It’s time for companies that make vodka and other spirits to switch from defense to offense.
The recession put businesses on guard. It was all about defending market share, cutting costs and making it through the downturn. But according to the spirits industry’s trade group, there are some strong arguments to be made that it’s time to crank up the innovation machine and take a few more chances.
The Distilled Spirits Council of the United States, also known as Discus, reported Monday the volume of spirits sold in the U.S. jumped 2.7 percent in 2011 from the prior year, while sales grew 4 percent to $19.92 billion.
Some of that growth came from consumers switching from beer to spirits, and that left market share for spirits at 33.6 percent of the market. That compares with a 49.2 percent share for beer and a 17.1 percent share for wine.
But it’s not just the fact the industry is growing again that suggests the market will welcome new products. There are other signals.
For one, revenue coming from bars and restaurants has returned to pre-recession levels. That’s good news for new products. Not only do spirits companies have opportunities to promote and market new beverages at these establishments, but consumers are more likely to try something new when they are out because they are only committing to purchase one drink, not an entire bottle.
Companies brought more new products to market last year than they had during the recession, and that clearly has had a halo effect.
For example, the volume of pre-mixed cocktails sold rose 12.2 percent overall and was up 20 percent if you look only at the premium side of the business. The category may be benefiting from some high-profile new products, including Beam’s Skinnygirl Sangria and White Cranberry Cosmo, which were brought to market in the wake of the successful Skinnygirl Margarita. Jose Cuervo also brought out its own lower-calorie, pre-mixed margarita cocktails last year.
In addition, the industry has seen a return of another pre-recession trend: Consumers are once again trading up to pricier products.
Look at the vodka category, which accounts for about 32 percent of the industry’s volume. It grew 5.9 percent, but the pace of growth in the so-called super-premium vodka category outpaced that of lower-priced segments within the vodka category. Super-premium vodka, which includes brands such as Bacardi's Grey Goose, LVMH's Belvedere, and Ciroc, grew 12.7 percent.
The same trend was seen in the bourbon and Tennessee whiskey category, where sales of super-premium brands alsooutpaced the category’s lower-priced brands.
And here’s another sign of how open consumers are to trying new things: The volume of rye sold rose more than 50 percent. Rye is a category that had declined so much in recent years that Discus was considering no longer breaking it out as a separate category.
But consumer interest in bourbon and Tennessee whiskey has grown so strong that consumers are experimenting more with rye, a whiskey that tends to have a spicier, more assertive flavor than the sweetness of bourbon. Rye also tends to be favored by bartenders in classic cocktails such as the Manhattan and the Sazerac.
While these trends bode well for the industry in 2012, there continues to be some notes of caution from Discus. The group declined to provide a growth forecast for this year.
Discus President and CEO Peter Cressy said he’s “confident” spirits will continue to gain market share from beer.
“I think we are just building momentum,” Cressy said. But there are “too many variables right now” to predict growth for the year ahead. However, he expects it could be another solid year, barring any “unforeseen economy downturns.”