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Regulars DRINKS RECORD JUNE 2010 China’s wine market to top 100m cases CHINA According to the



JUNE 2010

China’s wine market to top 100m cases

CHINA According to the latest IWSR report, still light wine in China will top 100m cases for the first time in 2010. In 2009, the total still light wine market grew by 28.6% on 2008, reaching 93.1m nine-litre cases. Imports accounted for 11% of that total, up from 9% in 2008, and are expected to rise to 11.7% of the total market in 2010. China imported the equivalent of over 10m cases of still light wine in 2009, a growth of over 50% on 2008. The largest suppliers of bottled wine into China are France, with 4.5m cases, and Australia, with 2m cases. Wine consumption among Chinese people continues to grow, as the Chinese Government looks favourably on a switch from baijiu to wine, with its lower alcohol content. Wine is growing

to wine, with its lower alcohol content. Wine is growing strongly for banquets, business-to-business offers, and

strongly for banquets, business-to-business offers, and even gifts to employers by large companies during festive periods. Rich Chinese are also investing in expensive wines, with Hong Kong auctions of fine wines now becom- ing more important than those in London and just behind New York – in 2009, there were 14 fine wine auctions in Hong Kong, raising the equivalent of HK$420.7m ($54m).

Changes on exchange rules hit imported drinks in Venezuela

VENEZUELA A new law will pose fresh challenges for the drinks industry in Venezuela, one of the world’s top Scotch markets. On May 17, President Hugo Chavez signed a new law – to be ratified in early June – which means that all foreign currency transactions must pass through the Central Bank of Venezuela, and not independent brokerages. Already, all monetary exchange must be overseen by the Foreign Exchange Administration Commission (Cadivi), but the supply of dollars is limited, and transactions may take weeks to approve, or may not gain approval at all. To circumvent this, brokerage com- panies buy shares and bonds on the New York or other foreign stock exchange, paying in Bolivares and then sell them, receiving dollars; a convoluted but legal way to gain ‘parallel market’ dollars. Independent deals will now be prohibited, and all stock and bonds transactions must go through the Central Bank. Following the announcement, the black market rate for the dollar rose to around BsF9 – the official rate is BsF2.6 for some

goods, and BsF4.3 for others, including alcoholic drinks. Inflation, originally forecast at over 30% for 2010 is now predicted to be closer to 40%. The overstretched Venezuelan consumer will be forced to shun imports, but local producers will also suffer, as many import some raw materials. Well-accustomed to working in uncertain condi- tions, it is likely importers will eventually find a new – even more tortuous – loophole, but price rises are inevitable. Scotch whisky fell by 18.5% between 2007 and 2008, but the decline slowed to 4.9% from 2008 to 2009 according to The IWSR, as dis- tributors found ways around the exchange restrictions. These strategies have now been cur- tailed by the new law. One analyst from a lead- ing multinational in Venezuela told The IWSR Drinks Record that, so far in 2010, the Scotch market has fallen by 8% in general, with premi- um and super-premium brands hit hardest, down around 24%. This is likely to continue as prices rise and access to dollars is more restricted.

Spirits Section






New products


Flash trends

Global RTDs

News 5 New products 7 Flash trends Global RTDs While some 8 may have thought that

While some


may have thought that the ready- to-drinks category had seen its heyday, suppliers argue that it is very much alive


heyday, suppliers argue that it is very much alive Interview 13 Heaven Hill president Max Shapira

Heaven Hill

president Max Shapira gives us his views on the resurgence of the American whiskey category

Spirits in



The imported spirits market in Brazil recovered strongly in 2009 and this year is forecast to be even better




Diageo argues that rumours of the death of premiumisation are unfounded

Wine Section


Wine news


Australian wines face a challenging market


Wine closures: the debate moves into new territory


Wine closures: the debate moves into new territory Interview 30 Mexican retailer Soriana’s Edgar Alan Barraza


retailer Soriana’s Edgar Alan Barraza Zatarain outlines the trends for drinks categories in the Mexican market

Comment by Alexander Smith

C o m m e n t by Alexander Smith EDITOR Alexander T Smith Email: alsmith@iwsr.co.uk


Alexander T Smith

Email: alsmith@iwsr.co.uk


Eluned Woollven


Laura Tovey


Thalia Fourie


Val Smith

Alastair Smith


Helen Windle


Justyna Bednarska


Rina Maiden

Email: rina@iwsr.co.uk


Val Smith

Alastair Smith


Sandra Newman


Agata Andrzejczak Jose Hermoso Piotr Poznanski Humphrey Serjeantson Tim Simmons Helen Windle Ania Zymelka Daniel Mettyear


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N ews that Australian drinks group Foster’s will demerge its wine and brewing operations comes as no surprise. Analysts had been advo- cating such a move for years. The

company’s own review of its wine division early last year suggested that a sale would have been its preferred option, but this was impeded by the the credit crisis. Foster’s brewing division continues to generate some of the highest profit margins in the industry – around 38% – while the wine division’s profits have tumbled. Foster’s initial move to diversify into the wine sector in 1996 through the acquisition of Mildara Blass was a defensive one. Then, its brewing division was underperforming and wine was viewed as a more profitable long-term play. So what has changed in the intervening years? Some of the problems are of its own making. It paid a high premium in acquiring the Beringer business at AU$2.6bn, and apparently vastly overpaid for Southcorp at


The timing of that latter deal was unfortu- nate, too, as it came just as both the global

industry, and the Australian industry in partic- ular, were entering a period of oversupply. This, along with retailer consolidation, particularly in the UK – Australia’s number one export market – led suppliers to over-promote and dis- count. This tendency to over-promote was probably a major contributing factor to Southcorp’s earlier demise. Rising excise duties in the UK and the vast appreciation of the Australian dollar con- tributed to a margin squeeze, just as global demand was falling due to the recession. It all adds up to a crisis for the Australian industry. Foster’s paid about AU$6.7bn in building its combined wine empire. Analysts estimate that it would today realise between AU$1.7bn ($1.4bn) and AU$3.2bn ($2.7bn) for the busi- ness. That represents real value destruction. The challenge now for both Foster’s and the broader industry is to restore value and prof- itability. That, it is hoped, will be achieved through a focus on regionality, innovation and premium brand-building. This is a long-term process. In the short term, the outlook is unfor- tunately one of continued tough times.


in brief

New marketing head at Bacardi: Silvia Lagnado has been named the chief marketing officer (CMO) of Bacardi and president of Bacardi Global Brands, responsible for global marketing initiatives for the com-pany’s port- folio of premium spirits. Lagnado fills the hole left by the departure of Stella David, who joined William Grant & Sons earlier this year as CEO. Brazilian-born Lagnado, who will join Bacardi by September 1, has had a 24- year career at Unilever.

Diageo MD to leave: Diageo managing direc-

tor of Global Travel and Middle East Phil Humphreys is leaving the company to take up

a senior role with Coca Cola SABCO in

Dubai. Humphreys joined Diageo in 2005, coming from Nestlé and took up the GTME role in July 2008. No replacement has as yet

been announced but Stuart Fletcher, presi-

dent of Diageo’s International Region, stated:

“I have already started the search for an out-

standing leader who can take GTME on to even greater things.” In other news, Diageo’s chief financial officer Nick Rose will stand down from the

chief financial officer Nick Rose will stand down from the board at the company’s AGM on
chief financial officer Nick Rose will stand down from the board at the company’s AGM on

board at the company’s AGM on 14 October 2010. Rose will be replaced by Deirdre Mahlan, currently Diageo’s deputy finance director. Rose will remain with Diageo until the end of December 2010. Mahlan joined Diageo in 2001, having worked for the Seagram Company since 1992. She has held a number of senior finance positions in Diageo.

Sleigh bells ring for Edrington: The Edrington Group has appointed Steven Sleigh as area director for global travel retail. Sleigh has been with the company for 18 years, most recently as area director for UK domestic and Benelux. He succeeds William Ovens who, after nine years with Edrington, is joining pack- aging company Presentation Products as sales and marketing director.

2 | IWSR JUNE 2010


Up-to-date news, views and reviews for the global drinks industry

William Grant acquires C&C’s spirits business

UK UK-based William Grant & Sons has entered into a binding agreement for the pur- chase of the shares and assets of C&C Group’s spirits and liqueur business for 300m ($368.7m). The purchase will include the C&C portfolio of Irish spirits and liqueur brands, Tullamore Dew, Carolans, Frangelico and Irish Mist. The transaction is due to be completed on 30 June 2010. The disposal is subject to C&C shareholder approval. William Grant & Sons CEO Stella David

said in a statement: “William Grant & Sons has

a rich history in Scotch whisky, dating back to 1886, and we have been looking to further

develop our non-Scotch portfolio. Irish whiskey

is a natural fit and C&C’s spirits business pro-

vides a unique opportunity to acquire a number

of significant brands and enter the dynamic Irish whiskey category.

“We shall make significant invest- ment in Ireland and invest in the long- term value growth of the brands, including Tullamore Dew Irish Whiskey which, at 600,000 cases, will become a core global brand in our busi- ness,” she added. The company

also confirmed its commitment to building a strong business in Ireland and to maintain- ing and developing current operations across the Irish sites, including C&C’s man- ufacturing site in Clonmel, Co Tipperary. For the year ended February 28 2009, the division generated revenue of 85.9m ($105.6m) EBITDA before exceptional items of 16.1m ($19.8m). Stephen Glancey, C&C Group COO, said:

“While the division represents a compa- ratively small component of C&C’s overall earnings, the consideration reflects the quality of its brand portfolio and its strong market positions. The group intends to reduce debt and invest to support the con- tinued development of a cider-led long alcohol drinks portfolio.”

Cantrell & Cochrane: global domestic brand sales











2008 to









Tullamore Dew

Irish Whiskey











Irish Mist






Sea Dog Rum

















All volume figures in ’000s of 9-litre cases

Source: IWSR 2010 ©

Diageo changes marketing structure

UK Diageo announced changes to its global marketing department on June 4, which will see the divison move towards a more category-led approach. David Gates, currently global brand direc- tor for Johnnie Walker will become the new global category director – whisk(e)y, a new position, from July 1. Latin America and Caribbean (LAC) marketing and innovation director Edward Pilkington will take up the new role of global category director – vodka, gin and rums from August 1, 2010. There will be no change to the Guinness and Baileys global brand teams. The replacement for the Johnnie Walker

global brand director and marketing and innovation director for Latin America will be announced once they have been appointed. The restructure will also see current global category director whisk(e)y, gins and Reserve Brands Alberto Gavazzi become general man- ager, for the Caribbean, Jamaica, Central America, Argentina, Chile, Bolivia, Peru and Ecuador, as well as free trade zones and duty free border stores in the Americas. Diageo chief marketing officer Andy Fennell said in a statement, “We believe this is the right move to evolve the business to meet the demands of the ever-changing envi- ronment and deliver our growth targets.”



NEWS Spirits

Asia drives sales at Pernod Ricard

FRANCE French drinks giant Pernod Ricard reported that consolidated sales for the third quarter 2009/10 (excluding tax and duties) registered a marked upturn to 1.53bn ($1.88bn), an increase of 14% compared to the third quarter of 2008/09. The growth was led chiefly by big gains in Asia. Very strong growth rates in India (+29%), China (+15%) and Vietnam (+75%), com- bined with the recovery of duty free and markets such as South Korea, turned Asia/rest of world into the group’s leading region. Consumption in Thailand remained adversely affected by the tense political situation. Sales in the Americas declined by 10% to 1.37bn ($1.68bn), and Europe (exclud- ing France) by 12% to 1.68bn ($2.1bn). France declined by 1% to 525m ($645.4m).

Better results for CEDC


tered Central European Distribution Corp (CEDC) announced that net sales for the three months ended March 31, 2010 were $149.8m compared to $70.8m reported for the same period in 2009. Operating profit was $25.3m compared to $12.4m for 2009. The increase partially reflects the integration of the Russian Alcohol Group into CEDC. CEDC president and CEO William Carey said: “The overall markets remained challenging in the first quarter of 2010, with our core vodka markets down approximately 7-9% compared to the first quarter of 2009. We anticipate faster consumer growth com- ing in the second half of 2010, driven mainly by Russia.”






energetic properties and flavour of the Amazon´s Guaraná with its Ypióca

Pina Colada – swapping coconut water for cream, giving it a fat content of zero,


Cachaça brand and introduced the Ypióca Guaraná ready-to-serve (RTS) and ready- to-drink (RTD) to the Brazilian market. At 15% abv, Ypióca Guaraná is a light spirit, aimed primarily at the 18 to 25-year- old consumers, who prefer vodka RTDs and beer to traditional spirits. Guaraná is the second most popular flavour in Brazil for soft drinks, just after the main cola brands. Over the years, Guaraná has been associated with ener- gy drinks, as well as being used as an ingredient in Brazilian Catuabas – fortified wines laced with ingredi- ents, said to enhance one’s sexual prowess and nicknamed “the poor man´s Viagra”. “Ypióca Guaraná is a deli- cious and refreshing alterna- tive, ideal to be consumed straight and ice cold at par- ties, shows and other events,” said marketing director Aline Telles. With this in mind, the new RTD is offered in both one-litre and 260ml long- neck bottles with a very modern and colourful label design. “This demon- strates that the versatility of cachaça goes well beyond the famous Caipirinha cock- tail,” she added.

Australia-based Foster’s launched The Wolf Blass Yellow Label Sparkling Rosé (£9.99/$10.25 RRP) at the London International Wine Fair in May. The wine is a blend of pinot noir (53%), chardonnay (43%), shiraz (3%) and pinot meunier (1%), and contains less than 12g/l sugar. Foster’s European marketing director Richard Trimby said:

Foster’s European marketing director Richard Trimby said: “We are trying to position the Wolf Blass sparkling

“We are trying to position the Wolf Blass sparkling as an alter- native to Champagne, with a premium New World heritage. There is a real gap in pricing terms between casual, everyday cava or prosecco at £6 ($8.80) and Champagne, which usually starts at about £15 ($22) for unbranded and £20 ($29.30) for branded. We are looking to fill that by positioning it [Wolf Blass Yellow Label] at around the £10 ($14.65) price point. Consumers are probably prepared to pay up to £10 in today’s market so we are targeting that £7-£10 ($10.25-$14.65) area.” Commenting on the growth of non- Champagne sparkling wine, Trimby added:

“There are more in-home occasions now

and developing the Strawberry Daiquiri as an ‘on the rocks’ liquid that does not require blending. Both are available in 75cl ($12.99 RRP) and 1.75L ($19.99 RRP) formats. “Premium pre-mixed cocktails are growing in popularity, as more consumers shift their entertainment from bars to at- home during these challenging economic times,” said Bacardi Flavoured Rums brand director Gordon Chisholm. “Many of these consumers may have previously enjoyed drinking cocktails in the on- premise sector, but now that they are drinking at home they either don’t have the expertise to make good cocktails or lack the ingredients. The ready-to-serves really provide a solution.”


