The top 10 stories of 2013

The spirits industry was rocked by a series of interesting and downright gob-smacking events in 2013, including ground-breaking new distilleries and controversial adverts, write Becky Paskin and Amy Hopkins

We list our top 10 stories which shook-up the spirits industry in 2013

There was never a dull moment in The Spirits Business‘ newsroom during 2013, which saw a host of intriguing news and events occur across the globe.

While industry giant Diageo was forced to contemplate its future in the Tequila market after parting with a key portfolio member, the US endeavoured to find ways of combating a critical shortage of Bourbon.

China’s crackdown on conspicuous consumption caused distillers to sweat and Irish whiskey prepared for stratospheric growth, while the gay community pledged to dump Stolichnaya and Dewar’s received a wealth of criticism over its commercials.

Click through the following pages to see what news rocked the spirits industry throughout 2013.

Diageo says good bye to Jose Cuervo

The year began with Diageo’s intention to cease its global distribution of Jose Cuervo Tequila casting looming questions over the fate of the brand, and the former’s future involvement in the Tequila market.

The announcement that Diageo would no longer distribute Cuervo from July 2013, came in December 2012, giving Casa Cuervo just six months to establish new routes to market.

At the time, Diageo CEO Paul Walsh said: “We believe that the future of the brand would be best delivered by aligning ownership of the brand with its route to market and I have no doubt that Diageo has the best route to market for this brand.”

But come November 2013, Jose Cuervo MD Peter Gutierrez was adamant the split from Diageo provided the Tequila business with an opportunity to forge a stronger route to market with “like-minded distribution partners”.

“We’ve ended up with a stable almost entirely made up of owner-managed businesses with an entrepreneurial spirit, with a lot of them family owned that frankly mirror our culture to a far more significant extent than Diageo. It means that we get each other a lot better,” he told The Spirits Business.

Diageo meanwhile has been playing with ways to fill the Jose Cuervo-sized hole in its portfolio. While rumoured acquisition bids for existing premium Tequila brands have done the rounds in the past 12 months, Diageo’s most likely course of action is to build a new brand from scratch.

Incoming CEO Ivan Menezes confirmed to reporters in July that the group has some “exciting ideas in the pipeline” to build its presence in Tequila further than its existing super-premium Don Julio brand.

“(Don Julio) plays at the ultra-premium end of Tequila at US$50 a bottle where all the growth is, and is growing in double digits,” he said. “But as you would expect, we are… really begin to activate our exploration on alternatives of Tequila.

“We have some exciting ideas in the pipeline I can’t talk about today but you can count on us to be an active player in this category and sector but it starts with having this wonderful position with Don Julio.”

With China having relaxed its ban on Tequila sales in June 2013, the market now presents a significant opportunity for brands to increase global volume. The CNIT, the spirits main trade association in Mexico, expects 10 million litres of Tequila to export to China in the next five years, making the country the second largest market after the US.

While Jose Cuervo may remain the world’s largest-selling Tequila brand with 5.6m annual case sales, Diageo’s existing routes to market put it in a healthy position to launch both Don Julio and a new Tequila brand in China.

The Bourbon shortage

Bourbon has been experiencing rapid growth around the world, but signs that producers were struggling to keep up with demand became clear this year when Maker’s Mark took drastic measures to stretch its supply.

In February 2013, Maker’s Mark executives Rob Samuels and Bill Samuels Jr, said the Kentucky distillery had looked at “all possible solutions” to address its supply issues, but after global sales of the brand increased by 15% in the year to December 2012, Beam took the decision to reduce the abv by 3%.

“Fact is, demand for our Bourbon is exceeding our ability to make it, which means we’re running very low on supply,” said the Samuels.

The decision caused outrage among fans, who took to Twitter to voice their anger over the change to the whiskey.

Despite attempting to fight its corner, just one week after announcing its decision Maker’s Mark conceded defeat, and resolved to keep the abv the same. Instead, Beam warned fans they may experience shortages of Maker’s Mark in the near future while it works to increase production capacity at the distillery.

As it turned out, Maker’s Mark isn’t the only Bourbon distillery dealing with a supply-demand imbalance. In May 2013, Buffalo Trace admitted stocks of its Buffalo Trace and Eagle Rare were running too low to satisfy demand.

But rather than pull a Maker’s Mark stunt and attempt to lower the abv, brand owner Sazerac came clean and admitted stock would simply be more difficult to get hold of for a few years.

“We won’t take drastic measures to mitigate the shortages, such as raising prices excessively, lowering the proof or reducing the age of our whiskies,” said Kris Comstock, Bourbon marketing director at Buffalo Trace. “We’ve made a commitment to quality that we’re not willing to compromise.”

According to a report from Technomic, sales of American straight whiskey grew by 5.2% in the US in 2012, with future growth showing no signs of slowing down.

