Beverage Industry

2004 State of the Industry

July 1, 2004

2004 State of the Industry

The past year has been challenging for many beverage categories, but overall, the industry has faired well. Most categories have enjoyed increasing sales, albeit small increases in some categories, and while the low-carb trend has cast a shadow on some industry mainstays, it’s also been a launching pad for products such as diet and mid-calorie drinks.
Soft drinks continue to be the largest beverage segment and have had perhaps the most difficult time of any beverage category. Soft drink companies have worked to maintain positive results during a time of job cuts, reorganizations, school vending controversies and a very public fight against obesity. Sales of regular cola brands have been flat, but flavors and diet soft drinks are providing a boost for many soft drink manufacturers, according to Information Resources Inc. and ACNielsen.
Flavor brands such as Pepsi-Cola Co.’s Sierra Mist showed strong sales, and orange-flavored Mountain Dew LiveWire, which was only available from Memorial Day until Labor Day last year, was so successful the company decided to bring it back for Summer 2004.
In addition to paying attention to flavors, U.S. consumers also were watching the calorie content of the beverages they purchased in 2003. Diet soft drinks were the focus of marketing campaigns and led trends in beverage formulation. Among the leaders in the diet category, Diet Vanilla Coke shot up more than 397 percent in volume sales, and Pepsi’s Diet Sierra Mist climbed to an almost 250 percent volume increase as newcomers to the market in 2003.
From job cuts throughout North America in the beginning of the year to the $10-million Burger King frozen Coke lawsuit during the fall, The Coca-Cola Co. is coming off of a turbulent year. In the United States, the company cut 1,000 jobs last year and reorganized its bottle/can, fountain and Minute Maid product divisions. The pace of change continued this year as Chairman Doug Daft retired and was succeeded by Coca-Cola veteran Neville Isdell.
Year-end 2003 figures show that Coca-Cola’s overall sales slipped 4 percent last year, with positive results of 2.5 percent reported only in the drug category. Flavored cola brands Cherry Coke and Vanilla Coke picked up some of the slack with 33.2 percent and 22.6 percent in sales increases, respectively. Furthermore, the introduction of Sprite Remix gave the company and the category a boost in 2003, lending to Sprite’s trademark volume increase of 4 percent, according to Coca-Cola.
The company also introduced Barq’s Floatz, initially in Southern states, in its attempts to revive the popularity of the trademark, and Swerve milk-based drinks launched in school vending programs. Both products were designed to appeal to a younger demographic, while Diet Coke with Lime, is expected to grab adult consumers with its unique taste.
On the foodservice side of the business, Coca-Cola successfully wooed Milford, Conn.-based Subway sandwich chain away from Pepsi-Cola products, which previously accounted for 85 percent of Subway’s beverage business, in favor of Coca-Cola as its exclusive beverage supplier.
The Pepsi-Cola Co. has had a less controversial year than its main competitor, but it’s been one filled with product launches and organizational changes of its own. Beginning the summer selling season with limited-edition Mountain Dew LiveWire and launching Vanilla Pepsi at the end of the summer, the Purchase, N.Y.-based company recorded positive sales results in 2003 in all channels, except for mass merchandise, according to IRI and ACNielsen. While Coca-Cola suffered a slight decrease in category volume share, Pepsi reported a slight gain. Although the brand’s regular colas felt a 3.2 percent hit from last year, Pepsi flavors, including the Sierra Mist family of products, and Diet Cherry Pepsi, experienced increased sales of 144 percent and 68.9 percent, respectively.
Late last year, Pepsi announced plans to divide its North American operations into three core businesses. It cut 750 jobs while consolidating into Pepsi-Cola, Gatorade and juice divisions to streamline manufacturing and supply chain operations.
In other company news, Pepsi built on its successful tea partnership with Unilever and formed Pepsi Lipton International, a new joint agreement to market and distribute Lipton ready-to-drink teas.