New Zealand-owned and operated VnC Cocktails are being rolled out into inter- national markets, following their successful introduction into a number of Asian markets. The company expects to enter the US, UK and Australian markets in coming months. The VnC pre-mixed cocktails include the Pacific Mai Tai, Strawberry Daiquiri, Vodka Mojito, Banana Daiquiri, Margarita, Feijoa & Apple, and Pomegranate Cosmopolitan. The cocktails are made from 100% pure New Zealand vodka with

since the financial crisis. Fewer people are going out and buying a bottle of Champagne in the on-premise sector. Champagne is always going to be there, but it is always going to ebb and flow depend- ing on consumer confidence. Today, people still want to celebrate on a more modest level with less of a financial outlay. The recession has probably helped the non- Champagne sparkling wine area.” He added: “We are also seeing more women and younger consumers using Champagne as an entry-level drink, partic- ularly rosé. That is what is driving non- Champagne sparkling wine.”


One of Brazil’s major cachaça producers Agroindustrial Ypióca has combined the

natural juices. They are available in easy- to-use 1L PET bottles and are bottled at 13.9% abv (23 proof). VnC Cocktails general man- ager Chris Fairburn said: “All of our cocktails are based around well-known cocktails with popular fruits. It is that simple really, but it has to be bar quality.” He added: “The other key is not making them too challenging. They need to be great-tasting, but not necessarily too strong in alcohol terms, between 12 to 15% abv, which is about the same strength as a bar





Bacardi is tapping into the cur- rent trend of consumers enter- taining at home instead of in bars with the launch of two new ready-to-serve (RTS) cocktails – the Bacardi Classic Cocktail Pina Colada and the Bacardi Classic Cocktail Strawberry Daiquiri. Both pre-mixed cock- tails (15% abv/30 proof) have been made with Bacardi Superior Rum, and the company has added its own twist on the classic drinks by – for the

made with Bacardi Superior Rum, and the company has added its own twist on the classic











clean taste. Launching in the UK in July, the wine could mark a new departure for Australian wines.







Jose Cuervo has introduced two premium, ready-to-serve flavours – Jose Cuervo Authentic Pomegranate Margarita and Jose Cuervo Authentic Mango Margarita. Both products (9.95% abv) are available in 37.5cl ($4.99 RRP) and 1.75L ($15.99 RRP) lightweight PET bot- tles.

Florida Distillers Company and is distilled exclusively from Florida oranges. The com- pany says one 75cl bottle of the brand con- tains approximately 20 Florida oranges; it is created from the citrus fruit itself, rather than adding artificial orange flavouring. 4 Orange Premium Vodka is available in 75cl and 1L bottles, each marked with an authentic ‘From Florida’ agricultural seal of approval.


South African wine exporter The Company of Wine People showcased a range of new wines at the London International Wine Fair in May. Arniston Bay has been relaunched, with optimised fruit-forward wine styles and range extensions. The new Arniston Bay Lighthouse Collection was also introduced; at 10/11% abv this collection of wines is lower in alcohol content than the current Arniston Bay Original. The company’s wines are now also available in lightweight bottles to help reduce packaging waste and overall environmental impact. Kumaki has been relaunched with new packaging, a redesigned logo and screwcap closures on single and dual varietals. New vintages of Kumkani Lanner Hill Sauvignon Blanc and Kumkani Cradle Hill Cabernet Sauvignon were also introduced. Welmoed Heyden’s Courage collection of red and white blends was also unveiled.




Chilean-wine group Concha y Toro, is to become the official wine partner of Manchester United Football Club. Concha y Toro is South America’s lead- ing producer and exporter of branded wines. The agreement aims to raise aware- ness of the company and its brands world- wide, particularly in Asia, Latin America, and Eastern and Northern Europe. Among the many benefits for Concha y Toro will be digital board advertising at the Old Trafford stadium during home games, advertising space in the Club’s own communications media and co-branded marketing commu- nications. Concha y Toro’s wines will also be present in the stadi- um’s lounges, boxes and bars.

be present in the stadi- um’s lounges, boxes and bars. BERRI AÇAI LAUNCHED IN DUTY FREE


Pernod Ricard Travel Retail launched Absolut Berri Açai in the duty free/trav- el retail outlets of Stockholm and Copenhagen inter- national airports in April. It is now being rolled out in duty free/travel retail outlets globally. Absolut Berri Açai has been pro- duced from three berries – açai from South America, blueberries from North America and Europe, and pomegranate from south-west Asia. The result is drink with a berry aroma and slightly sweet- ish taste, which makes Absolut Berri Açai a good base for a variety of cocktails and modern drinks.

a good base for a variety of cocktails and modern drinks. HALEWOOD GETS FRUITY WITH CIDER


UK independent drinks manu- facturer and distributor Halewood International has fur- ther strengthened its cider and over-ice offering with the launch of Brambles, a fruit cider targeted at 25- to 45- year-old women. Brambles aims to capitalise on interest from the off-trade market, which is seeing cider growth of 11% per annum, and to offer innovation to the on-trade, which is dominated by a handful of brands that are predominately targeted at men in terms of marketing and serving suggestion. The new product has an abv of 5.5% and is packaged in a 75cl glass bottle. Brambles will be targeting C1/C2 females, who are currently wine and RTD drinkers – in par- ticular rosé drinkers. The new product will be available in two variants – rosé and white – and both are pear cider-based and will retail at around £2.99 ($4.40) a bottle in the off-trade and from around £4.49 ($6.60) in the on-trade.


Leading Australian wine producer McGuigan Wines is aiming to compete with the success of New Zealand sauvignon blanc with a fresh take on semillon. The new brand The Semillon Blanc moves away from the characteristics of complex Hunter Valley semillons, with a crisper,


Gruppo Campari rolled out Glen Grant 16yo in April. At 43% abv, the new single malt Scotch is available in 70cl and 1L bot- tles, sold in premium gift packs, across North America, Europe and travel retail mar- kets. Glen Grant master distill- er Dennis Malcolm said:


Imperial Brands has announced the nationwide expansion of 4 Orange Premium Vodka throughout the US over the next three months. The brand was launched in Florida in October 2009. 4 Orange Premium Vodka is produced at

“We wanted to introduce even more people to the unique taste of Glen Grant, with this whisky offering a deeper flavour for those who prefer a more robust taste.”

6 | IWSR JUNE 2010







The Scotch whisky market declined by 3.4% in Colombia in 2009, but the amount of con- traband Scotch increased dramatically. Colombia, with its high import taxes, brib- able Customs officials and drug cartels investing in black market spirits in order to launder money, has long been a market sus- ceptible to contraband. In 2009, it rose to the highest levels in more than 10 years, accord- ing to The IWSR, with estimated Scotch whisky contraband reaching over 1m nine- litre cases, while the total market fell 3.4% to 1.29m cases. In 2008, contraband imports into Colombia had dropped to around 870,000 cases, as the government took meas- ures to counter contraband, such as closing access to the free zones and introducing spe- cial labels to prove that duty had been paid. But these measures reduced official imports too and were relaxed after several months. By 2009, operators had developed strate- gies to overcome the restrictions and the contraband market boomed. As in other markets, consumers are trading down – but rather than trade down from a premium Scotch to a standard, many consumers instead choose to drink the same brand as usual, but buy it on the black market, thus paying less. Contraband now represents some 79.3% of the total Scotch market, an increase of 14% on 2008, it accounted for 65% of total Scotch sales.


Despite a poor economic environment, the volume of wine imported into Japan grew at its highest rate in recent years, thanks to a strong yen versus the dollar and the euro. Imported wine volumes grew 11% to 16.3m cases in 2009. Nonetheless, the value of imported wines declined sharply, as all growth came in the ¥500-¥1,000 retail priced wines. The average price per litre fell from ¥764 ($8.46) in 2008 to ¥560 ($6.20) in 2009, a 27% drop. Wines retailing at over ¥2,000 ($22.16) declined. US wines benefited from the strength of Franzia – now locally bottled – while

Spanish wines also grew strongly, but at ¥292 ($3.24) per litre, they are now on average the most inexpensive wines imported into Japan.


While sales of most Scotch whisky qualities dropped in Russia in 2009, low-priced Scotch managed to buck the trend and continues to grow through the economic downturn. The activities of the big multinational players were key to driving volumes. Diageo’s Johnnie Walker Red fell by over 27% in 2009, as the company, by necessity, switched its focus to its lower-priced offering, White Horse. This grew 29% in 2009, reaching vol- umes of over 360,000 nine-litre cases, mak- ing it the top-selling whisk(e)y in Russia. The success of White Horse has been helped by the introduction of a 50cl bottle, which gives consumers a seemingly cheaper option, and also a strong shelf presence in the off- trade with three side-by-side boxes creating a picture of a white horse. Diageo has also introduced Bell’s to the market, which got off to a good start, pro- moted as the number one whisk(e)y in the UK. Bacardi Rus’ William Lawson moved up to become the fourth best-selling stan- dard Scotch in Russia as the company increased sales with multi-buy promotions.


The Icelandic volcano’s disruption to flights halted what seemed to be a relative eco- nomic recovery for the Canary Islands in the first period of 2010. The islands suffered a grim 2009, with 28% unemployment and huge falls in arrivals of British, German and Dutch tourists, leading to double-digit declines in nearly every white spirits cate- gory. Recovery in the first period of 2010 looked on course for most categories, as tourism began to pick up, until the Icelandic ash cloud struck, meaning not only were flights delayed, but entire holi- days were cancelled and travellers opted for 'ash-proof' destinations in mainland Europe with its overland travel possibilities.

The only categories to show any kind of growth are premium gins and, contrary to trends on the Iberian Peninsula, white rum, which looks set to overtake the dominant dark rum category in the next few years.







Vodka brand Zoladkowa Gorzka Czysta de Luxe, reached record volumes in 2009, sell- ing over 5.3m nine-litre cases, representing an average compound annual growth rate of 180% against 2008. This new vodka brand launched at the end of 2007, after the success of its traditional bitter version, Zoladkowa Gorzka, managed to top almost 2m cases in its first year of sales. This made the brand, which belongs to Stock Spirit Group, one of the fastest-growing products sold domestical- ly to be recorded by The IWSR in recent years. It is an incredible result especially given that the total vodka market in Poland decreased by -1% in 2009 for the first time in three years.


In 2009, the New Zealand RTD market declined by 4.8% to reach 4.23m cases against 2008. Second-ranked Jim Beam & Cola, declined by 2.3% to 1.64m cases; other RTDs were down by 5.7%. Independent Distillers’ Woodstock &

Cola is the largest brand line, at 2.3m cases, down -9.1% on 2008. The decline in volume sales is due to num- ber of factors. New Zealand’s economy suf- fered in 2009, affecting consumers’ spending and drinking habits – some female consumers moved to low-priced local wine, for example. There was also strong growth in RTDs with an alcohol volume over 6% abv. This seg- ment increased by 16.2% to 2.7m cases, whereas RTDs with a strength lower than 6% decreased sharply by 16% to 3.53m cases. High-strength RTDs’ share of the total mar- ket increased from 12% in 2002 to 43% in 2009. This indicates that consumers are buy- ing less in volume, but they compensated by purchasing products with a higher

alcohol content.

SPIRITS REVIEW Category Report Global RTDs Alive and kicking While the ready-to-drink sector has struggled


SPIRITS REVIEW Category Report Global RTDs Alive and kicking While the ready-to-drink sector has struggled to

Category Report

Global RTDs

Alive and kicking

While the ready-to-drink sector has struggled to maintain the strong growth trends of several years ago, it is far from dead. The IWSR Drinks Record editor Alexander Smith reports

R eady-to-drinks (RTDs) have come to be seen as the classic fad product. Following several years of torrid growth, fashions changed and fickle consumers moved on to other drinks

such as rosé wine, cider or full-strength spirits.

The perceived association between RTDs – sweet, fruity, easy to drink – and under-age drinkers, whether valid or not, has not helped the category’s image and has led many gov- ernments to target it, particularly through

higher tax rates. As the category began trend-

ing down in developed RTD markets, the

leading suppliers began scaling back their

investments, further accelerating the decline. Preliminary IWSR estimates indicate that global RTD sales fell by 2.8% or 287.1m nine-

litre cases in 2009 compared to 2008. This

represents a modest improvement over the five-year compound annual growth rate from 2005 to 2009 of -3.5%. If you strip out the steep declines in the Russian and Ukrainian markets, then the picture is better. Some major top 10 markets, such as Japan,

picture is better. Some major top 10 markets, such as Japan, Gin-based RTDs, such as Greenall’s
Gin-based RTDs, such as Greenall’s & Tonic, have been growing in the UK

Gin-based RTDs, such as Greenall’s & Tonic, have been growing in the UK

Australia and Mexico, returned to growth in 2009. Other markets, such as South Africa

Australia returns to growth

35.3m cases, and forecast by The IWSR to


Canada, saw growth accelerate. RTDs

Recent developments in the Australian

rise by an additional 6.2% in volume terms

continued to decline in some major markets, such as the US and UK, but the rate of decline slowed in 2009, and is even showing

market exemplify the challenges, opportu- nities and resilience of the RTD category. At the end of April 2008, the Australian

in 2010. The trade believes that consumers became accustomed to higher prices and, due to the convenience factor, moved away


of returning to growth in recent months.

government raised excise on RTDs from

from bottled spirits back to RTDs.

