Spirits are taking share of throat from wine and beer in the US

Spirits are taking share of throat from wine and beer in the US

While each of the BRIC markets continue to throw up their own set of hurdles to sustained, long-term growth, the major spirits companies are becoming ever-more-thankful to the US for its safe bet positioning.

In full-year results released last week, for example, Pernod Ricard said its sales in the US in the 12 months to the end of June were up 4%. In July, meanwhile, Diageo reported a lift of 3% in North America for the same period, driven by strong spirits sales in the US during the second half.

In a note to clients this week, Bernstein analyst Trevor Stirling offered some insight into US alcohol trends - and a closer look at what - or who - is driving spirits consumption.

"The US is in the middle of a 10- to 15-year era of broadly stable alcohol consumption, which likely has another five-to-ten years to run," he says. "For over 15 years, we have seen consistent share-of-throat losses from beer to wine and even more so (from beer to) spirits."

According to Stirling, there are multiple reasons why spirits are enjoying their moment in the US drinks cabinet. The number of female spirits consumers continue to increase, he believes, while Millennials have adopted spirits - rather than beer - as their drink of choice. Also, higher-educated consumers enjoy spirits. And then, there is the "burgeoning of the Baby-Boomers who over-index on spirits". 

Within the broader category in the country, Stirling notes that sales of vodka and rum have slowed. In just-drinks and The IWSR's recent set of articles on the global rum category, it was reported that spiced rum has lost ground in the US to the likes of Sazerac's Fireball, while white rum was also down. Although premium-plus rum is posting sales gains, the segment was described in the report as "insignificant".

Why is rum still stuck on the runway? - Comment

On the other side of the coin, Stirling says that Irish whiskey, Tequila, Cognac, single malt Scotch whisky and high-end Bourbon are leading the pack. "The winners and losers within the spirits category have changed," he notes. "In the three-year period after the economic crisis (2009-2012), vodka was one of the fastest-growing categories in spirits, at 8% growth on average per year - driven primarily by a plethora of flavour launches." Vodka's growth has slowed to 1.4% between  2012 and 2015, says Stirling. "On the other hand, Canadian whisky, which was growing at 3% in 2009 to 2012, has accelerated sharply to approximately 15% growth  - largely driven by Diageo's Crown Royal Regal Apple", which was launched in late-2014.

Similarly, he says, Cognac has accelerated by two percentage points per year in the US. A closer look at Cognac shows that increased investment and competition is creating some fizz in the country. Earlier this year, Remy Cointreau's CFO said he was ready to fight it out with Pernod Ricard and Gruppo Campari in the US as investment flooded into the segment. Luca Moratta said in April that he expected a "fighting year" in the US, with Pernod giving strong financial backing to its Martell brand. He also said Campari would be "playing a role" following its agreement to buy Cognac-based liqueur Grand Marnier owner Marnier-Lapostolle.

Meanwhile, "Irish whiskey has slowed, but is still growing at a 16%-per-annum rate," says Stirling. In a note following Pernod's full-year results, Societe Generale analyst Laurence Whyatt attributed category leader Jameson's growth in the US to continued repurchase, new drinkers and line extensions such as Caskmates and the Deconstructed Series.

Lastly, Stirling notes that flavoured whiskey has gone off the boil in the US; a sentiment echoed by Brown-Forman's latest numbers for Tennessee Fire. The Jack Daniel's brand extension saw a double-digit sales slide in the US during the group's first quarter.

Going forward, the biggest influence appears to be changing tastes - new products will emerge, while others will fall by the wayside. It is safe to say, though, that the US will remain in high spirits for the foreseeable future.

Expert analysis

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