As incomes return, consumers will demand more premium and super-premium spirits
Los Angeles, CA (PRWEB) May 04, 2012
Although the Distilleries industry managed muted growth over the past five years, it was not immune to the economic downturn. “What kept the industry from declining during the recession was a trend toward premiumization: an increase in the consumption of higher-grade liquors and spirits. An increase in the popularity of cocktails (over beer and wine) also drove demand for lower-quality industry products that are used for mixing drinks in bars and restaurants,” says IBISWorld industry analyst Agata Kaczanowska. IBISWorld estimates that industry revenue increased at an average rate of 1.6% per year over the five years to 2012 — robust growth, given the poor consumer sentiment during the time. In 2012, revenue is expected to total $7.2 billion and display growth of 2.7%. While profit margins (i.e. earnings before interest and taxes) dipped in the past five years, they are expected to recover.
Over the past five years, the popularity of cocktails has resulted in increased liquor and spirits consumption in social drinking locations like bars and nightclubs. “Helped by advertising and promotion by the Distilleries industry’s major players, the role of the cocktail has expanded from just a drink into a symbol of class and sophistication. In response, customers have upgraded their purchases, moving from the bottom shelf toward premium tiers of quality,” says Kaczanowska. When disposable income dropped during the recession, instead of compromising the quality of the products they purchased, consumers saved money simply by drinking their preferred liquor and spirits at home.
The industry is characterized by a high degree of concentration, with major players Diageo, Brown Foreman, Beam and Pernod Ricard accounting for much of domestic production. The top players are constantly buying and selling brands among each other, leading to considerable reallocation of market share and brands. For example, Fortune Brands purchased the Cruzan Rum brand from Pernod Ricard in 2008. Fortune then sold Pernod Ricard its Absolut vodka brand later in the year. The remainder of the market share is spread out over regional and local brands. These firms have smaller distilleries, most of which will not expand beyond their regional or niche markets. Acquisition activity and consumers' trust in their brands during the recession have supported the market share dominance of the major players. Imports are anticipated to maintain their presence in the market, though, as the premiumization trend balances out the declining US dollar. In 2013, the industry will benefit from stronger consumer sentiment and expanding household budgets. Premiumization will likely become more widespread as spending increases, which will help drive up the annualized revenue growth rate. Furthermore, distilleries will also benefit from a growing population of legal drinkers. For more information, visit IBISWorld’s Distilleries in the US industry report page.
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IBISWorld industry Report Key Topics
This industry consists of distilleries that purchase a range of ingredients, such as grains and sugar, and manufacture them into spirits (i.e. not beer or wine). These spirits are then bottled and sold to liquor wholesalers, bars, casinos, restaurants, hotels and other retail stores.
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
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