Moreover, the switch in consumption from the on-premise to the take-home sec- tor in many countries has encouraged the drinks industry to meet the new require- ments through innovations in areas such as pre-mixed cocktails. Some of these are showing initial promise. Jack Daniel’s (Brown-Forman) pre-mix vice-president

AU$39.36 ($32.70) per litre of alcohol con- tent to AU$66.67 ($55.40). The taxation was approved by a Senate on August 13, 2009. The scope of the tax included malt- and wine-based RTDs and the excise hike resulted in a 25% increase in the average retail shelf price for RTDs. The higher RTD prices encouraged con-

Helping the category – and the drinks market overall – was the fact that Australia was one of the few major economies in the world to show growth in 2009. Beam Global marketing director, Australia James Sykes says: “The good news is the fall-out from the excise increase in 2008 has finally washed through, and we are now back into sus-

Carmen D’Ascendis says: “Lifestyle and convenience play a major role in the popu- larity of pre-mix for obvious reasons. The shift from on- to off-premise consumption extenuates these benefits. Consumers are now entertaining more at home, and pre-

sumers to move to bottled spirits, beer and cider. Following the RTD tax hike, sales of all bottled spirits increased considerably; the overall spirits market was up by 5.3% in 2008, while the RTD market shed 20% of its volume.

tained growth. RTDs were the second- fastest growth category in the past six months. When a category is at the kind of size that RTDs are in Australia, it is not going to disappear. A lot of people thought that, with the impact of higher excise, the


offers them a convenient way to serve

The total market unexpectedly came

category might slowly erode over time, but


share premium drinks.”

back to growth in 2009, up by 2.3% to reach

that has not been the case.”

8 | IWSR JUNE 2010

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DRINKS RECORD MARCH 2009 DRINKS SEPTEMBER Spirits Section Credit crisis takes its toll RECORD 2009
MARCH 2009
Spirits Section
Credit crisis takes its toll
2 Comment
3/4 News
Russian drinks sector
5 New products
Talks between Diageo
Spirits Section
RUSSIA The Russian drinks
market is being
production earlier this year, but has now
MAY 2009
severely affected by the global credit crisis and
resumed its activity.
the slowdown in the consumer economy.
Veda brands are still currently on the market,
3/4 News
and United
Spirits collapse
Until the
end of last year,
Russia was among
but as they disappear, the ensuing gap will give
white spirits
New products
the most buoyant international markets, but has
other companies and
brands the opportunity to
OIV reveals the true extent
of the 2008 wine decline
recently been characterised by a growing num-
increase market share. Further supplier con-
Can the premium
ber of supplier and
bankruptcies, bare
solidation in the
Russian market is also likely.
and super-premium
INDIA Talks between Diageo and India’s United
2 lenging
spirits market. United Spirits needed to
retail shelves and consumers trading down.
Elite Brands
At consumer 6
level, unemployment is rising
white spirits market
Spirits have collapsed after dragging on for more
3/4 News
raise cash this year to repay $115m of a
In the FMCG
retail sector, some smaller
and those with jobs are being forced to take pay
continue to thrive in
than a year.
5 debt incurred in 2007, when it purchased Scotch
Find out
retailers have been unable to pay suppliers/dis-
cuts. This, in turn,
is reducing discretionary
United Spirits, part of India’s top liquor compa-
whisky producer Whyte & Mackay for $1.2bn. A
tributors due to their reliance
on credit. In turn,
income. Moreover, the depreciation of the rou-
ny the UB Group, confirmed it had entered
deal with Diageo would have addressed this
brands are the
distributors have ceased supply to out-
ble against the euro
and the dollar is making
the depressed
exclusive talks with Diageo in November 2008.
financial need and would have been strategically
movers and shakers
India spirits
lets 6 that were unable to pay, causing further
imports more expensive. The on-trade, a key
Various possibilities were discussed, with a
beneficial for both companies.
on this year’s IWSR
problems for retailers. Many smaller retailers
venue for imports, is suffering the most, as con-
stake in United Spirits for Diageo the most com-
We report on India,
in June, United
Spirits sold nearly
Elite Brands listing
are facing bankruptcy.
sumers are visiting less often and the average
monly mentioned possibility. But the two compa-
the rapidly growing
$190m-worth of shares, allowing it more leeway
The problem at retail level then started a
bill from visits is
nies have failed to come to an agreement regard-
local whisk(e)y
to hold out for a higher price on any stake sold in
Spirits in
chain reaction down the supply chain, with dis-
Beam Global 10 Spirits & Wine managing direc-
ing the value of a stake in the Indian company.
market may surpass
the company.
tributors holding
off payments to importers/
tor, international
Donard Gaynor told The IWSR
A spokesperson for Diageo said: “It has
the 100m-case
United Spirits chief financial
officer Ravi
suppliers until retailers pay them. Cash-strapped
Drinks Record: “Of all the markets where we oper-
proved possible for Diageo to resolve points of
this year, while
Nedungadi said: “We decided the
strategic stake
The dragon market
producers are being forced to curtail production,
ate, Russia is probably being hardest hit.
Ricard CEO Pierre
Pringuet discusses the
economic crisis, plans
for Absolut vodka and
difference between the two parties, principally
Scotch continues its
sale can be
addressed at leisure, when the firm
could see a decline
especially as sales volume decreases. The regions
Distributors are suffering very badly and there are
brand disposals
valuation, and Diageo has made the decision to
slow climb
higher valuation. Our business is
in the imported
of Russia have generally been affected more than
empty shelves. It is definitely
a more difficult mar-
pursue the potential it sees for its brands in India
at 18-20% annually. We are on course to
spirits sector this
the cities, such as Moscow and St Petersburg.
ket to operate in today than it was a year ago.”
The new
separately from United Spirits.”
two firm by the end of the
year – the first in
Asia travel
Some major suppliers have stopped produc-
The growing price
gap between imports and
United Spirits produces brands such as number
year.” The company
has ambitions to overtake
10 years
tion and declared bankruptcy. Veda, based in St
local products is leading many consumers to
INTERNATIONAL The global economic crisis has
taken a toll on world wine consumption, with
the Organisation International de la Vigne et du
Vin’s latest report revealing a decline of 2m
hectolitres (hl) – 22.2m nine-litre cases – in
2008 compared to 2007.
This overall decrease is mainly due to a further
drop in consumption in traditional large produc-
er and consumer European countries, such as
France, Italy, Spain and Germany.
World areas under vines have also posted a
decrease one of 28m spirits hectares brand Bagpiper in 2008. The whisky, drop which in
Pernod Ricard as the second-largest drinks com-
Petersburg, was previously one of the top vodka
move back to the latter. Yet, even within the
community 15.8m vineyards nine-litre is cases due to in vine 2008. grubbing-up UB India, United
pany in
the world.
Global spirits
producers in Russia, but has now ceased produc-
local products 15 sector,
there is a general trend to
in European viticulture countries, with large-
Spirits’ parent company, accounted for 50.6% of
United Spirits is also reported to have
been in
Despite falling
passenger numbers and
tion. Gross
Distilleries, owner of Slvayanskaya
lower-priced segments –
for instance from
scale grubbing-up India’s vast in spirits France market, and restructuring which topped of 150.1m
talks with major private equity groups, including
more cautious
vodka and
Russkii Brilliant, also suspended
super-premium vodka to standard.
vineyards nine-litre in newer cases EU in member 2008, according countries. to The IWSR,
KKR, Blackstone and Capital International, in
spending, airport
Global spirits
while Diageo has just a 1% share of this chal-
order to
raise further funding.
retailer investment
consumption rose by
increase of 1m hl (11.1m cases) in 2008, despite a
means operators will
7.4% in 2008, but
AWBC forecasts smaller 2009 harvest
Co-chairmans Donard
Gaynor (below) and Bill
Farrar (right)
explain the
Maxxium organisation and
their plans for the future
considerable decrease in European production,
be well-positioned
the picture is
Top changes
for Angostura
particularly in France. Nevertheless, the 2008
once growth returns
more complex
AUSTRALIA With just under
half of the crop
The current prospects of a below-average yield-
global production level is similar to relatively low
than the figures
Australian Wine & Brandy
ing season will be
viewed with some relief
levels recorded TRINIDAD in Local 2001, news 2003 and sources 2007. report
appointed by the government or
allow. We take a
Wine Section
Corporation’s (AWBC’s) preliminary estimates
because of current high stock
levels and declining
that the Trinidadian government is
the Central Bank. CL Financial is
closer look at recent trends
are that the
2009 Australian wine grape harvest
demand because of suppressed global economies.
taking control of Angostura Ltd, as it
23 Wine news
French spirits market remains robust
will be down 11% to 1.63m
tonnes compared
Rabobank analyst Adam Morris said: “The irony
appointed three new board members
Angostura, but CL Financial came
24 Central America: at
with the 2008 harvest.
Wine Section
of 2009 will be that although the harvest forecast
last week (August 25).
under the control
of Trinidad’s
This would place the 2009 harvest well
is being dramatically reduced, the impact of the
the mercy of economies
FRANCE The largest Scotch whisky market in the
world, France, continued to grow in 2008 at a
healthy 3-4% rate, according to The IWSR. This
growth was solely driven by blended standard and
low-priced brands, while the previously growing
malts segment declined slightly.
Vodka continued to outperform other spirits
categories, yet again enjoying double-digit
growth, led by the Poliakov and Sobieski brands.
Pastis continued its long-term decline as 2008’s
poor summer weather hit consumption.
The Champagne Following sector the new has board’s been even first more
Bank earlier this year,
below the record 2005 harvest of 1.93m tonnes,
global economic crisis will mean the industry is
severely affected, though, with French con-
Rémy Cointreau CEO
Jean-Marie Laborde
discusses the
company’s future
post-Maxxium and
other market issues
when the government intervened
Wine news
26 UAE markets: what
but well above the drought
and 29 frost-affected
still drastically over-supplied
for today’s market.”
sumers Grant feeling was less reported inclined to have towards left the celebra-
to save the conglomerate from
30 US wine market: hit
does the future hold?
2007 harvest of 1.34m tonnes.
For the year to January 2009, Australian exports
tion in company. the difficult He has economic served as climate CEO and
financial collapse.
The expected reduction in
harvest compared
by economic turmoil
to the UK were down
9.6% in volume and 17.5%
deterred since by price June 2008 rises and introduced had previously in the past
In June this year, Angostura
to last year
is the result of a 13% decline in the
by value. “Fierce competition in the UK retail
NZ wine
Summergate outlines
couple worked of years. for Angostura between 1983
said the company was due
national yield (tonnes per hectare), marginally
market has seen consumer discretionary spending
Wine Section
However, and 1993. data for Steve the Bideshi early is part due of to 2009,
the market in China
offset by an
additional 2% of
bearing area com-
grind to a halt and retailers engaging in deep dis-
revealing serve further as an robust ‘executive growth caretaker’ in the whisky
from CL Financial and that it was
ing on stream this vintage. The expected yield
Wine news
New World wines gain
counting to capture foot traffic. Export volumes to
There’s a tough
and vodka until sectors, a new CEO indicate is appointed. that France is less
discussions to reschedule its
would be 20% below the long-run average.
the US are virtually flat and
value has dropped a
year in store for
traction in Denmark
badly affected The by appointments the global economic – CL Financial downturn chairman
debt. Some
Retail: Australia’s
of this debt was accrued last year
The heatwave
was chiefly responsible for
huge 23.1%. These
two markets account for
than its European neighbours.
Shafeek Sultan-Khan, CL Financial chief execu-
when Angostura and CL Financial together
on its
lower yields. Also, the Victorian bushfires in
tive Steve Bideshi and permanent secretary in
AU$1bn investment
late January/early
resulted in lower
66% of Australia’s wine exports by volume, so if
they don’t recover soon, the Australian wine
New Zealand
wines, but can
they capitalise on
market the in South ministry Korea of finance declined Allison by almost Lewis 1% – means
Mercado, which owns the Appleton rum brand,
yields in affected regions.
industry could be
in serious trouble.”
their success?
UK wine market
among others.
in 2008, although malt whisky continued to grow strongly that five from of the its nine small board base, members with The have been
What impact is
Macallan and Glenfiddich leading the way. In the blended Scotch segment, Diageo’s Windsor
the global
17yo performed strongly in 2008, posting double-digit growth, while Pernod Ricard's Imperial
economic crisis
12yo lost heavily. Diageo regained its import licence after six months of suspension, and aggres-
Wish to subscribe
to The IWSR Drinks Record?
having on the
sive trade promotions for Windsor, offering
improved payment terms and even cash-back to
Gallo general manager
emerging wine sector in
Turn to page 2 for full contact details
wholesalers in some cases, were successful. Imperial was affected by South Koreans trading up
Europe George
the Russian market?
from 12yo to 17yo Scotch. Malt is currently the only Scotch segment still growing, and sales in
Marsden explains
most other spirits categories are falling sharply as
the full impact of the economic crisis hits the
the firm’s new
South Korean economy. The smaller vodka and tequila categories remained dynamic in 2008,
however, with Absolut and Cuervo driving sales in their respective categories.
brand strategy
for European

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The IWSR Drinks Record 254-258 Goswell Road, London EC1V 7EB, UK

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SPIRITS REVIEW Category Report Global RTDs Top 10 RTD markets Country Volume Volume Volume %


SPIRITS REVIEW Category Report Global RTDs Top 10 RTD markets Country Volume Volume Volume % change

Category Report

Global RTDs

Top 10 RTD markets





% change





2009 on

2005 to




1. Japan






2. USA






3. Russia






4. Australia






5. UK






6. Ukraine






7. South Africa






8. Canada






9. Mexico






10. New Zealand


















* 2009 data is preliminary All volume figures in ’000s of 9-litre cases

Source: The IWSR 2010 ©

cases. As such, it lost its top spot and is now the world’s third-largest RTD market. Although the RTD market in the US declined in 2009 the rate of decline slowed. Preliminary estimates are that RTDs fell by 1.7% in 2009 to 49.1m cases over 2008, according to The IWSR. This represents an improvement over the five-year CAGR (2005 to 2009) by -8%. Diageo North America president Ivan Menezes tells The IWSR Drinks Record:

