On the surface, America’s distillers are waging a heated competition for the favor of consumers.
Below the surface, their representatives are waging an even more heated battle against moves by numerous states to bring in more revenue to offset shortages caused by the current economic malaise.
A few examples of the latter:
— The state of Washington this summer will raise liquor prices in a move to increase declining state revenues. The current markup on liquor sold in the state is 39.2 percent. Under the new rules, it will be 51.9 percent. The action is in response to the state $9 billion budget deficit.
— The Indiana state legislature is considering doubling the excise tax on alcohol. If it does, it will make the state’s tax rate 34 percent higher than the national average.
— Consumers are about to be hit with an additional 50-cent tax on every bottle of distilled spirits purchased in Oregon. That state’s Liquor Control Commission approved the surcharge to help ease the pressure on the state treasury.
— In Kentucky, the nation’s leading whiskey-making area, a recent protest against a proposed 6 percent sales tax on all spirits drew a parade of industry and distillery officials. They stood shoulder-to-shoulder and poured spirits on the state capitol’s front steps as delivery trucks circled the Capitol building all that morning.
However, the industry is persevering on numerous fronts.
Established brands continue cranking out new editions of high-end labels — Four Roses Single Barrel Limited Edition, cherry-infused Red Stag from Jim Beam — or at least using new decanters, as has been done for Jack Daniel’s Single Barrel.
Nationally, the seven-year-old American Distilling Institute has grown to more than 160 U.S. member distillers (plus 10 Canadian members). The craft distilling group is finding such growth and specialization in its membership that this year’s annual conference was able to zero in on the specific item of brandy rather than just being a general interest get-together.
More applications for distillery licenses than ever are being filed — in such diverse spots as Kentucky, Idaho, Tennessee and Texas — and the smaller “craft” or “micro” distillery niche is growing and becoming more sophisticated about its marketing and information sharing.
For example, in New York State, known more for its wines as the nation’s third-largest producer, spirits are getting more notice with the recent creation of the New York Craft Distillers Guild. Changes in the state’s Alcohol Beverage Control Law have made it possible in recent years for small distillers to develop and flourish. With 12 licensed craft distillers, New York now has the highest concentration of distilleries of any state east of the Mississippi, according to the Guild.
Figures released earlier this year from the U.S. Department of Commerce, as compiled by the U.S. International Trade Commission, shows seven of the top 10 foreign markets for American spirits on the rise. That totaled an overall increase of 49 percent over the prior year, or $392.3 million in just those markets. Overall, the industry experienced record exports for the sixth consecutive year. And, it is projected that once final figures are compiled, spirits exports will top wine exports for the fourth consecutive year.
The biggest market for U.S. spirits exports was Canada, up 21.2 percent to $171.9 million. Sales in the United Kingdom, while down 15%, ranked No. 2 at $136.5 million.
In the overall distilled spirits industry, says Peter Cressy, CEO of the Distilled Spirits Council of the U.S. (DISCUS), 2008 showed growth, albeit slower than in 2007, in spirits sales, with revenue growth of 2.8 percent, or $18.7 billion, and volume growth of 1.6 percent to 184 million cases. A positive number, although well off the average annual industry growth rate of 6 percent experienced since 2000.
Cressy cited several key factors in the industry’s recession resiliency:
— Holding the line on new hospitality taxes.
— Expanding market access.
— The continuing fascination with the cocktail culture and spirits premiumization.
— Continuing to push the idea that spirits are an affordable luxury, even in tough financial times.
In particular, DISCUS, as the major industry organization, takes the stance that because distilled spirits, and all beverage alcohol, is a major component of hospitality industry profitability and — particularly for the hard-hit on-premise segment of restaurants, bars and hotels — new hospitality taxes could have a devastating impact on employment and actual tax receipts.
“Our message is simple,” Cressy said. “We are not seeking a bailout; just do no harm.”
My question for Cressy when the statistics came out was, given that this is not an industry that makes quick, sharp turns in different product directions, how does DISCUS view the near-term health of what I see as an industry push toward super premium priced spirits? Will distillers pull back from that push, given the way consumers are cutting back in so many other aspects of discretionary spending.
“Well, it’s difficult to speak for the industry in the aggregate,” he said, “and premiumization has slowed, but it still continues. We now have three categories for that — premium, high-end premium and super premium. Even though the economy was weak in 2008, we still saw some increases in sales in those niches, so I suspect many distillers will continue considering them as a strong option in 2009.”
(William M. Dowd covers the global beverage industry online at BillDowd.com)