Dr Pepper/Seven Up Inc. has been no stranger to change. Similar to the competition, the company struggled with decreasing sales and challenges due to organizational changes. As part of ongoing regional changes implemented by parent company Cadbury Schweppes plc, its three North American beverage units moved closer to consolidation. The goal was to create a united beverage group that includes Dr Pepper/ Seven Up, Snapple and Mott’s organizations under Cadbury Schweppes Americas Beverages.
Although the company’s overall channel sales for all brands dropped more than 3 percent from the previous year, 7 Up’s DNL showed impressive results. According to IRI and ACNielsen, DNL reported a more than 1,700 percent increase in grocery store sales and a more than 1,500 percent increase in drug store sales during its market debut in 2003.
The company’s focus on diet products in its advertising and marketing spending toward the end of 2003 is apparent in the continued success of Diet Dr Pepper. The diet soft drink reported a 5 percent increase in sales overall, and a 10 percent increase in the convenience and grocery channel.
Much to the disappointment of nationally branded soft drink companies, the private label bonanza continues and is building recognition among consumers on the retail shelf. Across all retail categories, excluding mass merchandise, private label colas and flavored soft drinks saw sales increases. A particularly strong outlet for private label proved to be the convenience and gas channel, averaging an almost 37 percent increase, according to IRI and ACNielsen.
The surge in convenience store private label sales is no surprise considering Cott Corp., Toronto, Ontario, the world’s largest store-brand soft drink producer, announced it would tap convenience stores for future growth. Cott Corp. reported record results for 2003 and saw sales rise 18 percent to finish the year with $1.4 billion in revenue, excluding acquisitions. Its U.S. business accounted for 17 percent of the company’s total growth.
Former head of Cott’s U.S. division, John K. Sheppard was named president and chief executive officer of the company. Sheppard’s plans for 2004 include taking advantage of opportunities in not only the United Kingdom and Mexico, but also in North America by strengthening Canada/U.S. ties. The company has already moved to expand its customer base in the mid-Atlantic states by acquiring North Carolina’s Quality Beverage Brands LLC. The agreement also involves Independent Beverage Corp., which is expected to add approximately $45 million in annual sales.
Just as the soft drink industry has been forced to adapt to calorie concerns, the juice segment has been hit by the low-carbohydrate diet trend. Carb-conscious dieters are shunning juice for the sake of their diets, and juice manufacturers have been scrambling to introduce low-sugar products to convince the public that juices can still be part of a well-rounded diet.
The call to action came in the form of lost sales. Refrigerated juices and juice drinks are down 2 percent from the previous year, frozen juices fell more than 13 percent last year, concentrates tumbled 22 percent, and aseptic and canned juices also took a hit. In fact, the only area that offered a glimmer of optimism was shelf-stable bottled juices, which fell only 0.5 percent in dollar sales, according to Information Resources Inc., Chicago.
New products aimed at the low-carb crowd include Minute Maid Premium Light and Tropicana Light ’n Healthy, which feature less sugar than traditional orange juices. In addition to a lighter refrigerated juice, Minute Maid launched a line of low-calorie shelf-stable juice drinks. Minute Maid Light is available in four-packs 500-ml. plastic bottles in four flavors: Lemonade, Raspberry Passion, Mango Tropical and Guava Citrus. Made with real fruit juice, the light line contains 5 calories per serving.
Old Orchard Brands, Sparta, Mich., launched a new addition to its existing line of Low Carb juices — Light Grape Juice, which has 75 percent less sugar, carbohydrates and calories compared to other fruit juices.
“Eating nutritiously and maintaining a healthy weight is important, and many people are pursuing popular diets like the Atkins Diet, The Zone or the South Beach Diet. The Old Orchard Light fruit juices will provide those dieters, and the rest of us, with a great way to get essential vitamins while providing a guilt-free treat,” said Michael McDonald, Old Orchard’s vice president of sales and marketing, of the product launch.