“[Single-serve malt-based] RTDs have been a tough sector in the US over the past several years. The category has been in steady decline

now for four years. At best, I would be happy

if we could keep [the performance of] single- serve RTDs flat in the US and halt the decline. The fact is that the single-serve RTD

category is not as big and important as it was.” Brown-Forman’s D’Ascendis says:

Woolworths Liquor Group general man-

standard-priced brand was roughly flat last

“Overall, the RTD category is down in the US. Right now, RTDs apparently don’t have

ager Steve Greentree tells The IWSR Drinks

year, at 6m cases.


same appeal to the American consumer

Record: “The cost of the product increased to the degree that the volume might have been down, but turnover was up. So in terms of

Premium brands, dominated by Jack Daniel’s RTDs, outperformed the total mar- ket, growing by a hefty 20.7%. Jack Daniel’s

as they do in other markets around the world. RTDs do have promise in the US, particularly since the move from a spirits

volume – yes, leading brands were down ini- tially, but in terms of dollars, there wasn’t that much of an impact. And there is a sub- stitution factor – people moved not only to

RTDs showed a 40.9% volume increase to top 2.7m cases in 2009. The industry consensus is that future growth will come from this sector. D’Ascendis says: “The pre-mix segment is in

base to a malt base has given pre-mixes greater exposure, due to distribution points such as convenience and grocery stores.” The US has been the focal point of pre-

bottled spirits, but also beer and some wine

growth in Australia, with Brown-Forman


cocktail innovation, which can be seen

categories. Sparkling wine, for example, benefited because of the new tax regime.” Greentree believes that the basis of the Australian Government’s decision to hike taxes, due to their appeal to younger con- sumers, was flawed. “There is this myth about

brands growing share. The Australian market has been very good for Brown-Forman and our brands. Jack Daniel’s is very strong there, as is Southern Comfort. The pre-mix segment is quite strong, because it has been embraced by consumers as a very convenient way to

as an offshoot of the RTD category, but there remains some question as to their appeal to US consumers. Menezes does see positive signs from the emerging pre-mix area. “Pre-mix cocktails are much more encouraging [than the single-serve RTD

RTDs and young people. RTDs are a favourite drink of young people – true. But a huge part of the RTD market in Australia is dark RTDs,

enjoy their favourite drink.” Woodstock & Cola, the second-largest brand, came back strongly, up by 15.6% to

sector]. For the first time in a while, we are a little optimistic about the sector. We launched a number of pre-mix products in

which are Bourbon-, rum- and Scotch-based.

reach 5.2m cases.


US last year. It is too early to call, but

These are mainly drunk by 25-45-year-old


initial readings are good.”

men, so not necessarily very young.” Indeed, in contrast to most countries, Bourbon- and rum-based RTDs are the key segments. In Australia, RTDs have more of a masculine image and are consumed by men of all ages; they are effectively a substitute for beer. In most other markets, the RTD sector tends to be white spirits-based and more female-orientated. Sykes explains that, in Australia, RTDs are not as faddish as they are in other markets. “In Australia, you can build a sustainable franchise over time – that is the fundamental difference. They are not here today and gone tomorrow.” That is probably a good thing for Sykes’ own company, which owns the largest RTD brand in Australia, Jim Beam & Cola. The

US decline continues The US market has also been distorted by unfavourable and even punitive tax treat- ment. For instance, in June 2008, California’s Board of Equalization decided to reclassify malt-based RTDs – also known as ‘flavoured beer’– as distilled spirits, for tax purposes, thus increasing the tax by 1,600%. The TTB had earlier decided to classify beverages that derived 51% or more of their alcohol from a fermentation process as beer. This had encouraged RTD producers to switch from spirits- to malt-based products. Even prior to that, the US market had been in freefall. In fact, it was the world’s largest- declining market for RTDs between 2003 and 2008, shedding an estimated 26.5m nine-litre

Some marketers are targeting the ethnic Mexican market. For instance, Brown- Forman subsidiary Herradura launched El Jimador New Mix tequila ready-to-drink (RTD) into the US in October 2009. The company has initially rolled it out into the states along the Mexican border – Arizona, California and Nevada, which was fol- lowed by Texas in February 2010. El Jimador New Mix is a tequila-based cock- tail and not a so-called ‘malternative’, which most RTD producers use, due to the more favourable tax structure and less restrictive distribution. New Mix will carry a suggested retail price of $1.99 a can. Brown-Forman’s Herradura company is a strong player in the

10 | IWSR JUNE 2010

SPIRITS REVIEW Category Report Global RTDs tequila-based ready-to drink (RTD) market and New Mix is


Category Report

Global RTDs

SPIRITS REVIEW Category Report Global RTDs tequila-based ready-to drink (RTD) market and New Mix is the

tequila-based ready-to drink (RTD) market and New Mix is the leading RTD tequila brand in Mexico. Herradura managing director and senior VP John Hayes com- ments: “The New Mix business is huge and growing. We think there are opportunities nationally for this brand, but we’re going to start in the Mexican border states and we’ll see how it does, then we’ll go from there. We also think there is an opportunity to launch it in Australia at some stage, as that is such a large RTD market.”

South American trends The New Mix brand is surging in the domestic Mexican market, rising by 8% to 4.3m cases to consolidate its position as market leader. Overall, the market for RTDs was mainly flat, showing 0.7% growth. This hides a divided market, with strong increases by certain brands, such as New Mix, pulled down by a drop in volume for others. JD & Cola and JD & Ginger, also distrib- uted by Herradura, had a successful year, in line with good growth for the parent Jack Daniel’s brand. Other brands were harder hit: Presidencola declined, as the brandy category continued to lose traction; and wine coolers also fell. This was largely due to price rises and trading down in this very price-sensitive end of the market. Price rises to B&J Cooler (Gallo), due to the 20% import tax on wines from the US since April 2009, mean that it is no longer viable and is being withdrawn from the market. On the whole, leading or well-supported brand line extensions grew, while other RTDs suffered, to give a flat market. The increased weight of the off-trade sector has helped the RTD cate- gory, as most consump- tion is off-trade, and moderate growth may be expected in the near future, driven by the leading brands as the market consoli- dates further. In Brazil, RTD sales were roughly unchanged, at 5.5m cases. This follows sev- eral years of strong growth. RTDs could continue to grow over the medium to longer term, as they gain share at

the expense of the huge beer and caipirinha markets. The leading RTD brand, Smirnoff Ice, managed to rise by 10% to 3.2m cases, but its extensions, Black Ice and Caipirovska, declined.

UK stabilises The RTD sector has also been a target for anti- alcohol campaigners in the UK, who blame it for encouraging under-age and binge drinking. This is despite the RTD category accounting for less than 2% of all alcohol con- sumed in the mar- ket. The category has also been hit by excise duty increases. And the eco- nomic recession contributed to a shift in sales from the on-premise to the take-home mar- ket. Local brands WKD and VK lead the mar- ket, with WKD, in particular, investing heavily above the line. A long-running TV campaign by WKD could be seen as the rea- son the brand has continuously grown share over the past few years, gaining from brands such as Smirnoff Ice and Bacardi Breezers. Smirnoff Ice is the largest annual casualty of the category’s decline, with sales falling by between 600,000 and 1m cases in each of the last five years. Gin-based RTDs, such as Gordon’s & Tonic, Gordon’s & Slimline tonic and Greenall’s & Tonic, have all been growing share in the past two years. G&J Greenall marketing director Tim Dewey says: “While the growth in bottled RTDs was taking place, particularly in the on-premise sector, products like Greenall’s & Tonic were always sitting there on the retailers’ shelves and catering for a different need, which was much more about convenience, portability and also because peo- ple knew they would get the per- fect gin and tonic, as it was ready- mixed for them in the can. Now that the buzz behind these sorts of bottled spirits products has died

Gin-based brands such as Gordon’s & Tonic, have been growing share in the past two
Gin-based brands such as
Gordon’s & Tonic, have been
growing share in the past
two years. Below left: El
Jimador New Mix is surging in
the domestic Mexican market

down, manufacturers are looking at the opportunity for convenience and saying: ‘Wait a minute, there is still a big opportunity here to give people interesting drinks, served convenient- ly in cans, for a variety of different occasions.’ They have got behind the canned ready-to-serve sector.” The sector is also driven by the ready- to-serve category – particularly cans such as Jack Daniel’s & Cola or Pimms & Lemonade. Beverage Brands marketing director Deb Carter believes that the RTD sector has recently turned the corner. “The RTD market in the UK has seen decline and, a couple of years ago, people were wondering if the category would still be here. Well, quite clearly it is still here and we are seeing real signs of recovery, particularly within the take-home RTD segment.” She points out that the take-home RTD market fell by 5% last year on an MAT basis to April, according to Nielsen. However, this year, it is static on an MAT basis and, in the last six months, it is up by 4% and, in the eight weeks to the end of April, by 6%. This has been driven by WKD, which has been doing consistently well and has been focused on the take-home sector since it was launched. WKD saw sales rise by 6% in the eight weeks to the end of April. Smirnoff Ice was also up by 6% over the same period. Carter says: “We spend an awful lot of money above-the-line every year on WKD and we feel that it has helped to keep the RTD mar- ket at the front of consumers’ minds. Smirnoff has also continued to invest. So the market is being driven by the two power brands, but we are also seeing some innova- tion. Small shoots are showing from the ready-to-serve sector. It’s not explosive growth in terms of volume, but it helps main- tain interest in the category for the con- sumer. The RTD category is far from dead.”

European developments Across the Channel in France the RTD market continued to fall, as tax increases a few years back damaged the product. Only two major brands exist – Boomerang and Smirnoff Ice – and they are largely sold off-

Only two major brands exist – Boomerang and Smirnoff Ice – and they are largely sold
SPIRITS REVIEW Category Report Global RTDs RTDs: top companies Owner Volume Volume Volume % change


SPIRITS REVIEW Category Report Global RTDs RTDs: top companies Owner Volume Volume Volume % change %

Category Report

Global RTDs

RTDs: top companies





% change


% share




2009 on

2005 to












Kirin Brewery







Suntory Independent Distillers














Mark Anthony Group














Berklee Capital







Beverage Brands














Pernod Ricard





















* 2009 data is preliminary All volume figures in ’000s of 9-litre cases

premise. These now compete on-shelf with cocktails and punches, traditionally a large category in France. These products tend to be called ready to- serve, rather than ready- to-drink. The category in France stands at around 700,000 cases – a quarter of what it was five years ago – and is expected to see a further double-digit decline in 2010. The imported RTD market in Germany is slowly returning to growth after three years of steep declines. Volumes dropped from over 5m nine-litre cases in 2004 to just under 400,000 cases in 2007, following a major duty increase. In 2009, the market bounced back to reach nearly 700,000 cases. All major cola-based RTD products have gained sales since 2007. Jack Daniel’s & Cola is the most successful brand on the market, almost dou- bling sales in 2009. This is followed by Bacardi & Cola and Jim Beam & Cola, which gained by 14% and 24% respectively. However, the growth of cola-based RTDs has possibly come at the expense of Smirnoff Ice, which was one of the few brands to decline last year.

Russian Government targets RTDs The RTD market in Russia, the second- largest global market, continues to come under fire from the Russian Government as part of its anti-alcohol campaign, with excise duties rising yet again. This year, the excise tax for spirits-based beverages under 9% abv increased from R121 ($3.88) per litre of pure alcohol (lpa) to R158 ($5.07) per lpa. In 2009, RTD prices had already risen by around 10% and beer prices by 15%,

12 | IWSR JUNE 2010

Source: The IWSR 2010 ©

mainly due to excise duty increases. Regular annual increases in excise duty are also planned and further retail price increases could bring the price of RTDs up to levels similar to vodka. As prices increase, some consumers are choosing to buy stronger alco- hol as a better value-for-money option. As a result of these tax increases, there has been a rise in malt-based RTDs, such as Marty Ray, and flavoured beers are growing in popu- larity. Malt-based RTDs are classed as beer, thus avoiding higher excise taxes and the advertising restrictions on spirits-based RTDs. Moreover, another law may be passed that will limit the strength of RTDs to 7% abv. According to Olesia Kusmina, head of the department for information and analytics at Marketing Lounge, which supplies the Happyland brands, wine- and malt-based RTDs will increase their market share as producers try to keep production costs down and avoid high excise taxes. Distribution is also being affected, as the government restricts where RTDs can be sold. In St Petersburg, kiosks are not allowed to sell alcohol near to bus stops and metro stations. The government plans to stop street sales altogether in Moscow in 2010.

RTDs gain in Japan Japan is the single largest global RTD mar- ket. It is also a category that is a relative oasis of growth amid an otherwise declining beer, wine and spirits market; RTDs are esti- mated to have risen by around 5% in 2009. Most RTDs are shochu-based and are locally produced and marketed by the four

large brewers – Asahi, Kirin, Suntory and Sapporo – as well as Takara, which remains relevant in the RTD category. Functional chu hi brands are leading the growth. These brands tend to feature certain health claims, such as low caloric content. Kirin’s Kyogetsu remains by far the lead- ing RTD brand in Japan. In perhaps a sig- nificant development, Kirin formed a joint venture with Diageo in 2009, which inclu- ded the production of Smirnoff Ice, previously produced by Sapporo. The strength of Kirin’s distribution in Japan could spur on what is the only significant international brand in the market.

South African growth Elsewhere, RTDs were one of the few cate- gories to show healthy growth of over 9.4% in South Africa in 2009 to 10.5m cases, only slightly down from its impressive five-year CAGR of 11%. This indicates that some transfer from cocktails to this cheaper alter- native could be taking place. Smirnoff Storm grew strongly to just under 3m cases. Diageo launched the J&B & Soda and Captain Morgan & Cola brand extensions, which, combined, also added an estimated 360,000 cases to the category. Whether this was pipeline-filling or real consumption is yet to be seen. These extensions were first tried in Durban and then extended nationally. The local Halewood operation continues to grow strongly and the Red Square RTD brand now has sales of 1.5m cases in South Africa – mainly in Johannesburg and neigh- bouring areas in Gauteng. Halewood is making an impact despite relatively little advertising expenditure; instead it is focus- ing on distribution gains, even in the most remote shebeens. Last year, it renewed the packaging of Caribbean Twist and launched Bad Boy, a Bourbon and cola RTD. Flavoured ciders compete with RTDs in this market. Ciders grew only marginally, but Distell’s Hunters – especially in its Gold and Extreme variants – and Savanha con- tinue to take share from SAB’s Redd’s. While 2009 presented a mixed picture for the global RTD market, there is little doubt that, over the long term, the RTD and emerg- ing RTS categories will continue to play a major role in consumers’ repertoires. They remain aligned with the ongoing consumer requirements of convenience and flavour. Through innovation and strong branding, there is no reason, aside from the not incon- siderable threat of government intervention, why the RTD market should not thrive.

