The Trade-Up Factor

February 1, 2008
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The Trade-Up Factor

By JENNIFER ZEGLER

Search for status symbols benefits high-end spirits and wine
Trading spaces, and even spouses, is the basis for several reality television shows, and the concept now is affecting beverages as well. In the spirits category, consumers are swapping their no-name drinks for trendy, brand name or signature cocktails. And increasing numbers of consumers are turning to wine, if not for the status symbol, then for the health benefits.
“[Baby boomers] are trading in their Schlitz, Pabst Blue Ribbon, Budweiser, Miller and Coors for high-end luxury wines,” says Bump Williams, executive vice president and general manager of the beer, wine and spirits practice at Information Resources Inc., Chicago. “When you go down to the 21- to 27-year-old demographic there are some television shows, movies or ‘Sex and The City’ where the people are drinking wine, Cosmopolitans or Manhattans. It could be the younger demographic wanting to make the impression that they are well-read, educated and can take care of themselves.”
Both these seemingly opposite demographics, baby boomers and consumers who have recently reached legal drinking age, are driving the spirits and wine categories. The data show total spirits sales are up nearly 3 percent, according to IRI data for the 52 weeks ending Dec. 30, 2007. Wine is doing better, reporting a more than 7 percent increase for all table wine varieties for the same period.
Top spirits by category
VarietyDOLLAR SALES % CHANGE VS. PRIOR YEARMARKET SHARE % CHANGE VS. PRIOR YEAR
VODKA$906,351,2006.1%28.5%0.9%
WHISKEY$826,642,0001.6%25.9%-0.3%
RUM$424,777,3004.5%13.3%0.2%
CORDIALS$363,876,400-0.4%11.4%-0.4%
TEQUILA$238,285,5005.7%7.5%0.2%
GIN$138,739,8000.3%4.4%-0.1%
BRANDY$110,570,800-0.4%3.5%-0.1%
COGNAC$51,786,990-0.5%1.6%-0.1%
TOTAL CATEGORY $3,185,718,000 2.9% 100.0  
Source: Information Resources Inc., total U.S. food and drug outlets (excluding Wal-Mart) for the 52 weeks ending Dec. 30, 2007.

Top spirits brands
BrandDOLLAR SALES% CHANGE VS.
PRIOR YEAR
MARKET SHARE% CHANGE VS.
PRIOR YEAR
SMIRNOFF VODKA$195,061,9007.1%21.5%0.2%
BACARDI RUM$165,537,9001.5%39.0%-1.2%
CAPTAIN MORGAN RUM$132,494,8006.6%31.2%0.6%
JACK DANIELS WHISKEY$112,768,8001.6%13.6%0.0%
ABSOLUT VODKA$101,747,1008.8%11.2%0.3%
JOSE CUERVO$92,216,780-0.6%38.7%-2.4%
CROWN ROYAL WHISKEY$76,095,5105.8%9.2%0.4%
JIM BEAM WHISKEY$62,678,3701.0%7.6%0.0%
SKYY VODKA$61,670,0500.6%6.8%-0.4%
GREY GOOSE VODKA$53,354,04019.3%5.9%0.7%
TOTAL CATEGORY* $3,185,718,000 2.9% 100.0  
* Includes brands not shown.
Source: Information Resources Inc., total U.S. food and drug outlets (excluding Wal-Mart) for the 52 weeks ending Dec. 30, 2007.

U.S. wine and spirits sales by volume (in liters)
CATEGORY20022007FORECAST 2012
WINE 21,804,000 25,747,000 28,095,000
SPIRITS 1,335,315,000 1,603,612,000 1,808,796,000
Source: Euromonitor International, 2008.

