Consumers Shifting Back to High-End Liquor

Consumers are starting to trade-up to pricier vodkas, whiskeys and other spirits, pushing up revenue for the liquor industry and possibly providing the industry with greater pricing power.

Photo By: David Gallagher

In its annual briefing on industry trends, the Distilled Spirits Council of the United States—or Discus—trade group said supplier volumes last year rose 2 percent to 190 million cases and revenue rose 2.3 percent to $19.1 billion from the prior year.

Sales trends in 2009 had showed the classic recessionary pattern of consumers trading down to less expensive brands, but sales in 2010 are starting to show consumers creeping back to brands priced at the upper-end of the price range, the so-called high-end and super-premium categories.

Discus Chief Economist David Ozgo expects the industry's volume could rise about 2.5 percent in 2011, which is still below the industry's average annual volume growth of 2.9 percent from 2000 to 2007.

"The recovery remains fragile," said Discus CEO Peter Cressy.

While less robust than the historical average, it may still be enough to prompt manufacturers to start raising prices.

After several years of weak pricing power, spirits companies may look to raise prices amid the higher demand, Ozgo said. However, it will be a delicate balance as those higher prices may dampen sales a bit.

It's also still unclear whether rising commodity prices will prompt price hikes, according to Ozgo.

Although prices vary based on the product type, high-end spirits are priced at about $160 a case, while super-premium spirits are typically priced above $230 a case.

Last year, the volume of super-premium spirits shipped rose 10.6 percent, compared with a 5.1 percent decline in 2009.

Meanwhile high-end volume rose 3.3 percent last year, far better than the 3.5 percent volume decline in 2009.

On the other end of the price-spectrum, the volume of value brands rose 0.3 percent last year, while premium brand volume rose 1.8 percent. In 2009, volume of value brands were up 5.5 percent, while premium brands rose 0.6 percent.

The pricier products have provided a signficant boost to the industry. For example, while super-premium spirits only make-up 7.0 percent of the industry's volume, or about 13.4 million cases, the category accounts from about $3.1 billion, or 16.2 percent of the industry's revenue.

They also can be much more profitable as excise taxes often levied based on a product's volume, not its price.

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