Spurred by growing popularity among younger consumers and numerous flavored product introductions, 2003 was a good year for distilled spirits. Led by Cognac, vodka, rum and tequila, spirits sales increased 4 percent in 2003 to more than $41.4 billion; volume grew 3.1 percent to nearly 1.4 billion liters, according to Euromonitor International.

Given the uncertain U.S. economy, consumers were expected to cut back on luxury items like spirits. However, spirits’ 2003 performance indicates that consumers are optimistic about a possible economic upturn and are retaining their preference for even super-premium priced spirits.

Spirits have also undergone an image transformation that continues to drive sales and volume. While classic cocktails enjoyed a brief 1990s revival, spirits are now positioned as a key ingredient in newer specialty drinks that are more relevant to younger consumers, particularly the 21 to 28 age group.

Thanks to hip-hop songs like Busta Rhymes’ “Pass the Courvoisier,” Cognac and brandy have experienced a sharp increase in interest from young and urban audiences. Cognac and brandy regularly appear in rap and hip-hop videos, giving those segments a trendy, sophisticated image among younger consumers. In 2003, combined brandy and Cognac volume increased 3.1 percent, while sales climbed 4.7 percent. The marriage of music and spirits is expected to strengthen during the next year. Among the deals struck in 2003, William Grant & Sons licensed the new Armadale Vodka brand to Roc-A-Fella Records, home to top-selling rap artist Jay-Z. Roc-A-Fella promotes the product while William Grant handles production.

Liqueurs also remained popular in 2003, growing 1.5 percent in volume and posting a 2.7 percent sales increase to $5.7 billion. Bailey’s Irish Cream and Jagermeister are among the strongest premium liqueur brands.

Rum is a star in the spirits category, as the introduction of flavored rums increased its popularity as both a mixer and a stand-alone drink among younger consumers. Rum sales grew 5.4 percent in 2003 to $4.6 billion, and volume increased 4.7 percent. Its sweeter taste and versatility in mixed drinks drives rum’s appeal among younger consumers. Last year saw the introduction of numerous flavored rums, notably Bacardi Flavored Rum Razz, Vanilla and Coco, extensions of the manufacturer’s popular Limon and orange-flavored Bacardi O brands. In terms of brands, the rum category is largely a battle for market share between No. 1 Bacardi and No. 2 Captain Morgan, with Malibu a distant third. While Bacardi’s lead remains solid, Captain Morgan has recently gained market share due to aggressive marketing and a more developed line of flavored products.

Where rum experienced great success in 2003, tequila is recovering from a dramatic shift in popularity. After growing steadily throughout the 1990s, tequila sales took a nosedive in 2001, in part because consumers switched to more au courant spirits like rum or vodka. In 2003, tequila showed improvement. Volume, spurred by a rise in sales of premium brands such as Jose Cuervo Gran Reserva and Viuda de Romero Resposado Premium Tequila, increased 8.2 percent to 72.4 million liters and sales grew 9.2 percent to reach $2.1 billion. Jose Cuervo is the largest U.S. tequila brand and the sixth-largest overall distilled spirits brand by volume.

Among white spirits, vodka is the clear leader. Vodka sales grew 6 percent in volume to 385 million liters and increased sales 6.9 percent to $9.8 billion in 2003, according to Euromonitor. Value growth outpaces volume gains in the vodka category as consumers increasingly trade up to premium brands such as Belvedere, Grey Goose and Stolichnaya, although general demand also lifted sales of standard-priced brands. Smirnoff, the leading vodka brand by volume and the second-largest spirits brand overall, has seen steady growth during the past two years.

Like rum, vodka is a versatile mixed drink ingredient, as evidenced by the popularity of vodka martinis, vodka gimlets, vodka tonics and Cosmopolitans. Flavored vodkas are driving the category’s surge, as they can be consumed alone or in mixed drinks. Citrus flavors such as lemon and orange are popular, as is vanilla. Notable new product rollouts in 2003 included Stolichnaya Stoli Cranberi and Stoli Citros, Skyy Flavored Vodka and Absolut Vodka Vanilia.

As vodka has grown, gin has suffered. In the United States, gin is primarily consumed in mixed drinks, but consumers are replacing gin with vodka in traditionally gin-based drinks such as gin gimlets and gin martinis. Also, due to its strong juniper berry taste, there are few flavored gins on the market. In 2003, gin volume remained largely flat, posting only a 0.6 percent gain. Sales increased 1.4 percent to $2.7 million, bolstered by the fact that consumers are choosing premium brands such as Bombay Sapphire and Beefeater.