Segmentation surge
Consumers’ search for premium spirits has no limit of modifiers attached to it. Consumers can buy super-premium or ultra-premium spirits, according to IRI’s category segmentation. Double-digit increases were reported for ultra-premium rum, super-premium vodka, ultra-premium tequila, super-premium tequila and ultra-premium whiskey, according to IRI data. The company defines ultra-premium as the top tier, with suggested retail prices of $26 and more, and super-premium is just less, fetching prices of $21 to $25.99.
“Consumers continue to be interested in trading up in nearly every [spirits] category,” says Brian Morgan, senior research analyst for Euromonitor International, Chicago. “It’s a desire to portray a certain image of luxury and it’s a status symbol, which is helped by popular culture and music videos.
“Spirits companies are catching on to this, especially in the whiskey category, which is attracting a lot of attention,” he continues. “There have been many small-batch bourbons and limited-edition cask releases. Irish whiskey is having a great year. [Premium] also is affecting vodka, gin, tequila and rum, where manufacturers are making higher-end separate brands or creating small batch products.”
 Last year, many of the upper-tier releases included limited-edition, small batch or reserve monikers. Tennessee-based Jack Daniel’s premium whiskey brand, Gentleman Jack, placed in IRI’s Top 100 spirits brands with $7.4 million in sales in food and drug outlets in 2007. Last month, Jameson Irish Whiskey announced Jameson Rarest Vintage Reserve. The limited-edition offering adds to the whiskey’s portfolio, which showed a 31.5 percent increase in sales during 2007, according to IRI’s figures.
IRI’s Williams highlights the success of luxury-end brands, such as Don Julio 1942 tequila, Crown Royal’s reserve whiskys, Ciroc, Belvedere and Grey Goose vodkas. Recognizing the importance of pop culture, Diageo-owned Ciroc vodka launched a campaign last fall featuring hip-hop mogul P.Diddy and the music of rapper Kanye West. Premium brand Grey Goose continues its rise, cracking IRI’s Top 10 this year with a 19.3 percent increase in sales since 2006 through measured channels. The brand also stands as a key example of using cocktail choices as a marker of status, Williams says.
“Image is a key thing, people want to identify or be identified with a brand,” he says. “Instead of going to a bar and ordering a vodka martini, why not order a Grey Goose martini? That kind of brand recognition is synonymous with image.”
Flavors’ fruition
While the shelves are packed with flavored offerings, companies continued the trend by introducing new varieties in 2007. Introductions included mango, blueberry and pumpkin pie flavors of vodka, which is largely regarded as the category where flavors first flourished. The addition of flavors has proved to be a successful way of expanding a brand.
“Consumers of beverage alcohol enjoy trial, excitement, innovation,” Williams says. “I don’t have the numbers on how new flavors perform, if they cannibalize other segments or if they form a loyal customer base. We do know new flavor introductions create a huge spike in trial.”
More categories are joining the flavor ranks, including new varieties of rum, gin and tequila.
“Nearly every vodka has 10 popular varieties,” Euromonitor’s Morgan explains. “This past year seemed to be grapefruit and melon cycle, but we don’t know if it can continue to be successful and profitable. There has to be some kind of limit when returns begin to die out, and I think we’re approaching that, especially with vodka. Now we’re seeing flavors move into other spirits. There have been flavored gins and tequilas that seem to add versatility to drinks and make the category more palatable and attractive with unique combinations.”
The produce section also served as inspiration for new launches. Absolut debuted a mango flavored vodka, while Smirnoff picked blueberry for a July release. White Rock’s Three Olives vodka brand introduced its own Mango as well as Watermelon and Pomegranate flavors in Septemeber.
Also last year, Bacardi added Peach Red to its lineup of rum flavors. Sweden’s V&S introduced a Black Cherry flavor of Cruzan rum in September. Early last year, Tanqueray introduced a variety flavored with Rangpur limes.
Tequila is expanding its uses with flavored products, a trend that began with José Cuervo’s 2006 launch of Citrico, Oranjo and Tropiña varieties. Since then, more brands have added flavors to the shelves, including Baja tequila’s Cherry flavor made by White Rock Distilleries, Lewiston, Maine, and Mexican brand Leyenda Del Milagro’s lime and orange flavors.
Indulgence is another area for flavor expansion. Billing its products as “sipping vodkas,” Modern Spirits released its fall seasonal variety, a Pumpkin Pie flavored vodka. The California company makes the vodka from real pumpkin puree and spices. Bailey’s experienced increases last year following the launch of Mint Chocolate and Caramel flavors and Godiva added Caramel Mint Chocolate to its liqueur lineup in November.
New flavors also play into the continuing popularity of cocktails. According to Williams and Morgan, consumers who recently reached legal drinking age are drawn to cocktails not only because of popularity in pop culture but the ability to drink something unique and reflective of their persona.
In addition, mixologists are taking a cue from wine and creating drinks that complement a particular cuisine or dish. Williams suggests the induction of Latino, Asian, Indian and African American cuisines into the mainstream has ushered in a new era of complementary cocktails.
“Spirits are offering versatility,” he says. “If you’re having a spicy Latino dish, maybe you’ll want a José Cuervo or 1942 tequila. If you’re having seafood, how about a Ciroc martini or Tanqueray gin? Spirits can go with any type of cuisine.”
Due to the continued popularity of cocktails, new entries and programs are helping to demystify mixing and make it approachable for in-home entertaining. Williams highlights one retail program designed around cocktail recipes that brought all the ingredients into the spirits section. All of the recipe’s ingredients, including the spirit, mixers and garnishes, were merchandised on one display, which encouraged trial and boosted sales, Williams says.
Era of approachability
Be it for health reasons or the desire to look sophisticated, consumers are no longer reserving wine for formal occasions. New brands, countries of origin and packaging are opening the category. Coupled with comfortable price points and informative retailing, trial of wine has reached a romantic point, “Wine is the sweetheart of the beverage alcohol category,” Williams says.
While the demographic buzz continues for baby boomers and 21- to 27-year-olds, wine’s appeal is wider reaching, he says.
“IRI did a huge study at the end of ‘06 that showed wine consumption in every single legal drinking aged demographic, male or female, single or with a family, white, black, Hispanic — wine has a huge range of appeal,” Williams says.
The Hispanic demographic is a new focus for the category, which brings along with it new countries of origin, Williams suggests.
“What hasn’t been a big part of the market is the huge Hispanic population growth,” he says. “...That has created a huge growth in Chilean and Argentinean wines. I think in ‘08 we’ll also see Mexican wines trickle into the United States. People don’t think of Mexico as a wine-producing region, but the ever-rising Mexican population is creating a draw.”
Top still wine brands
BrandDOLLAR SALES % CHANGE VS. PRIOR YEARMARKET SHARE % CHANGE VS. PRIOR YEAR
YELLOW TAIL (AUSTRALIA)$187,643,9000.3%3.6%-0.2%
SUTTER HOME (CALIFORNIA)$171,896,0005.1%3.3%-0.1%
FRANZIA (CALIFORNIA)$168,292,6001.7%3.3%-0.2%
WOODBRIDGE
BY ROBERT MONDAVI (CALIFORNIA)
$155,278,7004.9%3.0%-0.1%
KENDALL-JACKSON
VINTNERS RESERVE (CALIFORNIA)
$136,133,100-6.7%2.6%-0.4%
CARLO ROSSI (CALIFORNIA)$112,914,3002.8%2.2%-0.1%
BERINGER (CALIFORNIA)$111,272,3000.1%2.2%-0.2%
LIVINGSTON CELLARS
(CALIFORNIA)
$100,839,000-3.6%2.0%-0.2%
BAREFOOT (CALIFORNIA)$97,805,40056.5%1.9%0.6%
CLOS DU BOIS
(CALIFORNIA)
$91,395,82014.9%1.8%0.1%
TOTAL CATEGORY* $5,144,562,000 7.1% 100.0  
* Includes brands not shown.
Source: Information Resources Inc., total U.S. food and drug outlets (excluding Wal-Mart) for the 52 weeks ending Dec. 30, 2007.