On another health front, Minute Maid added Heart Wise, an orange juice containing naturally-sourced plant sterols to help lower cholesterol, to the line-up. The company also launched a line of fruit-based aguas frescas beverages in Texas called Minute Maid MiFruta. Chilled 64-ounce flavors include Agua de Jamaica (Hibiscus), Agua de Mango Naranja (Mango Orange), Agua de Pina (Pineapple) and Fresa (Strawberry).
Welch’s also unveiled three new additions to its 100% White grape juice line, adding White Grape Cherry, White Grape Strawberry and White Grape Berry late last fall.
In other news, Snapple, based in White Plains, N.Y., landed an important agreement with the city of New York that stipulates all New York City schools will exclusively sell Cadbury’s range of Snapple fruit juices and water in vending machines. As part of the five-year deal, Cadbury will provide the city with investment to support its school playgrounds, sports and physical activity programs. Snapple will also redirect some of its marketing spending to promote New York City good-living messages.
2003 was a tough year for brewers — the Top 10 brands lost market share, and both domestic and per capita consumption took a turn for the worse. But analysts predicted an upswing in 2004 and consumers seem to have developed a taste for more premium products.
Davenport & Co. LLC estimates domestic consumption dropped 0.7 percent in 2003, and preliminary estimates from the U.S. Census Bureau show a per-capita consumption decrease from 21.9 gallons per person in 2002 to 21.5 gallons per person in 2003 — the first drop in per-capita consumption since 1997. However, while consumers are drinking less, they are upgrading to more expensive products.
Davenport attributes consumer trade-up to the focus on new products and packaging. The company estimates high-priced, super-premium and premium brands in aggregate maintained market position last year.
Although they did not enjoy the double-digit growth they experienced several years ago, imports had a 1.9-percent increase in consumption during the past year and 0.2-point market share gain in the category. This is a trend that Davenport expects to continue throughout 2004.
The strength of imported premium lagers in the United States pales in comparison to the robust standard lager market, which is predicted to reach 13.5 billion liters in sales by 2008, according to Euromonitor International. In fact, standard lager’s overpowering status among the beer styles in the United States is expected to protect it from economic uncertainty. However, Euromonitor also expects its volume sales to decline by 4.1 percent from 2003 to 2008. Fortunately, the light beer trend is contributing to a slowdown in the decline of domestic standard lager consumption in the United States.
Imported premium lagers are expected to see less volume growth through 2008, however Euromonitor predicts reductions will be slight due to Americans’ penchant for spending money on luxury items. Furthermore, premium lager sales are predicted to grow by 36.5 percent between 2003 and 2008.
From 2003 to 2008, dark beer volume is expected to grow by 14.8 percent. Experimentation with dark beer continues to be a trend among U.S. consumers, however unfamiliarity and the long tradition of lager-style beer continues to be a hurdle for dark beer in this country, according to Euromonitor.
Anheuser-Busch, St. Louis, Mo., maintained top honors as the No. 1 brewer in the United States in 2003. It reported shipments of 103.3 million barrels, which was an increase of 0.8 percent compared with the previous year, and it increased its market share points by 0.7, according to Davenport. While the introduction of Michelob Ultra set off a chain of followers that ultimately gave the U.S. beer market an innovation and sales boost in 2003, the brand had a cannibalistic effect on Bud Light’s growth. Bud Light’s shipments reportedly grew 2.5 percent in 2003, down from the 8.2 percent growth it experienced during 2002. Budweiser also declined in shipments to 31.8 million barrels, accounting for a 3.6 percent decline last year. As the first-to-market producer in the low-carb craze, Michelob Ultra was the company’s top performer and took 1.5 percent market share, reporting an estimated 3 million barrels shipped vs. the 0.5 million barrels it shipped the previous year.
In 2003, the company also launched Bacardi Silver Raz, the raspberry-flavored sibling of the Bacardi Silver O3 orange-flavored malternative, and World Select, Anheuser-Busch’s pilsner beer.
In addition to implementing cost-controlling measures by “removing barriers between brewers, wholesalers and retailers,” Anheuser Busch’s “Brewery of the Future” initiative is expected to help the company produce more beer using fewer resources.
