Enormous $1bn premium brandy ‘vacuum’ in US

Brandy producers have failed to cater to demand for premium brands in the US, creating an enormous US$1 billion vacuum.

Analysts have identified a gap in the US premium brandy market they say is worth US$1bn

According to a report by Rabobank analysts, brandy companies have an opportunity to tap into demand for premium brands – the “strongest price segment” in the spirits industry.

Analysts claim that there is a growing appetite for premium spirits among affluent consumers in the US, since the industry is currently polarised by value domestic brands and super-premium Cogancs, described as “boring” and “bling” respectively.

However, the a gap in the premium market has been created by the general consumer view that brandy and Cognac are two separate categories.

The domestic brandy market, said to be price sensitive and characterised as a drink for older people, shifts large volumes. Meanwhile, the growth of Cognac, seen as a more glamorous spirit is out-pacing the market, but volumes remain small.

“There is an enormous gap between domestic, value brandy and super-premium cognac: the premium segment,” said Stephen Rannekleiv, global wine and spirits analyst for Rabobank.

“This is unusual because the premium segment is, generally, the strongest part of the US spirits market overall. If brandy had a normal pricing curve, we estimate there would be approximately four million cases of premium brandy sold, at a retail value of nearly US$1 billion.”

Consumer stereotypes

Rabobank adds that stereotypes of brandy consumers and a widespread misunderstanding of what the spirit actually is, has caused it to lose relevance among modern consumers.

“Brandy (both domestic and Cognac) has failed to gain relevance with the broader base of US consumers – particularly affluent consumers who have driven recent premiumization trends in vodka, whiskey and wine,” continued Rannekleiv.

“Increasing brandy consumption within this broader demographic represents an opportunity for foreign and domestic brandy suppliers to expand sales, improve profitability and grow the overall spirits category.”

He adds that building a premium brandy brand will require “significant” marketing resources, while growing interest in premium wine and whisky has created an “ideal opening” to reintroduce brandy to consumers, since the spirit mirrors qualities of both.

In December last year, renowned craft distiller Chip Tate, former master distiller and president of Bourbon producer Balcones, revealed plans to build a new distillery and produce a Texan brandy.