US: Demand for premium wine, spirits to rise - S&P

The demand for premium beverages in the US is expected to rise in the long-term, according to new research, with a possible easing of pricing pressures.

The review by Standard & Poor's claims consumers are likely to continue to trade-up to luxury items over the long-term.

"With demand for premium beverages expected to rise, we think companies offering high-end products and a selection of imported wines will benefit, allowing these companies to capture market share from domestic brewers. Short-term, we think certain premium categories could be challenged as consumers increase savings rates," the review said.

US distilled spirits shipments saw modest gains for late 2007, following strong growth in 2005 and 2006, on continued innovations and aggressive on-premise marketing to first-time drinkers and the over-50 age group.

However, S&P believes growth has since slowed and will again in 2009.

"While support behind brand investments will likely continue, we see profits from spirits benefiting from pricing power and strong demand. Despite a possible stabilization in wine prices as grape costs begin to recover, we think wine volumes will rise moderately, driven by increased off-premise consumption."

It also projected continued competitive pressures from imported wines from Australia, Spain and Chile.

"We see stabilization in grape costs and higher interest expense partially offsetting likely price recovery and improved cost structures from consolidation," the researchers noted.

"Longer term, we believe US alcoholic beverage demand will rise, with most of the growth generated from new product activity and penetration into developing regions abroad. We believe the likely outcome of these trends will be a continuation of consolidation for the global alcoholic beverage group, as companies look to build economies of scale and global capabilities, as well as improve pricing flexibility."