SPIRITS REVIEW Interview Heaven Hill Keeping the American whiskey wagon rolling Reporting from Bardstown, Kentucky,



Heaven Hill

SPIRITS REVIEW Interview Heaven Hill Keeping the American whiskey wagon rolling Reporting from Bardstown, Kentucky, The

Keeping the American whiskey wagon rolling

Reporting from Bardstown, Kentucky, The IWSR Drink Record editor Alexander Smith discusses the resurgence of the American whiskey category, and the changing consumer environment with Heaven Hill president Max Shapira

wasn’t that long ago that the

American whiskey category was mired

a seemingly long-term decline in the

I vital domestic market. Between 1985 and 2002, the category posted consecu- tive year-on-year declines, falling from 33.6m nine-litre cases to 18.6m cases over that period. Brown spirits were seriously out of fashion and the outlook for traditional Bourbon producers, such as Heaven Hill, heavily reliant on the domestic market, was grim. Now, less than a decade later, the prognosis could not be more different. The American whiskey category has gained volume every year since 2002, adding a combined 1.4m cases over that period. A universal optimism is coursing through the executive suites of the leading producers. Several factors account for this reversal of fortunes. The category has been a hotbed of innovation, with growing connoisseur interest in an increasingly diverse range of styles and brands. The period has also been marked by the development of a premium and super-pre- mium tier, offering the potential for enhanced profitability. The popularity of whiskey-based cocktails, such as the Old Fashioned, has been another important factor in the return to growth. Underpinning this development has also been the broader growth of the US dis- tilled spirits market in the past few years – even despite the recession. Heaven Hill has probably withstood the recession better than many of its peers in the spirits industry. The downturn has been marked by some consumer trading-down from super-premium and premium price points toward standard brands. This has benefited Heaven Hill’s portfolio, which is largely standard-priced. There has also been



which is largely standard-priced. There has also been t in Max Shapira, president, Heaven Hill more
Max Shapira, president, Heaven Hill

Max Shapira, president, Heaven Hill

more consumers are shopping. We have brands positioned at reasonable pricing levels, albeit with great packaging and great taste, which appeals to today’s consumer. We have experienced a good growth pattern despite the economic conditions.” He cites the success of the company’s Evan Williams Bourbon brand, with sales rising by 12.4% in 2009 to around 1.3m nine-litre cases, while the total American whiskey category was up 0.6%, according to research firm Beverage Information Group. Heaven Hill’s total American whiskey port- folio also outpaced the broader category, ris- ing by 5.4%. “Heaven Hill brands, such as Evan Williams, have responded to the economic times. The brand has not just grown in 2009, it has been growing for the last several years and there are a whole host of reasons for that. It has all the elements that con- sumers are looking for: terrific flavour pro- file, well-packaged and at a reasonable price point, but not even close to a low price point. So it’s affordable to many consumers,

“The core strength of our company has been the off-premise channel. We have experienced good growth, despite the economic conditions”

a pronounced shift from on-premise to the take-home market. Heaven Hill president Max Shapira says:

“Our business is solid. The core strength of our company over the years has been the off- premise channel and that’s where more and

especially with people now watching their expenditure more closely. When someone says ‘value’ they always think that it is the cheapest. But value means a lot of different things to consumers today. “There is no question that the industry has

SPIRITS REVIEW Interview Heaven Hill experienced a trading-down phenomenon,” he adds. “But that does not


SPIRITS REVIEW Interview Heaven Hill experienced a trading-down phenomenon,” he adds. “But that does not mean


Heaven Hill

experienced a trading-down phenomenon,” he adds. “But that does not mean consumers are buying only the lowest-priced products.

That’s not happening either. They are buying

a range of good-value products, with out-

standing packaging and a wonderful taste.” Shapira argues that the current recession could herald a fundamental and long-term shift in US consumer purchasing habits. “When you talk about the economic realities of the market… well, the economy is not

very good. It is better than it was over the last year, but not great; we are nowhere close to the robust market that the industry experi- enced worldwide two years ago. That has changed, but how long has it changed for? In effect, are consumers going to come back to what they were doing two years ago? Will they go back to eating out perhaps six nights

a week, buying ultra-premium luxury prod-

ucts and really not managing their money very wisely? Our opinion is that this reces- sion is going to make a resounding mark on the psychology of consumers and, for a long period of time, they will be reluctant to revert to their free-spending ways. That means they have a discretionary amount of income for entertainment that they can spend, and they will watch this carefully.” Shapira explains that it is not unlike his father’s generation, which emerged from the depression. Despite doing well after the depression, when the Heaven Hill business was started in 1934, they were all very cau- tious with how they spent their money. “In the current context, that has implications for the on-trade business in general and the off-trade business, the segmentation of brands and many other factors. If we believe

that we are now in a consumer age of fru- gality, it has a potential impact not only on our industry, but on how all consumer industries are going to have to position themselves, and try to meet the wants and desires of consumers over the next three to 10 years. The whole situation is going to make the consumer reluctant to spend on things that are not the necessities of life. “It does imply continued consumer trade- down for a reasonable period of time to come

– a few years at least. The consumer will con-

tinue to buy off-premise and won’t frequent the on-premise as much and will continue to buy products that represent value, as opposed to imagery at the luxury end of the market. There will still be some consumers buying them, but it will be much more difficult to attract new consumers to those brands.” He notes that this does not mean the

to those brands.” He notes that this does not mean the Heaven Hill has the second-largest
Heaven Hill has the second-largest inventory of ageing Kentucky whiskey in the world

Heaven Hill has the second-largest inventory of ageing Kentucky whiskey in the world

$3 a bottle. I am going to buy something else.’ I have a feeling that could happen.”

Innovation agenda Shapira believes that this return to tradi- tional brands and interest in product intrin- sics is serving the American whiskey sector well. Importantly, the indications are that American whiskey broadly outperformed most other spirits categories – notably vodka – during the current recession. “Sometimes, in troubled times, people want something solid. There is a return to heritage, tradition and craftsmanship. There is a continuing interest in Bourbon cocktails. There is also a continuing interest in various different profiles and tastes among Bourbons – either standard or aged, varying alcohol strengths or production concepts, such as single barrels or a collec-

“Sometimes, in troubled times, people want something solid. There is a return to heritage, tradition and craftsmanship”

death of premiumisation either. “There will always be a segment of the public who will buy premium and luxury brands. But those brands are really going to have to represent something distinctive – whether that is qual- ity of product or packaging or taste profile – for consumers to have a lasting interest in that product. There will be fewer consumers willing to experiment with a $40-a-bottle vodka or other such kinds of products.” Much of the current trading-down is encouraged by fierce price competition. “The US market is extremely competitive, and was especially so in the last three months of calendar year 2009. You saw vast amounts of couponing on products which would have never considered using such a merchandising tool in the past. Even some of the most prestigious brands were offering deals, such as $5 off a bottle. You have to wonder whether, for certain brands, that is in their long-term interest. There is a risk that, if one reduces the price of the product for an extended period of time, the dis- counted price becomes the new regular price. If the brand owner then needs to raise that price back to a more normal level, then how will the consumer react? The consumer could then say, ‘They have raised the price

tors’ series. There is a whole range of these product offerings and, despite the economic times, consumers are interested in those products with those characteristics.” He also notes that the category is benefiting from possible vodka fatigue among consumers. Heaven Hill itself is also reaping the rewards of the investments it made in new product development in recent years. In par- ticular, it has added premium variants to its core Evan Williams and other American whiskey brands. The company produces criti- cally acclaimed brands such as Evan Williams Single Barrel Vintage Bourbon, Elijah Craig Bourbon, Rittenhouse Rye, Bernheim Original Wheat Whiskey and the Parker’s Heritage Collection of American whiskeys. The annual series of whiskeys bottled under the Parker’s Heritage Collection, while only in their third release, have already garnered some of the most presti- gious industry awards. Last year’s second release, a 27yo Bourbon, was the first American Whiskey ever named ‘Best of Show, Brown Spirits’ at the upmarket San Francisco World Spirits Competition. The series is a limited-edition collection of American whiskeys, produced by Heaven Hill Distilleries, named for and honouring

14 | IWSR JUNE 2010

SPIRITS REVIEW Interview Heaven Hill the sixth-generation master distiller Parker Beam. This year’s Golden Anniversary



Heaven Hill

SPIRITS REVIEW Interview Heaven Hill the sixth-generation master distiller Parker Beam. This year’s Golden Anniversary

the sixth-generation master distiller Parker Beam. This year’s Golden Anniversary edi- tion commemorated Parker’s 50 years at Heaven Hill by marrying barrels from each decade of his time with the company. The Golden Anniversary is available in limited quantities until next autumn, bottled at 100 proof and at a national average retail price of $150 for a 75cl bottle. “We are super-imposing a halo over all the rest of our Bourbon portfolio. These luxury products are done in very small quantities and are designed to appeal to the true whisk(e)y aficionado. Despite the economic conditions, there is still a market for these products, because there will always be that person looking for that totally unique and unusual experience.” The company has also been innovating with flavours. Last September, it introduced Evan Williams Honey Reserve Kentucky Liqueur, a new product that marries extra- aged Evan Williams Bourbon with real, nat- ural honey. Bottled at 35% abv, Evan Williams Honey Reserve carries a suggested retail price of $14.99 for a 75cl bottle. Other producers – such as Jim Beam, with its cher- ry-flavoured Red Stag brand, and Wild Turkey, with its honey-flavoured expression – are also pushing into flavours, a develop- ment that Shapira views favourably. He says:

“It has some interesting potential, particu- larly with female consumers. It may help draw them into the Bourbon category. It is great-tasting and easy to drink, very light and highly mixable. It was only launched in the last quarter of 2009, so it is a bit early to tell how it will do, but initial results seem to be positive. We are attracting consumers who formerly never drank Bourbon.” The company is also innovating by bringing back traditional whiskey styles, such as American rye, which has not been popular for many years. Heaven Hill Distilleries is the only one of the nation’s major distillers that makes all the recognised styles of American straight whiskey – Bourbon, rye whiskey, corn whiskey and even its Bernheim Original Wheat Whiskey. Rye whiskey, in particular, has under- gone a major resurgence as consumers, energised by the array of speciality Bourbons introduced in the 1990s and this decade, have reached out to discover other styles of American straight whiskey. Rye, which was the first straight whiskey pro- duced in the 13 colonies and, until the late

20th century, the pre-eminent style of American straight whiskey, is prized among whiskey lovers for its sharp, fruity taste and spicy finish. Heaven Hill was one of three distilleries that kept the rye category alive during the 1970s and ’80s, despite stagnant or declining sales with its Rittenhouse brand. “There is also the development of a sub- set of whiskey products, led primarily by the true renaissance of rye whiskeys. It is a very hot sub-segment and our Rittenhouse brand is one of the old venerable rye whiskeys. It appeals to people with an eso- teric taste for a unique whiskey style. Rittenhouse continues to perform well. We would like to be able to sell more, but the inventory is very limited and that is pretty much the case throughout the industry. Add to that our Bernheim Wheat whisky, made from over 50% wheat, and the formula gives it its own unique taste and style. So there are all sorts of things going on in this American whiskey category.”

side the US, Shapira believes. “We think Bourbon has a good opportunity abroad. This is because, despite the popularity and resurgence of [US] whiskey internationally, if one goes outside the US and asks for a whisk(e)y and water, then 99 times out of 100, you are going to get a Scotch whisky. If the Bourbon industry could just capture two or three out of the 100, it would lead to tremendous growth opportunities for the [US] whiskey trade. That should be possible to achieve.” The company is planning fairly ambitious growth and continues to invest in expanding its production capabilities. In its facilities it has the second-largest inventory of ageing Kentucky whiskey in the world, with over 800,000 barrels. This accounts for nearly 20% of the world’s future supply of Bourbon. Despite the recession, the company has not scaled back production. “You have got to take the long-term view here. It’s easy to panic and do something mistaken today that, in 10 or 18 years or, in the case of Parkers, 27 years, you cannot rectify. We continue to produce almost at capacity, because we believe that the economy will even- tually come back. Our business has been pretty strong through this economic downturn and we plan to carry forward this momentum. “This is not the vodka business. We are talking about American whiskey. You can- not just make it today and sell it tomor- row. You’ve got to have the inventory. As my dad said, ‘You cannot sell from an empty wagon’.”

Full portfolio company Originally, Heaven Hill just produced Bourbon and whiskey, and remained in that mode from 1934 to the early ’70s, by which time it had a network of distributors around the country. Since then – and more aggressively from the ’80s to the current day – it has expanded its portfolio of products beyond Bourbon and whiskeys through acquisitions and brand development to a portfolio across a broad range of categories. The whiskey portion of its business is now a relatively small part of the overall total, accounting for approximately 20% compared to about 70% 20 years ago. Its standard-priced Burnett’s vodka is now the firm’s largest brand, at just over 2m cases. Burnett’s witnessed dramatic growth in 2009 and benefited from trading down within the vodka category. The brand has also fully

The opportunity for American whiskey may be even greater out-
even greater out-
Sales of Heaven Hill’s Evan Williams brand (right) rose 12.4% in 2009. The Honey Reserve

Sales of Heaven Hill’s Evan Williams brand (right) rose 12.4% in 2009. The Honey Reserve Kentucky Liqueur (left) was introduced last year

SPIRITS REVIEW Interview Heaven Hill embraced the flavour revolution to good effect. The Burnett’s flavoured


SPIRITS REVIEW Interview Heaven Hill embraced the flavour revolution to good effect. The Burnett’s flavoured vodka


Heaven Hill

embraced the flavour revolution to good effect. The Burnett’s flavoured vodka portfo- lio continues to expand with the addition this spring of the 20th flavour – Fruit Punch. The flavoured vodka category continues to gain popularity and is one of the most vibrant segments in the US distilled spirits industry. Since the introduction of its first flavour, Burnett’s flavoured vodkas have grown to be one of the largest ranges in the entire industry. The franchise now includes:

Blueberry, Cherry, Citrus, Coconut, Cranberry, Espresso, Grape, Lime, Mango, Orange, Peach, Pink Lemonade, Pomegranate, Raspberry, Sour Apple, Strawberry, Sweet Tea, Vanilla, Watermelon and now Fruit Punch.

