Growth Brands

GROWTH BRANDS

BEVERAGE DYNAMICS IDENTIFIES THE FASTEST-GROWING BRANDS OF WINE AND SPIRITS IN THE BEVERAGE ALCOHOL INDUSTRY.

The spirits and wine industries in the U.S. continue to power forward, according to the latest statistics just now being released in the Adams Handbook Advance 2005. In 2004, distilled spirits consumption rose in the U.S. for the seventh straight year, gaining more than 6.6 million 9-liter cases from 2003 to just under 165.7 million cases, an increase of 4.1%. That gain outpaced the 3.8% increase spirits consumption showed in 2003. For its part, wine consumption in the U.S. improved by 3.4% in 2004, to 267.1 million 9-liter cases, a 9 million case gain over 2003, but at a slightly slower growth rate compared to that year’s 4.9% increase. For the record, this was the twelfth straight year that wine consumption grew in the U.S. Some of reasons for this growth include: a more wine- and spirits-savvy public; the increasing acceptance of moderate wine (and spirits) consumption as a potential health benefit; the growth of the cocktail culture; the increasing popularity of wine as an enhancement to meals; and the overall improvement in quality and product variety throughout the wine and spirits industries. Of course, pricing always plays an important role in sales, whether it’s a flavorful value-priced wine or the cachet of a superpremium-priced spirit.

Once again, most spirits categories registered increases in 2004, with the non-whiskey segment (up 5.1%) outperforming total whiskies (up 1.6%). The largest spirits category, vodka, once again led the way with sales of more than 44 million 9-liter cases, a 6.0% gain over 2003. (Vodka itself now accounts for 26.6% of all spirits sales in the U.S.) Rum gained 6.6% to 20.8 million 9-liter cases, and tequila continued its growth with an 8.6% gain to more than 8.2 million cases.

The third-largest distilled spirits category, cordials & liqueurs, rose another 4.3% to 20.2 million cases in 2004, while brandy & cognac climbed 2.5% to more than 10.1 million cases and prepared cocktails increased 5.9% to more than 6.7 million cases. As in 2003, among the so-called white spirits only gin was down (-0.4%), a small decline that still saw the category registering about 11 million cases.

Among whiskies, straights more than doubled 2003’s percentage gain, increasing by 3.5% to about 13.9 million cases. Canadians also improved their results, upping totals by 2.0% to more than 15.7 million cases, while Irish whiskey jumped 10.7% to 545,000 9-liter cases. Scotch was off 0.8% to just under 9 million cases, while American blended whiskies continued to decline, also falling 0.8% to 5.36 million cases.

WINE CONTINUES SURGE

Last year’s overall gains (+ 3.4%) in wine sales were again led by table wine, which continues to account for more than 90% of the U.S. wine market. Led by premium varietals, table wine grew by 3.8% to almost 242 million 9-liter cases in 2004. Similar to 2003, imported wines showed a larger percentage gain (+9.1%) than domestically produced table wine (+2.2%). Still, domestic table wine comprises just over two-thirds of the entire U.S. wine market (imported table wine accounts for 22.7%).

Champagne & sparkling wine continued its modest rebound last year (+2.6%), to 12.6 million cases, while vermouth consumption, though small, gained 1.6% to 1.94 million cases. Dessert & fortified wine fell for the eighth consecutive year, down 0.7%, while wine coolers once again fell dramatically, off another 36.5%, to well under 1 million cases.

While volume growth remains healthy, retail dollar gains are even more impressive. Retail dollars from the sale of all beverage alcohol products, both on- and off-premise increased 6.3% in 2004, from $145.39 billion in 2003 to $154.58 billion last year. Wine gained 5.5% in 2004 to $23.0 billion and distilled spirits increased 8.5% to about $49.4 billion. Beer also increased by 5.2% to $82.2 billion. These are fairly healthy percentage gains and underline not only the volume increases across all segments but also continuing consumption trends favoring higher-end products.

BRAND POWER

As we’ve been emphasizing for several years now, “brand equity” is one of the most valuable assets a product can possess. And though the phrase may be overused, it should not be underestimated, especially in the beverage alcohol industry, where the slightest change in consumer tastes and perceptions can make or break a product. As we’ve previously stated, a combination of resources, creativity, perseverance, the right economic environment and just plain luck often go into creating and developing a successful brand. There are beverage alcohol products in every category and at every price point that, for any number of reasons, have either lagged behind or outpaced their respective competitors. And although identifying category consumption trends is helpful, actual brand activity is what generates profits. Thus, the rationale behind “Growth Brands,” an annual report that uses the latest industry results to highlight those wine and spirits brands that have demonstrated noteworthy growth over the past few years. [The September/October 2005 issue of Beverage Dynamics will publish Beer Growth Brand results.]

There are four categories of Growth Brands and Fast Track represents the most demanding set of criteria. Among wines and spirits, these are brands whose sales exceeded 100,000 9-liter cases in 2004 while having also demonstrated double-digit growth over each of the past four years. (This means that even if a brand has grown 25% a year from 2000 through 2003, if it only grows 9% in 2004, then it does not qualify as a Fast Track brand, though it would likely be included in another category.) All Fast Track Brands must have at least a five-year history.

Other brands that have shown significant growth over the past few years, but have not yet been on the market for a full five years, have been designated as Rising Stars.

In addition, in order to highlight traditionally top-selling brands that have consistently grown over the past four years, we’ve created an Established Growth Brands category. Because many of these brands are already operating from huge sales bases, their percentage gains were often modest relative to their overall case volume, even though these brands have had substantial sales increases and are often leaders among their respective segments.

Finally, we devised a Comeback Brands category that recognizes brands that saw a sales decline two years ago but which rebounded last year. This increase, however, must have been at least equal to or greater than the 2003 sales decrease in order to qualify as a Comeback Brand. For example, a brand with sales of 400,000 cases in 2002 that had sales fall to 380,000 cases in 2003 would qualify as a Comeback Brand only if sales reached 400,000 cases or beyond in 2004. If a brand gained sales to 390,000 cases in 2004, it would not be included, even though it reversed its sales decline.