Meanwhile, whenever Hollywood portrayed a drunk lying in the gutter, chances are he would be seen clutching a bottle of “hard liquor” – a phrase that said it all. Since 2000 however, Cressy has witnessed something of a sea change.

Of the three drinks categories he says: “There was a movement to recognise spirits as more glamorous and romantic, and I think it’s fair to say that Sex and the City certainly helped with that.” The hit US series, first broadcast in 1998, did wonders for vodka-based cocktails like the Cosmopolitan.

George Washington’s Mount Vernon distillery

The team at DISCUS have done their best to educate lifestyle magazines, and according to Cressy “at the last count we’ve had over 8,000 significant articles in major publications over the last 10 years”. Many of them have been about Mount Vernon – George Washington’s reconstructed distillery which was opened to the public in 2007 following a US$2.1 million grant from the members of DISCUS who are naturally thrilled that one of America’s founding fathers was a fellow distiller. Undoubtedly, this has helped to boost the image of spirits whose share of the US drinks market has soared to 35%.

More important for the industry however, is the slow and steady move upmarket. The DISCUS website (www.discus.org) is a great source of data on how the major spirits have been performing by price band. For example, sales of super premium vodka and Tequila have rocketed by over 400% while value Scotch whisky is down by a third since 2002.

“Before the 2008/9 recession this move in trading up was very well defined,” says Cressy. “Our member companies fed the trend because premium brands are more profitable and it fits with the improvement in the culture of spirits. People were drinking moderately, but they wanted the best. “Maybe you can’t buy a BMW, but you can afford to have your absolute favourite drink a couple of times a week. The feeling was – I’d like a little affordable luxury, and I want to treat my husband or boyfriend to a special bottle, or give my wife a great Martini.”

The strength of this feeling is extraordinary given the scale of the financial collapse in 2008. And yet Cressy is correct in saying the spirits category “didn’t go down as much as it might have done during the recession, and it bounced back instantly when there was the perception that life was going to be better”.

Indeed if spirits were the only barometer of the US economy, you might almost say “crisis – what crisis?” Also, note his choice of tense to describe the recession which elsewhere – certainly in the Eurozone, shows no sign of going away.

Another trend bubbling up in the States which DISCUS noticed about eight years ago is the boom in craft distilling, as Frank Coleman, the organisation’s senior vice president for public affairs, explains: “We were approached by Fritz Maytag (the great craft pioneer at San Francisco’s Anchor Brewing & Distilling company), who suggested we create an affiliate membership which we ended up doing and we now have 76 ‘small members’”.

As for any confusion among consumers about ‘craft spirits’ and what the term actually means, Coleman sounds pretty relaxed. “’Craft’ is a really a state of mind as much as a state of size.”

Of course the industry giants have been quick to pump out their own “hand-crafted” spirits and respond to new fashions like the fad for Prohibition-style white whiskeys. And compared to the burgeoning number of micro distillers – 250 and counting, the big guys have a far easier route to market as distribution channels contract. Largest of all among a shrinking band of mega wholesalers is the Miami-based Southern Wine & Spirits.

“I think a lot of the big consolidation has been accomplished,” says Cressy, “but every time you consolidate it leaves a little piece of the business that’s available for somebody else.”

Peter Cressy and Prince Andrew opening the George Washington Distillery

America’s enduring three-tier distribution system is another hangover from Prohibition, as is the patently unfair tax system. Cressy may claim that “people have gradually come to realise that alcohol is alcohol”, but he has yet to convince the taxman. As DISCUS never ceases to complain, the rate of excise on spirits in the US is about three times that of beer and twice that of wine per degree of alcohol.

“We don’t like the difference and we certainly fight to keep it from being exacerbated,” says Cressy. As for this ever changing, he shakes his head. “No, I really don’t think so – not in my lifetime.”

He describes the State-by-State battle to keep a lid on taxes as an “everyday effort”. He explains: “In every State that has a budget deficit, somebody will say ‘let’s tax alcohol. That’ll be good for society and we’ll make some money’”.

To counter this, DISCUS has put together a series of well-educated, hospitality coalitions including retailers, tavern owners, hotel groups and the like. Cressy continues: “We confront them with the facts, and I’m pleased to say how responsive and understanding the State legislators have been.” But not all States have empathy, and least of all Illinois which includes Chicago and Cook County.

In the 2005 satirical movie Thank you for Smoking, the chief lobbyist for “big tobacco” has lunch every week with the woman representing “big alcohol” as head of the “Moderation Council”. At one point she complains of spending half her time trying to keep the three industries – beer, wines and spirits, from killing each other.

In real life there is no “Moderation Council”, and Cressy says relationships have improved: “We work very closely with beer and wine, and think the best way to fight against taxes is to stand together.”

As for lunches with the other side – that is pure fiction as he makes crystal clear: “There’s absolutely no correlation between tobacco and the appropriate use of beverage alcohol. There is no good way to use tobacco.”

In the UK, the public health lobby repeatedly makes the connection, and buoyed up by their victory on smoking, they are gunning for alcohol big time. In America, with per capita consumption that much lower, “it’s just not as big an issue,” says Cressy.

The continual shift upmarket amongst US consumers has also made it harder for the anti-alcohol lobby to portray spirits in a bad light. Like Prohibition, the days of “hard liquor” are all in the past.