Sliding into the No. 2 spot is Miller Brewing Co., Milwaukee, part of the SABMiller family of companies. The company reported volume at approximately 37.7 million barrels last year, down from 39 million barrels in 2002. Losing 0.5 points of market share, Miller has focused its efforts on reviving the Miller Lite brand through new packaging and advertising suggesting that it’s a low-carb alternative. As a result, Miller Lite has experienced a turnaround this year that was many months ahead of estimates.
Moving forward under leader Norman Adami, Miller also will be focusing on strengthening its sales and distribution efforts, prioritizing local markets and improving channel management, according to the company.
The Adolph Coors Co., Golden, Colo., also was among the companies reporting lackluster results for 2003. Shipments were down 1.3 percent from the previous year, and Davenport estimates the brewer lost 0.1 points of market share compared with 2002. While cornerstone brand Coors Light’s shipments decreased by approximately 1.8 percent last year, Keystone Light showed notable growth.
With growth in the United States and many other countries at a relative standstill, many brewers are looking to developing markets. Among the areas of interest are countries such as China, regions of the world such as Eastern Europe and continents such as South America. China, one of the four largest beer markets in the world, beat out the United States as the world’s largest beer market by volume in 2002. Current data shows that China, Brazil, the United States and Russia maintain the top spots for beer consumption in the world, according to Euromonitor.
Heineken reported its earnings growth for 2003 was driven primarily by acquisitions in Eastern and Central Europe. Focus on European markets through its investment in BBAG, an Austrian brewer, offset the increasing difficulty the company faced in its No. 1 market, the United States, due to a weakening dollar.
Starting in 2004 with the acquisition of a 50 percent stake in the Lion Group in Malaysia, Interbrew SA announced its plans in March to merge with Brazil’s Campanhia de Bebidas das Americas (AmBev), creating the largest brewer in the world by volume. InterbrewAmBev, the separate holding company formed after the $11.2 billion deal, is expected to sell 13 billion liters of beer annually and edge out No. 1 Anheuser-Busch. Forecasters at Euromonitor also predict that Latin American beer sales will grow by more than 14 percent during the next five years.
While Anheuser-Busch takes a back seat to Interbrew’s entrance in markets to the South, it recently announced the acquisition of approximately 30 percent of Harbin Brewery Group Ltd., a brewer in Northeastern China, to compete with the Belgian giant in China. The acquisition serves as the company’s second venture in the Chinese market after its investment in Tsingtao Brewery Co. Ltd. two years ago.
Part of its growth direction after the merger of South African Breweries and Miller Brewing Co. two years ago, SAB Miller plc focused its 2003 investment dollars on claiming a large stake in Italian brewer Peroni.
Celebrating 34 years of consecutive growth, the craft beer segment in the United States continues to shine. Craft beer experienced a 3.4 percent growth in production in 2003, according to the U.S. Association of Brewers.
The organization reports that in 2003 there were 81 brewery openings compared to 73 brewery closings, brewery size and distribution continued to expand, restaurants with breweries started bottling or canning lines and brewpub owners opened second and third locations. The shift in consumer interest for microbrews also was apparent at the cash register. The association found 2003 sales at off-premise locations increased and regional specialty brewers experienced 10 percent growth.
If sales of alternative beverages are any indication, we’re a nation in need of a pick-me-up. America’s thirst for energy-boosting alternative beverages remains unsated. The alternative beverage category experienced another year of healthy sales.
Dollar sales were up across the category in supermarkets, drug stores and mass merchandisers, excluding Wal-Mart, according to data from Chicago-based Information Resources Inc. Unit sales were also strong across the category, with the exception of canned and bottled teas which saw a decrease in unit sales of 2.8 percent vs. a year ago, despite a slight increase in dollar sales during the same period. New product activity across the category was robust, with low-carb and low-cal options predominating.