At the same time as wine’s appeal grows, packaging advancements are creating new intrigue for wine brands. Screw-cap closures are becoming more popular as cork grows more expensive and less convenient, Williams says. Additionally, some wine brands are promoting the advantages of single-serve and multi-serve wine in a box. Aseptic packaging was up 55 percent in 2007 vs. prior year sales based on dollar share, and 3-liter boxed wines increased 32 percent based on dollar share, according to Williams.
“The new aseptic packages are not like old boxed wines. These are higher-end brands in boxes, which are promoting the packaging as a pretty good preserver for the wine,” he says. “...The aseptic is a convenience packaging opportunity for the development of the wine category. It also opens up more options for the convenience store trade class. Aseptic could be the packaging for them.”
As for the outlook for wine and spirits, both Williams and Euromonitor’s Morgan suggest greener products might be the next trend.
“I think we’ll see more organic wine products that have a green profile, whether that be in production or in packaging,” Morgan says. “Right now, green seems to be important for soft drinks and has yet to create a distinction in alcohol. I don’t think we’ve hit that point yet, but I think we will — if not this year, then next year. There are a few wineries producing organic brands, and many are talking about [sustainable] packaging.”
What's in a name?
From James Bond's martini preference to rapper Jay Z's champagne choice, pop culture's influence on alcohol beverage choices is less than subtle. As data shows, many consumers are making cocktail and wine choices based on the image the brands reflect. It may be only natural that celebrities are getting into the industry.
Fans of fashion designer Roberto Cavalli don't have to be limited to wearing his labels; they can also be spotted sipping Cavalli-branded wine and vodka. Aspiring millionaire apprentices have a new way to channel Donald Trump — through Trump super-premium vodka. And most people could not imagine keeping house and entertaining as maven Martha Stewart does, but those tasks might be made easier when Stewart releases her own branded wines this year.
Comedians aren't left off the list either. "Saturday Night Live" alum Dan Akyroyd released his own branded wine, while pint-sized actor Danny DeVito went back to his Italian roots for a Limoncello label. For the more active label pursuant, former Miami Dolphins quarterback Dan Marino partnered with Charity Wines for a line that donates proceeds to his foundation for children with chronic disorders.

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