Why building a spirits brand is becoming harder
There’s been a “big hollowing out of the premium segment of the spirits industry” with distributors rationalising portfolios, according to the managing director of Charter Brands.
During a recent seminar, a panel of speakers discussed the issues facing spirits retail and distribution globally, providing insights into market access, supply issues, and brand strategies across different regions.
The panel included: Matt Ashton-Melia, managing director of Charter Brands; Johan Kersten, managing director, Bemakers Benelux; Helena Zakmane, senior leader, Island Rum Brands; and Melita Kiely, editor-in-chief of The Spirits Business magazine.
Speaking about the biggest changes impacting the industry, Ashton-Melia noted an “aggressive shift” in terms of rationalising portfolios “whether that’s in retail or with distributors looking to represent less brands and drive more volume and be more efficient across their business”.
He’s also seen a “big hollowing out of the premium segment of the spirits industry” after more than a decade of growth in that area.
“We see ultra-premium brands doing especially well,” he adds, highlighting Clase Azul Tequila as an example. “But a lot of people that were trading in that €40, €50, €60 category are coming down to a sub-€30 RSP.”
He believes this pricing shift is due to the “pricing pressures and inflation” of the past five years, along with the pandemic and the governments’ resulting challenge of increasing tax to address the deficits.
Consumers are aiming to buy quality products at an affordable price point, he explains.
For Zakmane, she notes that distributors have become more focused on efficiency, with any “personal touch” when it comes to brand development “taken away”.
Kersten adds: “The last five years have been pretty challenging with a lot of changes in the market. So you see the big multinationals are dealing with that in their way. But by doing that they are making smaller independent brands lives more difficult because they flex their muscles and overstock distributors. Then the gatekeepers are getting more powerful, which is not really beneficial to anybody because when you go to the on-trade, to the bar, you see a more homogenised display of offerings.”
He also notes that the market has become more fragmented, with venues being absorbed by groups and younger consumers turning to more experiential-led offerings like urban golf.
“These new venues might have a new route to their markets and then the traditional distributors don’t really have access to those customers but that is where the volume is. So there is a disconnect between the end customer and the supply chain, and it’s changing fast.”
Ashton-Melia warns that it has become “more difficult to build brands successfully”.
‘The reality is that we do have to consolidate our portfolio a little bit… and look at brands that we know that we can scale. So if that brand can’t deliver 2,000 cases per annum in Portugal or Greece and build from there, there has to be that question about should that brand then sit in the portfolio.’
In terms of looking at opportunities for new brands to join the portfolio, Ashton-Melia says: “You’re looking at those brands that open doors and those that can drive volume and they’re not always the same thing.”
For example, he says: “you might be able to get in with a mezcal but then you might be able to sell your house pour Tequila on the back of that, and that’s where you get your volume and your blended margin.”
He also points out how his company is working with American single malt whiskey maker Virginia Distillery Co to develop an entry-level product.
“The profitability on that SKU isn’t what [Virginia Distillery] want it to be, but from a distributor’s standpoint, they’ll commit to that brand because they can then see that brand driving thousands of cases per annum, not hundreds of cases. And the beauty for the brand owner is once you’ve got that distribution, there is still the opportunity to upsell the rest of the range where you are making your desirable margin.”
From a brand owner perspective, Zakmane says flexibility is key. She would like to see distributors put less pressure on brands and give them “breathing space”.
She also notes that brands should focus on one or two markets to grow the topline and protect margins.
In terms of brands who are looking for distribution, what advice would you give them?
“Brands owners need a little bit of experience in their own brands so that they can work up some success stories in their own markets,” says Kersten, allowing brands to provide a better proposal to distributors.
“Distributors these days are not willing so much to take a chance on a new product that has no track record in their market. So you have to more than just say, ‘Hey we’re the best Tequila at a good price in an amazing bottle. Buy a pallet.” So that doesn’t fly anymore.”
Zakmane adds: “If you’re thinking about launching new products, the ones that stand a better chance now are ones in the categories that are not so well defined.”
Citing liqueurs as an example, Zakmane believes there is less competition and provides distributors with a “unique opportunity”. She also notes that brand owners should provide marketing and communication tools to the distributor.”
Ashton-Melia also weighed in, adding that brands should “keep a positive mindset” and “listen to the distributors”.
Like Zakmane, he stresses the importance of providing distributors with the right information and tools to support and build brands.
“It is still a relationship business,” he explains. “If a distributor likes you, they will put undue focus on your brand and it’s our job to make sure that you are the favourite brand in the portfolio.”
The full conversation is available to watch via the link below and on The Spirits Business’ YouTube channel.
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