Liqueurs development Heaven Hill has also moved into the liqueurs sector, first with the acquisition of Hpnotiq, and then the later introduction of Pama Pomegranate Liqueur. Hpnotiq enjoyed strong initial success, but sales have recently been sliding, raising some questions as to whether it was merely a fad product. However, Shapira is confident that Hpnotiq will endure. “It is definitely sustainable. At this point you are talking about a brand that is doing quite nicely. It is not at the level that it was during the height of the market, but nevertheless it is doing quite well.” The company recently launched a new advertising campaign for the brand with the theme ‘A Girls Night Out’. “The campaign seems to be resonating well with consumers, making the product alluring and tasteful to women who want to socialise,” he says. The firm also continues to roll out the brand inter- nationally and it is now in about 60 markets. The purchase of Hpnotiq also shows that the Heaven Hill is prepared to splash out on suitable acquisitions. In 2007, the company acquired the Mohawk Distilled Products spirits portfolio from Boisset America. Burnett’s was an earlier acquisition, as was Whaler’s Rum. Shapira says: “Since the early ’70s, we have expanded our portfolio of products beyond Bourbon and whiskeys to a portfolio across a broad range of cate- gories through acquisitions and brand development. Scale is not so important, although we are always looking to expand our business, through developing products ourselves, and through opportunistic acqui- sitions as they come forward. “Scale is less important than brand-build- ing, but we all talk about scale and, in a sense, it is certainly necessary. But we have been

Despite the recession, the company has not scaled back on production
Despite the recession, the company has not scaled back on production

nimble enough to be able to develop success- ful new products, such as our pomegranate liqueur, which is a leading liqueur brand line. So we have enough scale, but we want to add to it in a meaningful way. We have sufficient financial resources to be able to expand and do whatever we want to do in terms of how we operate the business, whether it’s our produc- tion facilities operating efficiently, or brand acquisition, or marketing and sales support for the brands we now have on the market.” He concedes that there remain a number of holes in the Heaven Hill portfolio, such as imported vodka or Canadian whisky, which the company would like to fill at some stage. But he argues that there are cer- tain advantages to being a medium-sized company. “When you look at innovation in this industry, it seems still to be driven by medium and smaller-sized companies. This has been the pattern of how new products and styles of drinking have developed over the past 15 to 20 years. “But if you look at the really big brands today, think of where they originally came from? We all know the tremendous history of Grey Goose and Sidney Frank, which was a medium-sized company. We all know the his- tory of Svedka, which was started by an entre- preneurial company. Take the flavoured rum business. It was really started by Todhunter International with its Cruzan brand. Even in the American whiskey business, years ago, the first single-barrel product called Blanton’s was developed by the Ancient Age distilling company, and that has spawned all of the single-barrel and speciality innovation that we have in the American whiskey category today. Patrón is another good example in the

tequila category. It’s quite interesting to see where the innovation has come from and that seems to be continuing. “Some of the larger companies in this industry seem a bit risk-averse; they are fine companies with tremendous resources, con- sumer understanding and brand-building capabilities, but the innovation in the industry comes from smaller companies.” Where Heaven Hill hasn’t been able to innovate or make acquisitions, the company has shown a willingness to enter into joint ventures. In 2007, it formed a joint venture to distribute Agua Luca Brazilian rum cachaça. A year later, the company formed a joint venture with Tierra de Agaves to import and market La Certeza and Lunazul 100% agave tequilas. Shapira is particularly optimistic about the prospects for the Lunazul brand. “The idea, upon introducing Lunazul two years ago, was to offer an affordable 100% agave estate- grown product at an entry-level price. We did this at exactly the right time, just as the recession hit. Again, consumers are still look- ing for value and, in this particular case, it is just a step up from the mixto tequilas in the US. For an extra $2 a bottle they can enjoy a 100% bottled-in-Mexico agave product. So the concept is that consumers are looking for something affordable, and different, but which represents a premium to what they are already doing. It’s a pretty simple concept and one that has worked. “As with most industries today there are a broad range of external dynamics that seemingly change the game rather dramati- cally, but the bottom line is we must appeal to consumer wants and desires.”

16 | IWSR JUNE 2010

SPIRITS REVIEW Market Report Spirits in Brazil Brazil imports in high spirits After a very


Market Report

Spirits in Brazil

SPIRITS REVIEW Market Report Spirits in Brazil Brazil imports in high spirits After a very tough

Brazil imports in high spirits

After a very tough first half of the year, the imported spirits market in Brazil recovered strongly in the second half of 2009. Moreover, 2010 is forecast to be even better. IWSR senior analyst Jose Luis Hermoso reports

T he Brazilian economy recovered

faster than expected and Brazil con-

tinues to drive economic growth in

South America in 2010. Brazil,

whose economy was one-fifth of

Argentina’s at the beginning of the 20th century, now has an economy three times larger than that of its neighbour, and the gap continues to widen. GDP declined by a marginal 0.2% in 2009, but is forecast by the International Monetary Fund to grow at a 5.5% clip this year. The strengthening of the Brazilian Real against the dollar and sterling has made imports more accessible in the past couple of years. Historically, the Brazilian economy was unusually cyclical, with pronounced peaks and troughs, which had a direct correlation to the alcoholic drinks market. Over the past eight years, those fluctuations have been less evident. Brazil may finally be arriving as the ‘country of the future’ – a title in use since the 1960s. Population growth underpins the Brazilian alcohol market’s growth, with nearly 10m new legal drinking-age consumers entering the market in the past five years, and 13-14m more anticipated by 2014. At the same time, the liquor industry continues to benefit from the growing middle class and associated con- sumer trading-up, chiefly from cachaça. The economic slowdown in the first half of the year led to a 5.3% reduction in total spirits consumption. Most of that reduction was in local products. “There was quite a slowdown in the first six months of 2009, but a strong bounce back in the second half of the year. Confidence has come back into the market. We think that the short-term and long-term outlook in Brazil is very strong. The market offers a growing economy, good demographics and a very big local spirits market, with the poten- tial for trading up. Along with economic growth, there is an increasing middle class, who want to be seen to be drinking discern- ing products. They’re trading up from the usual local tier into imports, particularly

up from the usual local tier into imports, particularly Population growth underpins the growth of the
Population growth underpins the growth of the alcohol market in Brazil

Population growth underpins the growth of the alcohol market in Brazil

Scotch whisky,” says Beam Global Spirits Scotch brand director Michael Cockram. The market was disrupted in 2008, when the Brazilian government announced an excise tax increase, only to later postpone it. That had a destabilising impact on distribu- tors, with stocking and then destocking taking place. Then, on January 1, 2009, a

30% excise tax was finally implemented. In Brazil, excise duty is not based on alcohol content but on retail price – and the basis of reference for that retail price is decided when a brand is registered. It led to discrepancies, because the various companies operating in Brazil registered their brands at different times. Companies that had registered a long time ago were paying excise duty on a much lower retail price and had a price and profitability advan- tage over newcomers. But in January 2009, all companies were forced to re-register all of their brands, based on a calculation of average prices on a nationwide basis over a three- month period. This has served to create a more level playing field. Nevertheless, the sys- tem for assessing excise tax (IPI) and local state sales tax (ICMS) remains complex and sometimes lacks transparency. The regulatory environment for imported spirits is bureau- cratic and adds to costs. Scotch whisky remains the key import cat- egory. Consumption of Scotch was largely stable in Brazil in 2009, at 2.85m cases, according to The IWSR. The pattern of trade for the Scotch market has also changed significantly, as parallels into Brazil from both Paraguay and Uruguay declined. At the same time, the Scotch Whisky Association (SWA) figures show a

Brazil: evolution of spirits by category





% Change




2009 on




























Flavoured spirits















Total spirits










All volume figures in ’000s of 9-litre cases

Source: IWSR 2010 ©

SPIRITS REVIEW Market Report Spirits in Brazil significant increase in direct shipments into Brazil in


SPIRITS REVIEW Market Report Spirits in Brazil significant increase in direct shipments into Brazil in 2009,

Market Report

Spirits in Brazil

significant increase in direct shipments into Brazil in 2009, with bottled-in-Scotland (BIS) blends rising by 50% to 2.7m cases. A strong Brazilian Real meant that tourist trips to the border to carry back alcohol and tobacco increased. However, large smuggling operations on the Uruguayan border – large lorries stocked with Scotch driving on sec- ondary roads to São Paolo – suffered a blow when Brazilian police cracked down on these illegal activities. Two major border operators were closed down. Joaquin Curi, who used to move in excess of 100,000 cases of Scotch from the Uruguayan town of Rivera into Brazil, is now in prison. The head of Neutral, previously operating the duty free shops at Uruguay Carrasco airport, has also being charged in Brazil with tax evasion. This is reflected in official SWA data, with Scotch shipments to Uruguay declining by 25% to 585,000 cases. This reduction is despite growing consumption in Uruguay itself. The Paraguayan border town of Ciudad del Este has also suffered from this crackdown on large operators, but a strong Real means that the “sacoleiro” business – comprised of indi- viduals crossing the infamous bridge between Ciudad del Este and Foz do Iguaçu with few bottles of Scotch to make a living – remains profitable. SWA shipments to Paraguay in 2009 are broadly stable, at 270,000 cases, despite a slight growth in the domestic mar- ket, reflecting a slight decline in border sales. In 2009, Paraguay accounted for around 40,000 cases of premium-and-above Scotch into Brazil, and 140,000 cases of standard Scotch. Uruguay accounted for around

28,000 cases of premium Scotch into Brazil, and 100,000 cases of standard Scotch. Brazilian Duty Free stores accounted for around 90,000 cases of premium Scotch and 150,000 of standard. These three channels combined represent around 37% of premium- and-above BIS Scotch consumed in Brazil in 2009, and just under 30% of standard Scotch. The third leg of the Brazilian triangle, Brazil Duty Free, suffered from a reduction in pas- senger traffic last year. Brazilians are still allowed to bring in 24 bottles or $500 of tax free goods every time they return on an inter- national flight. Well over 80% of liquor sales at Dufry, the main duty free operator in both the São Paolo and Rio de Janeiro airports, are in arrivals: these bottles often find their way into the domestic market. Nevertheless, there has been a big improvement in the quality of the shops run by Dufry, a process that had begun under the previous operator Brasif. Local Brazilian operators have worked hard to make it much more attractive to purchase duty paid Scotch within Brazil. The price of duty paid goods has been significantly low- ered. Leading operators have also made efforts to improve distribution throughout the coun- try, thus removing the opportunity for parallel operators and smugglers.

Scotch gains In consumption terms, standard Scotch remained buoyant last year, rising by 1.5% to 1.45m cases. This growth was led by Diageo’s Johnnie Walker Red, with a 5.6% increase in sales to 880,000 cases. Pernod Ricard’s Ballantine’s fell almost 12% to 112,000 cases.

The premium (12yo) segment declined by 3.6% to 413,000 cases. Johnnie Walker Black gained 11% to just under 200,000 cases, while Pernod Ricard’s Chivas Regal 12yo fell by 22% to 71,000 cases. Commenting on the company’s success in the market, Diageo Scotch knowledge and heritage director Nick Morgan says:

“Johnnie Walker is performing well across

all the marks in the range. It is certainly not

a case of lots of Brazilians trading down to Red Label from premium Scotch. Johnnie Walker Black is doing well there and some of the higher marks are as well.” Diageo global head of whisk(e)y, gins and Reserve Brands Alberto Gavazzi says:

“Johnnie Walker in Brazil has always come

back stronger after the numerous recessions over the past 15 years. Right now the brand

is enjoying historical growth.”

The breadth of Diageo’s Scotch portfolio helped it weather the slowing economy in the first half of the year. The company increased the availability of some smaller brands, such as Old Parr to provide a well- priced deluxe Scotch, as well as Black & White at the value end. In addition, it selectively reduced the price of other brands, accepting lower per-case margins in order to achieve higher operating profits and stronger share positions. Locally bottled Scotch was broadly stable at around 950,000 cases, but leading locally bottled brand Teacher’s (Beam Global) lost heavily, falling by 10% to 600,000 cases. Pernod Ricard’s Passport increased sales by 20% to 255,000 cases.

Paraguay and Uruguay

Scotch grows in Paraguay Scotch sales in Paraguay grew by 2.3% to 90,000 cases in 2009 over 2008. This represents just a third of the total annual exports from Scotland into the country. Most of the Scotch entering the country is re-exported to Brazil. After a tough start to the year, a good agricultural harvest of soja and income generated from electric plants in the Parana River boosted the economy. The border trade with Brazil has recovered since mid-2009, when the Real gained ground against the dollar. And 2010 is expected to be a strong year for Ciudad del Este. Vodka, which grew by 4.6% to 17,000 cases in 2009, is taking some share from beer and local cane. Most of it comprises inex- pensive Brazilian vodka brands.

problems in Argentina. Uruguayan politicians have also tried to improve middle-class disposable income, raising salaries to the public sector, which has benefited domestic consumption. In this context, the Scotch market grew by 9.2% in 2009 to over 350,000 cases. This is despite a 25% reduction in ship- ments as reported by the SWA. All of this decline was border trade with Brazil. Actual border sales to Brazilians – excluding large contraband organisations – were also up. The Scotch market in Uruguay saw a fierce battle for share between Diageo and Pernod Ricard in 2009. Within a local whisky market of close to 360,000 cases, Pernod Ricard’s local brand Dunbar continued to grow and now sells over 135,000 cases, a rise of 36,000 cases in five years. The opportunities to trade consumers up to Scotch are still enormous in this market. Uruguayans are some of the highest per-capita consumers of whisky in the world. Vodka and rum also grew by close to 20%, to 21,000 and 17,000 cases respectively, benefiting from these good general trading conditions.

