Comment - Washington State Stirs up Spirits Sales
Privatisation is often touted as a golden opportunity for businesses, but this may not be entirely accurate in the US spirits sector.
Major distillers in Washington State are in serious danger of losing money, or at the very least seeing profit margins eroded, according to a new report by Rabobank. Washington is one of 19 control states in the US, so-called because they continued to control spirits sales following the end of Prohibition.
From this month, however, Washington is opening the gates to private distributors. More states may follow Washington's lead.
Spirits suppliers and producers have remained largely neutral over the issue, but Rabobank analysts think they may have ended up with a raw deal. Spirits prices are set to rise by 20% just to cover government fees attached to privatisation, the analysts warned. In real life, this means a 75cl bottle of spirits retailing for US$16 would rise by around $3, they said.
"Most suppliers will generally be forced to choose between sacrificing margins or sacrificing volumes," they warned. Consumers, they added, will likely trade down to cheaper spirits, perhaps venturing into private label, or even leave the category altogether.
The central problem with the Washington method is the extra fees payable by wholesalers and retailers to the Government. In 2011, Washington State Liquor Control Board landed $425m for local government coffers and, put simply, officials do not want to lose revenue by privatising a lucrative asset.
What it will come down to for spirits firms is whether the freedom offered by competitive supply negotiations can outweigh the relative stability of the previous regime. In the process, it seems likely that Washington's spirits supply chain will need to be leaner.
Cost-cutting and consolidation among spirits suppliers in Washington look set to be the initial results. Medium and long term, Rabobank thinks the industry has important lessons to learn from this case. In particular, consumers elsewhere might need a little forewarning about the price hikes that look likely to come their way.
- Why sports drinks fail to ride the Olympic wave
- Experienced hands hold firm at CCEP - Analysis
- What do US wholesalers think of spirits trends?
- It isn't just men who like beer - Comment
- How the craft economy is loosening alcohol laws
- Diageo merges US, Canada spirits units
- Johnnie Walker's Bourbon bent "coincidental"
- Luxury and e-commerce a "natural fit" - Diageo
- "We're not complacent about Brexit" - Diageo
- Diageo's Johnnie Walker set for festive push in TR
- Global gin insights - market forecasts, product innovation and consumer trends
- The Next Seven Big Beverage Markets
- Global rum insights - market forecasts, product innovation and consumer trends
- Global RTD insights - market forecasts, product innovation and consumer trends
- Global non-Scotch whiskies insights - market forecasts, product innovation and consumer trends