The passing of Henry Besant

The drinks industry mourned the loss this year of one of its brightest and most loved characters, Henry Besant.

Besant is most renowned for his ambassadorial work with Tequila, which led him to co-create the Olmeca Altos brand and launch the Tahona Society with Dre Masso in 2009, which today has more than 1,300 members around the world.

Having held several prestigious roles at London bars including 57 Jermyn Street, St Martins Lane Hotel and Rockwell Bar at The Trafalgar, Besant rapidly became one of the leading British names in the drinks industry.

He co-founded drinks consultancy Worldwide Cocktail Club with Masso in 2004, before later joining forces with Nick Strangeway and Cairbry Hill to create consultancy Strange Hill in 2010.

The industry was rocked in March 2013 when news broke of Besant’s untimely death from a heart attack at just 40 years old.

Diageo’s United Spirits saga

Vijay Mallya

Diageo’s rollercoaster acquisition of India’s United Spirits has dominated headlines over the past year, and the British drinks group’s headache is set to continue well into 2014.

In July, Diageo became the major shareholder of United Spirits, having completed the purchase of a further 15% share of the company, taking its total interest to 25%.

The drinks group, which has been eager to find a foothold in the Indian alcoholic drinks market for some time, had spent 10 months negotiating the deal and vying for governmental and regulatory approval in both India and the UK.

The deal would transform Diageo’s position in the rapidly emerging market of India, providing it with a raft of emerging middle classes seeking premium and prestige local spirit brands. Ivan Menezes, Diageo CEO, predicted the deal would make India one of Diageo’s largest markets.

But the road to glory is never easy, and the last 12 months have been hit with setbacks that this Christmas saw shares in United Spirits drop by 6%.

Once approval was finally granted by the Securities and Exchange Board of India and the Competition Commission of India earlier this year, the deal looked set. But even after completion in July, further upsets came in the form of an Office of Fair Trading (OFT) ruling that questioned the competition between Diageo’s Bell’s blended whisky, and United Spirits’ own-brand label Whyte & Mackay.

In November, Diageo announced its offer to sell a proportion of the Whyte & Mackay business to ease competition concerns.  While some realistic buyers have expressed their interest in the purchase, the OFT is yet to make a decision on the tender.

Things took an even further drastic turn come December, when a regional court in India surprisingly annulled the deal outright over a petition launched by creditors of United Breweries Holdings, which sold its stake in United Spirits.

Both Diageo and United Breweries chairman Vijay Mallya said they would challenge the ruling, but shares in United Spirits come Christmas Eve had dropped by 6%.

Analysts believe the ruling is unlikely to halt the deal completely, but could raise questions around Diageo’s total, final share of United Spirits.

The saga continues…

The Macallan’s new pad

Edrington has been hard pressed to meet escalating global demand for The Macallan over recent years, particularly from emerging markets.

The Macallan has strived to make its limited stock of aged Scotch stretch further, having replaced its age statement whiskies below the 18 Year Old with the new 1824 Series in September 2012.

While the collection has been making its way to markets around the world, arriving in Australia in November 2013, Edrington has turned to a more drastic, expensive but inevitable solution to help ease its stock pressures.

In November 2013, the Scottish drinks group announced plans to build a new, £100 million distillery for The Macallan that would present a “significant increase in capacity” for the brand.

Although it would not confirm what the production capacity of the new distillery would be, Edrington described the plans as a “confident investment in the future of The Macallan”.

Still subject to planning permission, the new Teletubby-style distillery and visitor’s centre is expected to be completed in spring 2017.

Gay community dumps Stoli

Stolichnaya Vodka suffered a PR disaster when US writer Dan Savage lead calls by the LGBT community for drinkers to boycott the company’s products in protest against anti-gay measures in Russia.

The vodka producer was prompted to pen an open letter to appease the LGBT community, reaffirming its support of the gay community and opposition to recently passed legislation in Russia which bans the “propaganda of non-traditional sexual relations” among minors.

Stoli was selected by Savage as an ideal product to boycott due to its inherent association with Russia. Savaged coined the hashtag #dumpstoli, which received backing from LGBT rights groups while Russian Standard Vodka was also targeted by the campaign.

Val Mendeleev, chief executive of SPI Group, owner of Stolichnaya Vodka, issued a letter to the global LGBT community. He wrote: “The recent dreadful actions taken by the Russian Government limiting the rights of the LGBT community and the passionate reaction of the community have prompted me to write this letter to you.

“I want to stress that Stoli firmly opposes such attitude and actions. Indeed, as a company that encourages transparency and fairness, we are upset and angry.

“Stolichnaya Vodka has always been, and continues to be a fervent supporter and friend to the LGBT community. We also thank the community for having adopted Stoli as their vodka of preference.”

However, both Stoli and social commentators stressed that such protest action is misdirected, as the brand’s owner SPI Group is based in Luxembourg and its liquid is bottled in Latvia.