Interestingly, the most new product activity was in the ready-to-drink tea segment. White teas, purportedly chock full of antioxidants and virtually unheard of in the U.S. market until recently, are now the leaf of choice. Origins debuted a Pure Silver Tip White Tea. New Leaf White Tea is cane juice sweetened. Revolution White T comes in fruit flavors such as raspberry, and Fuze Beverage weighed in with its own White Tea brew as well. Other new RTD teas include Arizona’s Decaf Carb-Free and Botanically Brewed teas, Low-Carb Steaz Green Tea Soda, and Greenergy Double Brew green teas from Tradewinds Beverage Co.
Arizona led the canned and bottled tea category in sales with more than $116 million, up 27.6 percent from a year ago. The No. 2 brand, Lipton Brisk, suffered a sales decline of 8.5 percent during the past year. Nestea’s Cool brand experienced a similar fate, with a 17 percent decline in sales. Snapple and Diet Snapple performed better, posting gains of 6 percent and 12 percent respectively.
Sales of RTD cappuccino and iced coffee continue to grow. The segment was up more than 16 percent in dollar sales from a year ago. Starbucks/Pepsi’s Frappuccino dominates the category, with sales of more than $121 million. The only other product with sales above the million-dollar mark is Doubleshot, another product from the Starbucks/Pepsi partnership. Arizona’s cappuccino product took a big dip in sales – 73 percent. The company recently revamped its cappuccino shake though, so next year should be more indicative of the product’s future success. New product activity was slow across the segment with the only notable launch from Cadbury — Yoo-hoo Dyna-Mocha, a combination of Yoo-hoo and coffee.
The energy drink segment shows no sign yet of slowing down. Dollar sales growth vs. a year ago was 54 percent, with unit sales up 31 percent. Red Bull sits solidly atop the category with more than $115 million in sales. Next in line is Rockstar Energy drink with $14.5 million in sales, which reflects a nearly 125-percent increase from a year ago. Brands with sales declines include Coca-Cola’s KMX Energy Drink and Blue Ox Energy Drink.
There are plenty of new entries in the energy drink segment, each with its own special virtues. Impulse Energy Drink is sugar-free. US Energy Drink is low-carb. Wired boasts a larger size. YET (Your Energy Tonic) and Jugular are aimed at extreme sports fans. And Airforce Nutrisoda is a mid-calorie drink designed for frequent flyers.
One couldn’t tell that the average American shuns physical activity by the number of sports drinks sold in the United States. Sports drink sales topped $1.1 billion for the 52 weeks ending June 13, 2004, according to IRI. This was a dollar sales increase of more than 13 percent from a year ago. Unit sales kept pace with dollar sales, increasing 14 percent over a year ago.
Gatorade defined the sports drink category, and it still reigns over it. The sports drink powerhouse rules the category — eight of the top 10 products sold are Gatorade sub-brands like Fierce and Frost. It’s the rare brand that can so totally dominate a category for so long. The numbers tell the story though, Gatorade product sales exceed $920 million, which is around 84 percent of the category.
Despite Gatorade’s dominance, Coke’s Powerade is the No. 2 player in the category with more than $145 million in sales, showing an increase of 18 percent over a year ago. And Capri Sun Sport, admittedly, a minor player with just more than $33 million in sales, had a dollar sales increase of 190 percent vs. a year ago.
New product entries are few, perhaps a bow to Gatorade’s dominance. Nonetheless Procter & Gamble recently introduced Sunny D Intense Rehydrating Sport Drinks in Lemon Lime, Raspberry Ice and Orange flavors. Sunny D like Capri Sun is targeted to the tween set. Another entry from the Dairy Farmers of America is the milk-based Sport Shake Max. The shelf-stable beverage is available in four flavors – Strawberry Xtreme, Vanilla Blitz, Banana Blast and Chocolate Vanilla.
With the perception of municipal water quality not getting any better and consumers continually searching for that ever-healthier elixir, the bottled water category continues to grow. According to figures from Information Resources Inc., the bottled water category had sales of more than $3.2 billion in supermarkets, drug stores and mass merchandisers, excluding Wal-Mart, for the 52-week period ending June 13, 2004. That sales number reflects an increase of 12 percent vs, a year ago.
