Americans back to drinking the good stuff

By Reuters
Posted Jan. 24 at 1:39 p.m.

U.S. consumers started drinking more higher-end spirits last year, leading the industry to see signs of a fragile recovery.

Liquor companies sold 190.7 million nine-liter cases in the United States in 2010, according to the Distilled Spirits Council of the United States trade group. That was up 2 percent from 2009, when a recession crimped consumers’ drinking habits.

Any uptick in consumer demand could embolden spirits makers to raise prices, said DISCUS Chief Economist David Ozgo Monday at an industry briefing.

“After two years of weak pricing, they (spirits makers) are probably looking for that kind of opportunity,” Ozgo said. If prices do come up, he said spirits makers could see revenue rise in the 2.5 percent to 3 percent range this year. At the same time, any price increases “might tamp down volume a little bit,” he added, forecasting an increase of 2.5 percent or less this year.

The industry’s average growth in the pre-recession years of 2000 to 2007 was 2.9 percent.

Revenue rose 2.3 percent to $19.1 billion in 2011, DISCUS said.

“In 2010, the industry improved its performance over the previous year, but this recovery remains fragile, and we are not yet out of the woods,” council President Peter Cressy said. “Consumers did begin to trade back up to premium spirits products, but the hospitality industry is still far from its average pre-recession performance.”

Super-premium, or top-tier, spirits saw both volume and revenue rise nearly 11 percent, far outpacing performance of all other tiers. The weakest performance came from value-priced spirits, which grew only 0.3 percent.

“While recovery will remain a work in progress until the U.S. employment picture improves, these gradually improving industry trends … give us growing confidence,” said Paul Duffy, president of Pernod Ricard USA, whose brands include Absolut Vodka and Jameson Irish Whiskey.

Vodka, which accounts for 31 percent of industry volume, was up 6.1 percent at 59 million cases. Whiskey volume rose 1.4 percent, as double-digit increases for single-malt Scotch and Irish whiskey offset slight declines for blended Scotch and Canadian whiskey. Volume of rum rose 1.4 percent, while tequila rose 3.6 percent, and gin declined 2.6 percent.

Results at spirits companies, such as Diageo Plc, Pernod Ricard SA and Fortune Brands Inc, have been pressured by the economic downturn, which led many people to cut back on trips to bars and restaurants. Yet an ongoing migration from beer to cocktails helped spirits companies in 2010.

Spirits accounted for 33.3 percent of the alcoholic beverage market in 2010, according to DISCUS, up from 32.9 percent in 2009. By contrast, beer lost market share, making up 49.8 percent of the market, down from 50.5 percent in 2009.

Last year marked the first time in at least 12 years that beer’s market share fell below 50 percent, according to DISCUS data.

Looking ahead, the industry has “cautious optimism” that the recovery will continue, said DISCUS spokesman Frank Coleman, but he noted that the outlook “over the horizon remains murky.”

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