A raft of recent reports looking at the US spirits market have suggested that, while times are tough in the country, they could be a whole lot worse. Chris Mercer takes a closer look at  the numbers to see how bad it is, and how bad it's going to get.

Emerging figures from the final months of 2008 and the beginning of 2009 suggest that the US spirits market is in worse shape than some predicted, but that it is still too early to sound the alarm.

Sales growth year-on-year has halved, from nearly 6% in 2007 to around 2.8% in 2008, according to figures released by the US Distilled Spirits Council (DISCUS) late last week. Total revenue for the spirits industry reached US$18.7bn, while volume sales also slowed, growing at 1.6% last year, compared to 2.4% the year before, the trade body said in its annual review.

DISCUS' CEO, Peter Cressy, concluded from these figures that the spirits business might not be "recession proof" but is certainly "recession resilient". In other words; things could be a lot worse.

However, while positive in many ways, the DISCUS figures do not bring us a lot closer to understanding how much worse things may get.

Economic conditions throughout most of 2008 were already looking more than a little suspect, but autumn's stock market implosion changed the game. Wads of public money were quickly used to plaster over the banking sector's self-inflicted wounds and, within a matter of weeks, economists and governments were routinely using the 'r' word, while candidly predicting a downturn to rival the Great Depression of the 1930s.

Early indications show that the US spirits market took a harder hit in the final quarter of 2008, suggesting the situation is a little less rosy than the DISCUS figures indicate.

One example of this comes from Fortune Brands, which last week reported a near-5% drop in full-year sales - to US$2.48bn - for its drinks division, Beam Global Spirits & Wine. Fourth quarter sales, meanwhile, slipped by 16%, three times faster than the average for the year.

Bruce Carbonari, Fortune's CEO and chairman, said he remained confident in the spirits category's ability to ride out the recession, but added that a 1% volume rise in 2009 would be at the "high end" of the group's expectations.

Analysts and other trade groups have also noted a more marked slowdown than that reported by DISCUS in its annual review. Recent data from the National Alcohol Beverage Control Association has shown that spirits shipments in November fell by 5.4% on the same period last year.

The acid test for the market is likely to arrive in the next fortnight, with both Diageo and Pernod Ricard set to announce their half-year results.

Bernstein Group analyst Trevor Stirling told just-drinks in January: "Six months ago, it looked as if Diageo was immune to recession, now we are starting to see an impact." The Smirnoff and Johnny Walker owner has seen annual growth in the US of around 1% below the spirits market average, according to Bernstein estimates. Rival Pernod, meanwhile, has seen annual volumes in the country dip by around 1%, despite strong performances from individual brands, notably Jameson, Bernstein said in a note.

Relative success in 2009 may hinge on companies' abilities to keep pace with a more rapidly shifting US market. More consumers are counting their cents, which means they are more likely to shun flamboyant cocktails in bars in favour of something more austere in the comfort of their own homes. Whilst not a new trend, it certainly seems to be accelerating. DISCUS estimates that off-premise volume sales in the US rose by nearly 3% last year, compared to around a 2% decline in the on-trade in the same period.

It is a trend that DISCUS fears will be exacerbated further by tax rise proposals for the hospitality sector in several states going forward. Companies may not have to deal with the spectre of Prohibition, as they did in the early period of the Great Depression up to 1933, but, just as then, they are facing a majority of US states with significant budget deficits.

Tax rises are in the pipeline, although DISCUS has ramped up the rhetoric in an effort to curb the worst of them. CEO Cressy warned last week of up to 200,000 hospitality sector job losses if all proposed tax rises are passed this year.

Looking more closely at the sectors within the spirits category in the US, DISCUS' figures show that premium spirits brands held up relatively well in 2008, with volume sales up 3.7%, compared to growth of 2.2% in 2007. Value growth slowed, however, from $389m to $285m. Value brands have clearly seen a boost, with growth of $65m last year, helping to reverse a $105m drop in sales for 2007.

Value growth in the so-called high-end and super-premium categories in 2008 was only around a quarter of that achieved in 2007. Such blanket market figures do not always tell the whole story, however, with high-end rum and super-premium Tequila posting gains last year, DISCUS said.

Recession is naturally a time when people start to look more carefully at what they need and what they can do without. By a similar token, it can also be a time when good ideas work and bad ones are exposed. UK entrepreneur Richard Branson said last week, for example, that he believed many future millionaires would emerge from the depths of this recession.

Spirits firms in the US may need to batten down the hatches for the next 12 months, then, but, as the DISCUS figures allude to, there will still be tales of individual glory on the troubled road ahead.