Pepsi Cola’s Aquafina brand led the category in sales with $378 million, an increase of 18 percent over the previous year. Private label jug water sales are solidly in second place with $326 million, but that’s a drop of 3.5 percent from a year ago. Consumers seem to be opting more for convenience-size bottles — private label convenience water sales rose nearly 32 percent to $264 million. Private label convenience size water now sits in fourth position in the category, just behind Coke’s Dasani brand, which had $275 million in sales.
New products continue to pour into the category. Aspen Pure water is positioned as a premium water sourced from the Rocky Mountains. It’s targeted at outdoor enthusiasts. Trinity Geothermal bottled water claims to be taken from an ancient water source more than 16,000 years old. Power Water is oxygenated and positioned as a super-premium product. And Le-Natures announced a line of Ice Waters in eight-sided bottles.
Flavored waters are also popular. Speedo Sportswater is a low-cal, low-carb entry that comes in four flavors – Orange Passionfruit, Fruit Punch, Lemon and Apple Starfruit. Each 18-ounce bottle is shaped like a bullet. Canada Pure Sparkling Refresher is a carbonated spring water available in natural flavors such as Black Cherry, Raspberry and Lemon. Energy Multi-Vitamin Enhanced Water, available in the Northeast, contains an alphabet of vitamins and is available in Tropical Punch, Peach-Strawberry, Kiwi-Strawberry, Tropical Citrus and Orange.
Leading Brands added a unique entry to the category with Soy2O. It’s a blend of fruit-flavored water and soy isoflavones. A special technology allows the beverage to capture the benefits of soy without the unpleasant taste, odor and appearance often associated with soy. The product comes in four flavors: Blueberry Grape, Peach Mango, Strawberry Guava and Lemon Green Tea. Each 12-ounce bottle retails for $1.09.
In a testament to the continuing importance of the category, Pepsi is test marketing a lower-priced bottled water, H2Oh! In several U.S. markets including St. Louis and Chicago, according to a report in The Wall Street Journal. There is also speculation that Pepsi may test the waters, so to speak, in the sparkling segment, since it applied for a trademark for Aquafina Sparkling.
The U.S. wine industry continues to grow, but the 2003 vintage took a bit of a production hit. 2003 wine shipments in the United States from all sources were up 5 percent at 627 million gallons. California accounted for 67 percent of the total market share at 417 million gallons, according to the Wine Institute in San Francisco.
The California grape crush was down 5 percent in 2003 from 2002, totaling less than 2.94 tons of wine grapes crushed. And growers received bad news as prices for red and white wine grapes on average dipped below 2002 prices, according to the California Department of Food and Agriculture in its Preliminary Grape Crush Report released in February.
Chardonnay was the largest contributor to crush volume, with more than 560,000 total tons crushed at an average price of $655 per ton. Cabernet Sauvignon and Zinfandel wine grapes took the No. 2 and No. 3 spots, respectively. Cabernet Sauvignon reported more than 395,000 total tons crushed at an average price per ton of more than $1,000. Zinfandel accounted for more than 327,000 tons priced at $427 per ton. According to the report, the largest production district was Fresno/Madera/Tulare, followed by Lodi/Woodbridge and Kern, all located in Central California.
According to the Wine Institute, the decrease in crush volume was largely due to unseasonable rain storms last spring, hotter-than-normal conditions during the summer and a decrease in the total vine acreage producing wine grapes. The organization cites the removal of vines in recent years at a faster rate than planting new grape-bearing plants was the cause of lower crush totals.
Although it appears the U.S. wine industry is struggling, experts say the relatively light crop will help the supply/demand balance in the California wine business, something the industry has been struggling with during the past few years.
Vinexpo predicts that by 2007, Americans will be consuming an average of more than 23 million hectoliters of wine, with still light wines leading the way. Of the still light wines being consumed, the world wine organization says more than 74 percent of the wine consumed in the United States will be produced domestically in 2007. However, as both international and national producers stake a larger claim in the growing wine-drinking population, Vinexpo expects imports to steal a larger piece of the pie from domestic competition.