Sales dwindle following China’s crackdown

Sales of premium Scotch and Cognac in China experienced a drop in 2013 following anti-gifting and indulgent banqueting measures taken by President Xi Jinping.

Although the measures were initially targeted towards both government and military officials in an attempt to negate widespread concerns over corruption, the message crossed over into the mainstream.

China has long been a key market for luxury spirits and has been depended on over recent years to offset the economic challenges experienced in Europe.

With drinks giants such as Diageo, Remy Cointreau and Pernod Ricard all admitting to a decline in its Scotch and Cognac portfolios, reassurance has been sought from emerging markets and the US.

While sales of Remy Martin were bouyed by the US market, China’s crackdown caused the brand to report an overall decline of 3.6% for its organic sales.

However, bosses at Pernod Ricard said that although the company’s Scotch sales have declined in the country, they have expressed confidence in the long-term prospects of China, describing the Scotch slowdown as “conjunctural”.

The Scotch Whisky Association (SWA) also released a reported showing that while Scotch exports to China dropped 20% last year, surging sales in the US, France and Spain allowed the category to grow in value and volume.

The Spirits Business also reported that the party is not necessarily over for spirits sales in China, as imported brands begin to fill the void left by the two ruling categories.

Rise of the Irish whiskey industry

The relatively small Irish whiskey category received a significant boost in 2013, with numerous spirits producers announcing their plans to build whiskey distilleries in Ireland.

Currently, there are only four Irish whiskey distillers, including: Beam, owners of Kilbeggan; Diageo, owners of Bushmans, Pernod Ricard Irish Distillers, producers of Jameson; and William Grant & Sons, owners of Tullamore Dew.

Yet a recent surge in interest and sales the category has prompted spirits producers to announce plans to build a series of new distilleries.

With financial backing from Italian drinks company Illva Saronno Holding, the formerly-named Hot Irishman announced that it would be building a new €25 million craft distillery, called Walsh Whiskey Distillery, which is set to be complete in 2016.

Meanwhile, Irish whisky bottling company Teeling has also announced its intention to “get into the distilling game” and Slane Castle in County Meath submitted plans for a €10 million distillery.

Plans submitted by Niche Drinks, producer of St. Brendan’s Irish Cream, were also given the green light in May, while two more distillery planning applications for grounds in Northern Ireland were approved in the same month.

Irish whiskey was also seen to challenge Bourbon in the flavoured whiskey market, with Pernod Ricard launching Devil’s Apple and Bee Sting flavours of its Paddy Irish Whiskey in the US.

Dewar’s advertising debacle

Bacardi’s Dewar’s Highlander Honey suffered extensive backlash in 2013 over two adverts deemed controversial.

In June, the brand experienced the wrath of the public after it aired a commercial in the US featuring Meet Joe Black actress Claire Forlani, whom viewers deemed to speak in a poor Scottish accent.

The English actress was described as having a “painful” and “terrible” accent in an outpouring of criticism over social media sites.

More recently, Dewar’s was the subject of public outrage after the airing of its Meet the Baron advert, which many believed to be “sexist”.

Focusing on the central character of The Baron, the advertisement explains how “on the battlefield, he wouldn’t just take a bullet for you, he’d be the one throwing himself on the explosives”. The advert then depicts The Baron deflecting the advances of a rotund blonde woman towards a Dewar’s drinker.

Dewar’s responded to the criticism that the ad degraded women by removing the commercial from YouTube.

A spokesperson for Dewar’s said: “We understand our promotions may not always appeal to everyone; however, it is feedback that allows us to continuously evaluate our marketing efforts – upon further review we have decided to remove the video from our YouTube page.”

Rise and fall of flavoured spirits

The flavoured spirits market was seen to continue its phenomenal growth in the US after a data agency report released in April revealed that half of the top 10 “sprits climbers” were flavoured spirits and liqueurs.

While flavoured vodka has generally been seen as an pioneer in the category, Technomic’s Spirits Trends report revealed that while the spirit grew 19%, accounting for almost a quarter of all vodka sold, only Underdog Wine & Spirits’ Cupcake Vodka achieved high enough growth throughout the year to break into the top 10.

Producers released some of the most unusual flavours ever seen in the drinks industry in 2013, none more surprising than Pernod Ricard’s Oddka Vodka range which launched in the UK in September, Smirnoff’s cinnamon expression with edible gold, and Ivanabitch’s tobacco flavoured vodka.

However, concerns have been expressed that for vodka in particular, flavours could cannibalise the category, with some producers anticipating that consumers could become bored of wacky flavours such as cupcake and whipped cream.

More recent data collected by independent on-trade food and beverage analyst Restaurant Sciences also revealed that the US on-trade may be falling out of love with flavoured vodka. Figures show that sales dropped 11.7% from Q3 2012 to Q3 2013 as other flavoured spirits such as whiskey became more popular.