Uruguayan economy booms Uruguay did not feel the global economic crisis, with unem- ployment at record low levels and strong economy growth, boosted by Argentinian companies investing in the country amid

18 | IWSR JUNE 2010

Despite the setback last year, Brazil remains a major focus for Beam Global. Cockram says:

“We are intent on making Teacher’s a power- house brand in Brazil.” He explains that the company is very focused on promoting around the local carnivals, particularly in the north-east of the country. “With Teacher’s we can offer an interesting proposition, a brand that is well-established in the local region of north-east Brazil. It has an interesting flavour that is very mixable and is accessible in terms of price point. It works really well.” Malt Scotch remains small, at 14,500 cases, while US whiskey sales rose by 59% in 2009 to 34,000 cases over 2008. This was driven by Jack Daniel’s, with sales of 25,000 cases. Nevertheless, Brown-Forman senior vice-president and managing director, Jack Daniel’s Gus Griffin believes there is strong potential. He says: “In Brazil, we are seeing some good signs with consumers. They are responding well to our Jack Daniel’s brand communication. So long-term, Brazil is going to be a very important market for us.”

Consumers trade up to vodka In white spirits, the vodka market contin- ued to grow by 5.2% to 5.5m cases. Consumers of cachaça view vodka – and the Smirnoff brand in particular – as a good trading-up option. Smirnoff’s sales rose by 2.3% to 1.37m cases. Absolut continued to grow strongly under Pernod Ricard to reach 155,000 cases and could cross the 200,000-case mark in Brazil in 2010, given good economic prospects. Local vodka sales increased by 4.1% to 3.8m cases. Sales were driven by what is essen- tially triple-distilled neutral cane, initiated by Kovak (Aquino) and followed by most of the local cachaça producers. This shows how, even at the low end of the market, Brazilian consumers are eager to trade up. Gin, some 80,000 cases, and tequila, at 130,000 cases, remain relatively small in this vast market. However, tequila is growing strongly, thanks chiefly to the performance of Cuervo Gold. The introduction of new taxes and, espe- cially, compulsory electronic invoicing for all liquor manufacturers had a severe effect on local spirits. Prior to 2009, some compa- nies could use the same paper invoice – if unchecked – for multiple deliveries, which allowed them to sell some volume at very competitive prices. With the electronic invoicing system, this has now become impossible and, combined with the tax rise, has increased retail prices markedly. Local

the tax rise, has increased retail prices markedly. Local SPIRITS REVIEW Market Report Spirits in Brazil


Market Report

Spirits in Brazil

Local SPIRITS REVIEW Market Report Spirits in Brazil Brazil: top 15 imported spirits brands Brand Category

Brazil: top 15 imported spirits brands







% change





2009 on



Johnnie Walker









Beam Global







Pernod Ricard







Pernod Ricard







Pernod Ricard





White Horse





















Amarula Cream







Black & White







Chivas Regal


Pernod Ricard





Grant’s Scotch


Wm Grants





Old Parr







Grand MacNish


MacDuff International 25.0











All volume figures in ’000s of 9-litre cases

vodkas, cachaças, rums and brandies have seen their prices increase more in percent- age terms than those of imported spirits. Consequently, local whiskies declined by 9% to 1.35m cases, local rums by 20% from 3.2m to 2.5m cases, and cachaça and local conhaque by around 5.5% to 89m and 7.7m cases respectively. Only local vodkas managed some growth, rising by 5.5% to 5.4m cases. The rum category, in particular, was hit hard by the increase in taxes and consumer prices for local spirits. Montilla, consumed mainly in the north-east, lost nearly 500,000 cases. This is the region of Brazil where the market is also most informal, so compulsory electronic invoicing to whole- salers and distributors had a significant impact. Bacardi, more relevant in the more prosperous city of São Paolo, managed to hold volume at 150,000 cases. Although cachaça lost 5m cases in 2009, the category remains vast at just under 90m cases, dominated by huge brands such as 51 (close to 20m cases), Pitú (over 9m cases), Ypioca (6m cases) and Velho Barreiro (over 5m cases). Local conhaque (molasses-based brandy) also declined, with Campari’s Dreher under the 3.5m cases mark for the first time in five years, while Presidente held volumes and third-ranked Domus (Müller de Bebidas) also lost volume to 1m cases. In the liqueurs category, South African brand Amarula, distributed by Bacardi- Martini, saw its sales – around 50% sourced from Uruguay and Paraguay – decline to just above 80,000 cases. Amarula remains

Source: IWSR 2010 ©

by far the largest imported liqueur in the market and, with the soccer World Cup being held in South Africa in 2010, it has the opportunity to grow further. Campari lost in excess of 10%, but still sells well over 500,000 cases. Cynar on the other hand, grew to 270,000 cases, as Rabo de Gallo, a Cynar and cachaça cocktail, gained traction. The Campari brand regis- tered strong growth in in the first quarter of 2010, thanks to a return to regular trading after the full acceptance of price increases and a favourable comparison base. Campari’s Brazilian brand registered triple-digit growth. Campari group marketing director Cesare Vandini says: “Brazil has a buoyant economy, which is obviously underpinning the long- term growth of the market. The purchasing power of consumers has developed signifi- cantly in recent years. Our performance in Brazil and the Latin American region has been really positive for our brands.” But he believes that the growth of Campari brands in the first months of 2010 has really been led by share growth: “The total market has suf- fered from the tax changes.” The overall outlook for 2010 remains very positive. Price rises have now been accepted and the economy is gathering strength and is expected to grow by 7% this year. Brazil is holding general elections in October 2010, but the effects of the outcome – if any – are unlikely to be felt by year-end. Gavazzi says:

“Brazil is just rocketing. It has a strongly grow- ing economy and the Real is stable. Brazil is already dreaming of the World Cup and the Olympics. This is exciting stuff.”

SPIRITS REVIEW Special Report Diageo on premiumisation Full steam ahead Rumours of the death of


SPIRITS REVIEW Special Report Diageo on premiumisation Full steam ahead Rumours of the death of premiumisation

Special Report

Diageo on premiumisation

Full steam ahead

Rumours of the death of premiumisation are unfounded, says Diageo. The IWSR Drinks Record editor Alexander Smith reports

T he global recession ushered in a new

age of frugality – or so the pundits

thought. Certainly there has been a

degree of trading-down in many mar-

kets, particularly in the West, which

is a reversal of the long-running pattern. But the good news, according to Diageo chief marketing officer Andy Fennell, is that, despite the recession, premiumisation is still very relevant and certain to become more so in the years ahead. Premiumisation is often thought of as sell- ing more luxury goods. This is part of it, but premiumisation is just as much about moving consumers to higher-priced brands within a price segment and up to the next price seg- ment. In developed markets, it can happen by moving consumers up the ladder – for instance from Johnnie Walker Red to Johnnie Walker Black. In developing mar- kets, it can also imply more people consuming international spirits versus local spirits as they become wealthier. Diageo estimates that this latter movement has contributed to about a third of its growth between 2003 and 2009. Over the past decade, the trading-up phe- nomenon has accelerated, driven by several dynamics. Today’s middle class consumers are better educated, more sophisticated, better travelled, and more discerning than ever before. As a result, they have higher aspirations. And with over 250 million mid- dle-class households in the BRIC economies and Mexico alone, many con- sumers in developing markets can now afford international brands. The spirits industry response has been to provide consumers the offerings that they were seeking through new product develop- ment. Diageo global head of whisk(e)y, gins and Reserve Brands Alberto Gavazzi says:

“We have just seen that this particular reces- sion has had a negative impact on consumer trading-up and that, depending on the category, this has materialised in different ways. Now, we all know that premiumisation was a significant driver of value growth

20 | IWSR JUNE 2010

in different ways. Now, we all know that premiumisation was a significant driver of value growth
in different ways. Now, we all know that premiumisation was a significant driver of value growth

pre-recession; so it is only natural that we would ask ourselves: ‘Will we be able to con- tinue to leverage this growth driver in the future? Has the depth of this recession changed this natural consumer behaviour for- ever?’ Not in my view. When consumers feel their basic needs are relatively under control, they will naturally trade back up.” The experience in the US over the course of the past four decades indicates that this premiumisation trend in the spirits industry always re-emerges soon after recessions. Fennell says: “Although they [spirits cate- gories] were temporarily affected as they encountered recessions, they resumed growth as the tough times ended. These – and other examples we have looked at – give us strong evidence to suggest that pre- miumisation is not a cyclical phenomenon, but rather a form of fundamental market structure, that is strongly established and it’s here to stay.” Gavazzi adds: “During economic down- turns, the value segment in our category [Scotch] performs better than the premium segment. And we have seen that this is pro- voked by the feeling of financial exposure consumers experience during the recession. But even more importantly, history also shows that premium spirits consistently rebound when the economy improves – also in developed markets. It highlights the underlying desire for consumers to trade up, a phenomenon that has driven the growth of premium spirits following each recession, to grow to larger proportions than before each recessionary period.” Nevertheless, Gavazzi believes that the current recession will have some lasting impact on consumer behaviour in developed markets. The macro-economic picture in the developed world is still not rosy. Unemployment is high in many markets and not showing a structural turnaround to date. While this persists, and media coverage and political attention continue to focus on that fact, consumers will still feel the pressure and they will not feel fully confident of being able to meet their basic needs. He points out that Diageo research shows that a significant pro- portion of consumers in developed markets agree that they have been paying more atten- tion to the risks of their spending decisions of late. It also indicates that consumers will be more cautious when making spending deci- sions in the future. “We believe we are entering a new era… Let’s assume the pre-recession years could be characterised as the ‘Era of Indulgence

years could be characterised as the ‘Era of Indulgence SPIRITS REVIEW Special Report Diageo on premiumisation


Special Report

Diageo on premiumisation

SPIRITS REVIEW Special Report Diageo on premiumisation and Frivolity’, where consumers had little concern about

and Frivolity’, where consumers had little concern about the level of risk they might have been exposed to… We believe that what we are left

with is an apprecia- tion of risk and more considered choices. We are entering an ‘Era of Consequences’, where careful con- sideration of spend- ing possibilities will lead decision-mak- ing more than before. We expect this behaviour to persist as the down- turn runs its course and, potentially, to continue to take hold for some time afterwards.” The good news for the spirits industry is that many of its products deliver against these consumer expectations and desires. As a result, consumer interest in trading-up to more premium positioned brands is actually starting to reveal itself, once again. The performance of US spirits, com- paring the growth rate of the past 12 weeks ending in March to the growth rate of the prior 52 weeks, indicates that the premium

Diageo believes that, in Asia, white spirits will follow the premiumisation trail blazed by Scotch
Diageo believes that, in Asia, white
spirits will follow the premiumisation
trail blazed by Scotch and Cognac and is
laying the groundwork with the
introduction of the super-premium
Shanghai White

benefit. It is a relatively accessible luxury and a simple way of display- ing newly acquired status. Gavazzi says: “So the point here is that, as long as we see sustained GDP growth coming in these emerg- ing economies – and all fore- casts support this – our pro- ducts should directly benefit.” As these developing economies and their GDPs are forecast to continue to grow, the impact on middle-class growth is particularly high and it is projected to double in the next 20 years. In addition, there is the urbanisation in the developing world. In 2006, for the first time ever, more than half of the world’s population is urban, rather than rural. In these economies, there are hun- dreds of cities with already more than 1m con- sumers and this trend is set to continue to increase. Gavazzi says: “These new urban con- sumers will be aspiring to something better than what they already have. They will want to be able to show that, with a move to the big city, they are doing better. They will look for

“The new urban consumers will be aspiring to something better than what they already have. They will look for opportunities to trade up”

and super-premium segments are now grow- ing faster than a year ago and the ultra- premium segment, which was in a state of decline, is also showing signs of recovery.

Emerging market opportunity In emerging markets the premiumisation opportunity is great, owing to strong GDP growth. In simple terms, when per-capita GDP is growing strongly, there are more and more consumers who are having their basic needs satisfied, and these consumers are ready to search for aspirational products. Scotch whisky, in particular, stands to

opportunities to trade up, to premiumise.” In terms of categories, the premiumisation opportunity in the developing markets will initially be quite narrow, but will expand in coming years. Fennell says: “Scotch and Cognac will lead in the developing world. Vodka and rum will be the big story that comes behind it over the next 10-15 years.” He believes the exception may be China. “The one thing that is different about China is that the local white spirits the Chinese consume already have premium price tiers established and quite a lot of drinking rituals associated with them –

SPIRITS REVIEW Special Report Diageo on premiumisation particularly the meal occasion. If we want to


SPIRITS REVIEW Special Report Diageo on premiumisation particularly the meal occasion. If we want to grow

Special Report

Diageo on premiumisation

particularly the meal occasion. If we want to grow a scale business in China, we need a strong position in Chinese white spirits, because while international spirits will grow

– and I can see them doubling and tripling

– they will still be relatively small compared

to this local spirits category, which already covers all of the price points. So premiumi- sation in China includes premiumisation within Chinese white spirits.” Mindful of that, Diageo acquired the Chinese baijiu company So Shui Jing Fang in March of this year. Fennell explains that the company’s products are premium-posi- tioned. “That’s a rapidly growing segment. Our participation in China needs to be both within the Chinese white spirits arena and within the international spirits arena, which has got just huge headroom to grow.” Within mainland China, Cognac has tended to outpace Scotch in recent years. Gavazzi says: “Scotch and Cognac are both actually relatively new categories in China, but Cognac has been established for a longer period of time. We’re still in the process of establishing Scotch and, obvi- ously, when you’re going through a reces- sion or there is an impact from that, the category with more heritage and more links to consumers will tend to do slightly better. We’re already seeing Scotch picking up again and doing better as a result of the recession stopping there as well. Now that it is growing again, it is our job to make it more attractive into the future.” Of course, China is only one emerging market. The really encouraging aspect is the broad spectrum of developing markets where this trading-up is present. Fennell says: “The emerging markets – Africa, Latin America and the developing market part of Asia – are all in good shape. “The outlook in the African markets is equally exciting, even though they were hit a bit more by the recession. Just population growth alone in Africa provides huge opportunities for us… Russia is starting to come back pretty strongly. The rest of Eastern Europe is still sluggish, and we will have to wait a bit longer for the Ukraine, Bulgaria and Hungary to come back.”