Americans will spend more than $18 million on domestic and imported wine by 2007, up from more than $16 million reported by Vinexpo in 2002. And more than 80 percent of the market growth in the wine retail sector is expected to be wines that cost more than $5 per bottle, according to the organization.
E&J Gallo has maintained its position as the No. 1 wine producer in the United States by volume. The Modesto-based company has more than 35 brands that span all price ranges and sectors as well as a significant presence in international markets. According to Euromonitor, E&J Gallo is the largest exporter of U.S. wines, selling in more than 90 countries. However, broadsided in 2003 by the completed acquisition of Constellation Brand’s acquisition of BRL Hardy, Gallo now battles for the title of the world’s largest winery.
Gallo, typically known for value wines, is now expanding into the upper echelon of wine production with its premium-priced wines. This has given it an interesting position against rival producers such as Robert Mondavi and Kendall-Jackson in the United States, and Constellation on a world scale. The two multinational companies continue to compete head-to-head in a number of wine categories, including everything from low-priced budget wines to high-end premium offerings as well as flavored alcohol beverages. They also both have winery interests in Australia, one of the leading countries exporting wines to the United States.
Constellation Brands, Fairport, N.Y., reported net sales for its fiscal year 2004 increased by 43 percent to $2.4 billion. It attributed its success to the addition of BRL Hardy to the fold. Constellation also looked to the United Kingdom for business opportunities. The company says its premium branded wine sales grew 8 percent due to Australian and California wine in the United Kingdom and higher-end wines in the United States.
The company announced early this year that it formed Constellation Wines Europe to account for the increasing demand for its brands worldwide. The new group is part of the integration that took place within the company’s operations after the BRL Hardy merger.
The Wine Group, San Francisco, made its own waves in the wine business this year by maintaining its solid third-place position in the market, with a reported 25 million cases of wine sold in 2003. More recently, the company threw its bid in the ring for Golden State Vintners, one of the top five bulk wine producers in the United States. Although the combined company would not give The Wine Group a higher ranking among larger producers, it would support its positive growth.
Spirits have enjoyed growing popularity among younger consumers and the success of new flavored product introductions have made the past year a good one for distilled spirits. Cognac, vodka, rum and tequila lead the category, which grew 4 percent in 2003 to more than $41.4 billion overall, according to Euromonitor International. Volume grew 3.1 percent to nearly 1.4 billion liters.
Given the uncertain U.S. economy, consumers were expected to cut back on luxury items like spirits. However, the category’s 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 21-28 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 whiskey 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 whiskey 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.

Soft drink market share by company
Company Market share Market share % change Volume % change
Corporate Coca-Cola 36.8 -0.1 -0.4
Corporate Pepsi-Cola 25.1 0.3 0.7
Cadbury SCHWEPPES 16.8 -0.5 -3.1
Private Label 7.9 0.4 5.2
Source: Information Resources Inc. and ACNielsen for full-year 2003.
Global carbonate retail volume (in million liters)
Subsector 2003
Carbonates 135,971.1
Cola carbonates 77,107.2
Standard cola carbonates 57,701.3
Low calorie cola carbonates 16,146.1
Other cola carbonates 3,259.8
Non-cola carbonates 58,863.9
Lemonade/lime carbonates 17,423.6
Orange carbonates 13,168.2
Mixers 3,172.0
Other non-cola carbonates 25,100.0
Source: Euromonitor International — Global Soft Drinks Market Information System, 2004
Top soft drink brands by volume
Brand MARKET SHARE MARKET SHARE % change VOLUME SHARE % change
Coca-Cola Classic 14.7 -0.5 -3.1
Pepsi-Cola 13.1 -0.7 -5.1
Diet Coke 7.5 0.2 2.7
Mountain Dew 6.3 0.1 -1.4
Diet Pepsi 5.5 0.2 4.0
Private Label Flavors 4.9 0.3 5.6
Dr Pepper 4.7 -0.2 -4.1
Sprite 4.5 -0.3 -7.0
Private Label Colas 2.1 0.1 7.2
7 UP 1.8 -0.5 -20.1
Source: Information Resources Inc. and ACNielsen for full-year 2003 vs. prior year.