In the whiskey category, premium and super-premium products such as single-malt Scotch whisky gained the most in 2003. While the category remained largely flat, Irish whisky saw a 7.8 percent increase in volume, and a 9.1 percent sales increase to $240 million. This is due in part to the fact that Irish whisky is a relatively immature segment in the United States, since its market penetration is not as great as U.S. bourbon, Canadian whisky and Scotch whisky. The segment is dominated by Pernod Ricard USA’s Jameson brand family. While it remains the single largest U.S. distilled spirits subsector, whiskey has lost ground to trendier drinks. Overall, whiskey volume increased only 0.3 percent in 2003 and posted a 1.3 percent sales increase to $11.4 billion, due mostly to premium and super-premium brand sales.

Overall, Diageo plc is the spirits category leader, controlling 19.3 per-cent of volume in 2002, with brands including Captain Morgan rum, Seagram’s 7 Crown U.S. whiskey, Smirnoff vodka and Jose Cuervo tequila. Jim Beam Brands Worldwide Inc. was the second-largest U.S. distilled spirits company in 2002, accounting for 9.4 percent of volume. Round-ing out the top three, Constellation Brands, manufacturer of the Barton and Black Velvet whiskey brands, held 8.4 percent of volume in 2002.

Top 20 brand shares of spirits (% total volume)
Global brand	Company	Market share (2002)
Bacardi	Bacardi & Co	5.3
Smirnoff	Diageo North America	4.7
Absolut Vodka	Future Brands LLC	3.1
Jack Daniel's	Brown-Forman Corp.	2.5
Captain Morgan	Diageo North America	2.3
José Cuervo	Diageo North America	2.2
Jim Beam	Jim Beam Brands Worldwide	2.1
Crown Royal	Diageo North America	2.0
Seagram's Gin	Pernod Ricard USA	1.9
De Kuyper	Jim Beam Brands Worldwide	1.7
Seagram's 7 Crown	Diageo North America	1.7
Gordon's	Diageo North America	1.6
E & J	E & J Gallo Winery	1.6
Canadian Mist	Brown-Forman Corp.	1.5
Barton	Constellation Brands Inc.	1.2
Black Velvet	Constellation Brands Inc.	1.2
Hennessy	Schieffelin & Somerset Inc.	1.2
McCormick	McCormick Distilling Co. Inc.	1.2
Popov	Diageo North America	1.1
Stolichnaya	Allied Domecq Spirits USA	1.1
Source: Euromonitor International, Chicago
Sales of spirits by subsector: total volume 2003
Category		2003 (000 litres)
Whisk(e)y		393,602.9
Single malt Scotch whisky		7,192.9
Blended Scotch whisky		76,134.5
Bourbon/other U.S. whiskey		168,572.7
Canadian whisky		137,395.1
Irish whisky		4,307.7
Brandy and Cognac		91,701.1
Brandy		59,798.7
Cognac		31,902.4
White spirits		484,967.4
Gin		99,912.1
Vodka		385,055.3
Rum		176,556.2
White rum		98,302.1
Dark rum		78,254.1
Tequila (and mezcal)		72,425.3
Liqueurs		159,287.4
Cream-based liqueurs		23,508.4
Bitters		10,471.8
Other liqueurs		125,307.2
Other spirits		11,656.8
Total Spirits		1,390,197.1
Source: Euromonitor International, Chicago
Sales of spirits by subsector: total value 2003
Category		2003 (U.S.$ million)
Whisk(e)y		11,354.4
Single malt Scotch whisky		583.0
Blended Scotch whisky		2,502.1
Bourbon/other U.S. whiskey		4,441.5
Canadian whisky		3,587.9
Irish whisky		239.9
Brandy and Cognac		4,748.8
Brandy		1,581.5
Cognac		3,167.3
White spirits		12,505.6
Gin		2,684.4
Vodka		9,821.2
Rum		4,630.0
White rum		2,458.1
Dark rum		2,171.9
Tequila (and mezcal)		2,139.5
Liqueurs		5,662.5
Cream-based liqueurs		809.7
Bitters		426.6
Other liqueurs		4,426.2
Other spirits		442.0
Total Spirits		41,482.8
Source: Euromonitor International, Chicago