RECESSION MAKES SPIRITS LESS RESILIENT

Distilled Spirits grew 1.7% in 2009, marking the 12th consecutive year of positive results for the category. However, the spirits market’€™s expansion slowed from the 3.2% gain posted in 2007 and 2.1% in 2008. Up until late 2008, spirits remained fairly immune to the external economic factors that have caused the U.S. economy to recede. But in late 2008, the consumption trend’€™s continued retraction indicated a slowdown affecting distilled spirits. This most noticeably appeared in the on-premise where there was an overall slowdown in restaurant traffic and sales, especially in casual dining chains. The market showed distinct signs of trading down to lower priced products as the higher priced offerings that once enjoyed strong positive momentum slowed to a crawl due to the economic squeeze. But new flavors continue to infiltrate the marketplace and buoy growth in certain categories.

Straight Whiskey continued its upward trend last year albeit at a slower rate than in the previous six; 2009 marks the eighth consecutive year of positive results for the category. No category has benefitted more from trading down’€™s impact than Blended Whiskey. This category, once mired by perpetual declines, has posted positive results each of the past two years culminating with the 1.2% upturn in volume. Canadian Whisky increased 1.2% last year, continuing its uptick posted in 2008. This advance is directly attributable to the continued success of leading foreign-bottled Crown Royal. After years of yo-yoing sales trends, Scotch Whisky posted its second consecutive year of declines with a slight 0.1% decrease. In addition to the 2.1% increase reported by the single malt subsegment, the foreign-bottled offerings eked out a 0.1% gain. Irish Whiskey continued its strong growth trend last year with a 13.9% increase. Although the category is the smallest in the distilled spirits industry, it has grown at a double-digit rate for the past seven years and exhibits no sign of slowing.

Following years of decline, the Gin category recorded its fourth straight year of gains in 2009. Bucking the recent trend, the gains can be directly attributed to the domestic segment’€™s growth, which added 2.2%. The trends that have fueled the Vodka category’€™s growth’€”namely the popularity of cocktails, the spirit’€™s easy mixability and the continued proliferation of flavors’€” continued with a 5.7% gain, just slightly ahead of the 5.2% posted in 2008. Both the domestic and imported segments experienced gains; however, as has been the trend in the category, imports outpaced their domestic counterparts. The Rum category marked its 15th consecutive year of gains by increasing 1.6%. This momentum continues despite the fact that the propagation of flavors continues to be subsiding. The Tequila category delivered another positive performance, posting a 1.3% gain. The Brandy & Cognac category decreased 0.5% in 2009, its second consecutive year of declines. Brandy’€™s leading domestic brands gained volume, while foreign brandy and Cognac continued to recede. Domestic brandy once again accounted for 61.3% of the category and grew a collective 2.4%. The Cordial & Liqueur category’€™s growth rate slowed further in 2009. Overall, the category lost 4.1%. This comes on the heels of 2.3% and 0.4% declines in 2008 and 2007, respectively. Both segments of the category posted similar results with domestics losing 3.9% while imports posted a 4.3% decrease. The Prepared Cocktail market continued its trend of unpredictability in 2009, dropping 2.3% to 6.4 million cases, almost entirely offsetting the category’€™s positive performance in 2008. This category’€™s performance largely depends on experimentation and the various brands’€™ ability to sustain momentum.

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