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COMMENT: US spirits - fashion victim or trendsetter?

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Merrill Lynch has warned that the impressive growth in the US spirits market could be founded upon "cyclical", short-term movements in demand. Yet such shifts are intrinsic to this image-orientated sector and could be indicative of a wider trend towards consumer experimentation.

In a Financial Times report, investment bank Merrill Lynch has warned that the surge in demand for spirits in the US may be unsustainable, with recent growth being driven by "fickle fashion" and the emergence of a "cocktail culture" rather than a "long-term structural shift" in the consumption of alcoholic beverages. The news may induce caution among buoyant spirit producers and provide some comfort to struggling US brewers.

The US spirits market has experienced impressive growth in recent years as consumer interest has shifted away from beer towards wine and spirits. Between 1999 and 2004, the US spirits market increased in value by 14.2%, compared to just 4.3% for beer.

Premium and super-premium spirit markets have seen particular success, with a proliferation of new products being introduced to tap into the overall market growth. In contrast, such is the negativity surrounding the beer market that major US producers such as Molson Coors have suffered a decline in sales figures for the first quarter of this financial year.

Merrill may warn of the faddish nature of the spirit market upswing. Yet expensive, premium and overtly image-based products such as alcoholic drinks are always likely to be influenced by fashions emanating from popular culture, so it is important not to be overly dismissive of fads. Fads are a good way to maintain interest because they can provide short-term sales boosts and keep brands fresh.

Furthermore, shifts in preference between spirits and beer are likely to be accentuated by the fact that consumers are becoming increasingly experimental. The current cocktail culture could consequently be a key manifestation of another trend that is here to stay, one of consumer experimentation.

Additional trends, namely the growing social acceptability of spirits in the US and a more general trend among American drinkers towards premium products, could indicate that the surge in demand for spirits is more than a fickle phase. A growing preference for low calorie alcoholic beverages among US consumers, rooted in the health megatrend, also suggests longevity rather than a passing fad.

For more information on spirits in the US, click here.


Sectors: Beer & cider, Spirits, Wine

Companies: Molson Coors

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