Top refrigerated juices by brand
Brand DOLLAR
SALES
% change vs.
prior year
Market
Share
% change vs.
prior year
Tropicana Pure Premium Orange Juice $1,198,785,000 -1.73 30.72 0.17
Private Label Orange Juice $436,717,600 -11.86 11.19 -1.22
Minute Maid Premium Orange Juice $436,713,500 -14.78 11.19 -1.64
Florida’s Natural Orange Juice $234,023,200 -4.91 6.00 -0.17
Sunny Delight Fruit Drink $201,860,100 -3.29 5.17 -0.05
Simply Orange Orange Juice $136,436,900 114.50 3.50 1.90
Tampico Fruit Drink $103,586,500 -4.37 2.65 -0.06
Dole Blended Fruit Drink $101,551,000 -11.59 2.60 -0.27
Minute Maid Premium Fruit Drink $80,659,940 -5.81 2.07 -0.08
Welch’s Fruit Drink $69,600,020 9.07 1.78 0.19
Category total $3,901,785,000 -2.27 100.00 0.00
Source: Information Resources Inc., Total food, drug and mass merchandise (excluding Wal-Mart) for the 52 weeks ending June 13, 2004
Top bottled juices by brand
Brand DOLLAR
SALES
% change vs.
prior year
Market
Share
% change vs.
prior year
Ocean Spray Cranberry Cocktail/Juice Drink $332,356,900 -8.12 9.49 -0.79
Private Label Apple Juice $197,463,300 -0.45 5.64 0.00
Libby’s Juicy Juice Fruit Juice Blend $170,385,600 0.19 4.87 0.03
Welch’s Grape Juice $160,586,900 2.46 4.59 0.13
Private Label Cranberry Cocktail/Juice Drink $130,958,400 -8.67 3.74 0.33
V8 Tomato/Vegetable Juice/Cocktail $121,379,800 19.44 3.47 0.58
Hawaiian Punch Fruit Drinks $117,795,200 5.67 3.36 0.20
Tropicana Twister Fruit Drinks $87,698,860 -6.44 2.50 -0.16
V8 Splash Tomato/Vegetable Juice/Cocktail $69,350,130 -18.33 1.98 -0.43
Mott’s Apple Juice $67,649,770 -8.94 1.93 -0.18
Category total $3,501,670,000 -0.50 100.00 0.00
Source: Information Resources Inc., Total food, drug and mass merchandise (excluding Wal-Mart) for the 52 weeks ending June 13, 2004
Global beer sales by value (millions of dollars rsp/hsp*)
Subsector 1998 2003 2008
Lager 312,731.7 340,212.8 374,145.4
Premium lager 72,475.9 89,806.0 111,815.6
Standard lager 205,351.1 203,392.9 208,479.1
Economy lager 34,904.8 47,013.9 53,850.7
Dark beer 22,979.6 23,180.1 23,436.8
Stout 6,904.3 8,167.6 8,295.3
Non-/low-alcohol 4,646.1 5,077.2 5,990.4
Total 347,261.7 376,637.7 411,868.0
*rsp/hsp=retail selling price/horeca (hotels, restaurants, catering) selling price
Source: Euromonitor International - Global Beer Market Information System, 2004
Top domestic beer brands (million barrels)
Brand 1999 2000 2001 2002 2003E
Bud Light 28.4 31.5 34.2 37.0 37.9
Budweiser 36.5 35.4 34.3 33.0 31.8
Coors Light 15.9 16.7 16.8 17.0 16.7
Miller Franchise* 16.6 16.5 15.8 15.4 15.9
A-B Natural Light 7.7 8.0 8.2 8.3 8.3
Busch 8.0 7.8 7.6 7.3 6.9
Miller High Life 5.4 5.2 5.6 5.8 5.7
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