Channel switch One of the features of the economic down- turn, particularly in developed markets, has been the shift in consumption from the on-premise to the off-premise sector. This presents challenges, as premium brands have historically been built in the on-

Johnnie Walker Double Black is positioned at a 10-15% premium over Johnnie Walker Black Label
Johnnie Walker
Double Black is
positioned at a
10-15% premium
over Johnnie Walker
Black Label

premiumise. A way of doing that, for instance, would be gifting. The number of gifting activities we have put out there – and most of them at a charged and up-charged price – is much bigger than it was two or three years ago. When you put a spe- cial edition in [duty free], consumers want to trade up to the special edition exactly in the way they do in the on- premise sector. There are

premise arena before moving into the off- premise sector. Fennell contends that the opportunity to build premium- and-above brands in the off-premise sec- tor is greater than many suppose. “If you look at the pro- file of price seg- ments, there is a mir- ror in the off-premise channels and people do premiumise. So, as they migrate their social behaviour home, they take their desire to do better home with them. The US is strongly oriented to at-home consumption and yet the premiumisation dynamic there is as strong as it is anywhere else.”

“Historically what drinks companies needed to be awesome at was building brands in the on-trade. But that is insufficient now”

“Historically what drinks companies needed to be awesome at was building brands in the on-trade and this dynamic of on- to off-trade means that that is insuffi- cient now. Six or seven years ago, we fig- ured out that we have to be great brand- builders in the places where the consumer is experiencing our drinks – whether that’s in a style bar, in a pub or in a supermarket. You will have seen us stepping up our efforts through the duty free channel, through partnerships with supermarkets and through partnerships with department stores. That continues at pace, because the off-trade has to be a place where we’re going to build great brands and do the trad- ing-up; in some countries, the on-trade is going to be a more special-occasion thing and if we just relied on that, then we would be unsuccessful.” Gavazzi concurs, adding: “Even in the off- premise sector, we have opportunities to

ways that we can actually premiumise in the off-premise.” Innovation continues to be central to these efforts to trade consumers up. Diageo is now testing about five new products in Scotch alone throughout the world – and all of these products are sold at a premium price to their original variant. One exam- ple would be Johnnie Walker Double Black, which has launched in a number of duty free airport stores around the world, positioned at a 10-15% premium over Black Label. Fennell says: “Premiumisation is doing so well, not only because there are better-educated middle-class consumers, but the industry has been more aggressive than ever before. The number of offerings we’re putting out there is far greater than it was a decade ago and that clearly invites consumers to continue the journey

of premiumisation.”

22 | IWSR JUNE 2010

WINE REVIEW Australian exports 24 Australian wine Market Closures 27 How the cork vs other
WINE REVIEW Australian exports 24 Australian wine Market Closures 27 How the cork vs other
WINE REVIEW Australian exports 24 Australian wine Market Closures 27 How the cork vs other


WINE REVIEW Australian exports 24 Australian wine Market Closures 27 How the cork vs other closures
Australian exports 24

Australian wine


Closures 27

How the cork vs other closures debate has moved on to the environment

Interview 30

Soriana’s Edgar Alan Barraza Zatarain discusses the trends for drinks in Mexico



producers face challenging times as they struggle to control supply

Foster’s to demerge wine

AUSTRALIA Australian drink group Foster’s has announced the long-anticipated demerger of its wine and brewing divisions. The two divisions will begin trading as sepa- rate listed companies next year, unless a buyer for either the struggling wine division or bur- geoning beer business appears. No decision has been made on the structure or exact timing of a demerger, which will depend upon, among other things, prevailing economic and capital market conditions. The company said that the demerger is unlikely to be implemented before the first half of calendar 2011. “We are increasingly seeing the benefits of separating the beer and wine businesses opera- tionally. While the beer and wine businesses are market leaders, they operate in separate market segments with different strategic and operating characteristics,” Foster’s CEO Ian Johnston said at a press conference. The demerger will also make the sale of one or both of the new companies easier to achieve. One potential complication remains how Foster’s estimated AU$2.4bn ($2bn) debt load

will be divided between the two companies. Foster’s wine business, the second-largest in the world after Constellation Brands of the US, continues to be affected by oversupply in Australia, subdued consumer demand in key international markets and a strong Australian dollar. Foster’s diversified into wine in 1996

with the acquisition of Mildara Blass. In 2000,

it purchased US-based Beringer Wine Estates

for AU$2.6bn (then $1.3bn) to form what was then seen as the world’s first global premium wine company. In 2005, it purchased Southcorp for AU$3.2bn (then $2.45bn). Foster’s had considered selling its wine divi- sion, following a review of its wine business in February 2009, but decided it was an inoppor-

tune time given the global credit crisis. Its wine brands include Australian brands Lindemans, Wolf Blass, Penfolds and Rosemount. Other key brands include Beringer in the US, and Castello di Gabbiano in Italy. The company has taken steps to improve profitability through

a combination of job cuts, vineyard disposals and brand SKU reductions.

Direct wine sales forecast to grow in the US

USA US wineries worked harder than ever to maintain their direct wine sales to consumers at record levels in 2009, according to the latest research results from wine marketing advisor VinterActive. Based on its annual VinQuest survey of the nation’s 3,500 bonded wineries, VinterActive reports that tasting room, wine club, internet, and event sales hit a record $3bn in 2009, as wineries adopted new marketing strategies to offset declines in tasting room traffic and con- sumer spending across the US.

While many larger established wineries repor- ted declining wine club and tasting room sales in 2009, small and mid-sized wineries aggressively increased their use of social networking, direct marketing and special events to generate solid gains in online, telephone and face-to-face sales. Despite significant concerns about the econ- omy and continuing challenges with interstate shipping regulations, consumer direct wine sales remain a bright spot in the US wine industry, with winery sales managers in most regions forecasting 5-15% growth in 2010.

UK wine consumers spending more in off-trade

UK The latest research commissioned by the Wine & Spirit Trade Association has shown that UK consumers are going out less, but are willing to spend more on a bottle of wine for domestic consumption. Last year saw a 30% increase in the number of regular wine drinkers paying over £7 ($10.30) per bottle; the average price of a bot- tle of wine in the off-trade is £4.32 ($6.35). The survey also showed that the number of consumers saying they don’t buy wine in the on-

trade has increased from 9% to 12%. The num- ber of consumers who drink wine most days or every day also continued to fall – 12% now com- pared to 17% in 2007. Other findings were that consumption of pinot grigio has risen to 56% compared to 43% in 2007, while chardonnay consumption has dropped from 71% to 63% in the same period. Rosé accounts for 18% of UK wine consumption, up from 10% in 2007, and white wine has decreased from 45% to 37%.

10% in 2007, and white wine has decreased from 45% to 37%. Hong Kong and US

Hong Kong and US sign MOU


the US have signed a Memorandum of Under- standing (MOU) on co-opera- tion in wine-related businesses. The MOU covers a number of areas, including promoting wine alongside regional and local cuisine, facilitating the organisation of wine auctions in Hong Kong for US wines, and encouraging the provision of quality wine storage facili- ties in Hong Kong. Wine imports from the US amounted to $49m in 2009- 2010, representing a five-fold increase since Hong Kong’s duty exemption. This latest MOU is the eighth co-operative agreement con- cluded by Hong Kong with wine-producing countries or regions, coming after those with France, Bordeaux, Spain, Australia, Italy, Hungary and New Zealand.

French study on plastic storage

FRANCE A scientific study into the storage of wine in different forms of packaging has revealed that bag-in-box, sin- gle-layer PET and small multi- layer PET altered the character of the white wines when stored over six months, with oxida- tion clearly noticeable. The study, carried out by the Institute of Vine and Wine Sciences in Bordeaux (ISVV), featured red and white Bordeaux wine, packed into several different materials and stored in laboratory conditions. After six months, the white wine clearly oxidised in single- and multi-layer PET, as well as the bag-in-box. But it remained stable in the two glass bottles.

Category Report Australian wine exports Exports down Down Under IWSR senior analyst Agata Andrzejczak and
Category Report Australian wine exports Exports down Down Under IWSR senior analyst Agata Andrzejczak and
Category Report Australian wine exports Exports down Down Under IWSR senior analyst Agata Andrzejczak and

Category Report

Australian wine exports

Exports down Down Under

IWSR senior analyst Agata Andrzejczak and The IWSR Drinks Record editor Alexander Smith report on the need for change in the Australian wine industry

A ustralian producers and growers

are going through challenging

times, as the surging Australian

dollar, the global recession and a

grape glut take their toll. Across

Australia, thousands of hectares of vines are being torn up in an attempt to halt the oversupply and drive wine prices back up. Years of large vintages led to a significant oversupply, which in turn has put pressure on prices and financially affected many players. Many predict that it will take years for Australia to get supply and demand in balance. But first estimates of the 2010 vin- tage show that the industry is being more successful in reducing the wine glut than expected. Some believe the market will be back in balance in three to five years’ time. Four of Australia’s wine industry bodies –

Australian wine exports




Unit value



AU$ per















































Source: AWBC

Australian wine: top growth markets by value 2009

























Hong Kong












24 | IWSR JUNE 2010

Source: AWBC

+2.5 +2.5 min 24 | IWSR JUNE 2010 Source: AWBC the Winemakers’ Federation of Australia, Wine

the Winemakers’ Federation of Australia, Wine Grape Growers Australia, the Australian Wine and Brandy Corporation (AWBC), and the Grape and Wine Research and Development Corporation – have worked closely with the industry to make sure that production is reduced. The bodies are organising workshops nationally to encourage growers and wineries to leave the industry if they do not make any profit. It is estimated that 8,000-12,000 hectares of vines have been removed or abandoned in Australia in 2009 alone. Grape prices fell by 30% last year and by the same amount in 2010 and many growers continue to leave what is, for most, an unprofitable industry. First estimates suggest that the size of the grape harvest in 2010 has been reduced by a significant 13% on 2009, to 1.53m tonnes. This places the 2010 harvest well below the record 2005 harvest of 1.93m tonnes, but is still higher than estimated and greater than required to meet current demand. The Winemakers Association of Australia estimates that 95m cases of wine remain unsold in Australia – this is more than the country currently exports and nearly twice as much as the total wine market in Australia. After the surplus has been sold, most certain- ly very cheaply to major supermarket chains in key export markets or sold as cleanskins

(sold without labels), the industry promises to concentrate on more profitable wines. The largest companies – Constellation, Foster’s, Pernod Ricard Australian Vintage and Casella – account for the great majority of Australia’s production. Thus, the onus is particularly on these companies to reduce and rationalise production to ensure that demand and supply swing back into balance. Brown Brothers CEO Ross Brown says: “If wineries only ever took grapes for the wine that they had a market for, then there would have never been a problem. Otherwise, the grapes should have been left in the vineyards. That is starting to happen now. Consequently, vineyards are starting to be taken out. Something like 10,000 hectares came out last year. That has to continue for another couple of years until we are in balance.” The recently formed First Families of Wine,

a group of independent producers, claims that

2010 could be the best vintage in recent years.

Although the quality of fruit harvests is gener- ally very high, growers’ revenues are not. Some in the Murray Valley have been paid as little as A$0.20 ($0.16) per bottle sold. Wine oversupply and intense competition in key export markets have contributed to poor profits. With the unstable global eco- nomic situation, which resulted in a strong Australian dollar, export revenues continue to decrease. Australian Vintage UK & European general manager Paul Schaafsma says: “The really strong appreciation of the Australian dollar is making it tougher to com- pete. We managed to grow profits last year, but the results would have been spectacular if

it had not been for the exchange rates.”

That need to extract greater efficiencies from its operations led Australian Vintage to consider combining its Australian and UK wine operations with US-based Constellation Brands. The discussions were eventually called off. Nevertheless, the rationale for the deal remains and both companies are seeking ways to increase effi- ciencies and reduce costs. News that Foster’s Group will demerge its wine and spirits businesses has led to specu- lation that its wine business could become a takeover target (see news story on page 23).

Category Report Australian wine exports Foster’s, which is taking a AU$1.3bn write- down on the
Category Report Australian wine exports Foster’s, which is taking a AU$1.3bn write- down on the
Category Report Australian wine exports Foster’s, which is taking a AU$1.3bn write- down on the

Category Report

Australian wine exports

Foster’s, which is taking a AU$1.3bn write- down on the wine business, has yet to decide on the final structure for the wine business and its management.

Building value The challenge for the industry in coming years is not only to grow existing markets and find new markets, but also to successfully mar- ket Australian wine at higher price points. Brown says: “There is a lot of negative sen- timent around the Australian industry, but if we manage this correctly over the next two or three years, it is an opportunity. Australia has been a really great supplier of good everyday varietal wine. We have over-delivered and given the consumer some fabulous wine at really attractive prices. Australia can no longer play in that place, due to exchange rates and the rising cost of water. The indus- try has to reposition itself at higher price points and bring the customer along with it, ensuring the quality, image and story associat- ed with our brands stack up to good value.” He adds: “Quality always follows price. We have seen an erosion of the quality of Australian wine, based on those lower price points. We are going to have to lift our posi- tioning to get back in the game. The next 12 months will be a really interesting time for Australia to see if consumers are willing to buy into these higher price points.”

In recognition of the need to build value, in May 2007, Wine Australia launched the 46- point strategic programme Directions 2025. The plan calls for an enhanced emphasis on value-creation through a number of initia- tives, including, among other things, a greater focus on Australia’s wine-growing regions. In a related development, last July, 12 of the leading family owned Australian wine- ries established the ‘Australia’s First Families of Wine’ group. The collective 12 represent Australian regions across four states, and, together, own more than 5,500 hectares of Australia’s finest vineyards and have over 1,200 years of winemaking experience under their belts. Brown, whose own firm is one of the 12, explains the idea: “We have all agreed to focus on the values of regional and classic wines of Australia and taking our wines up a notch where Australia should really be playing.” But the industry is cautious of focusing solely on regionality. Foster’s Europe mar- keting director Richard Trimby says:

“Regionality has a role, but it isn’t the only story. It is not just about the place but it is about the people and the brands. Every wine comes from a region. That is not inherently interesting unless the consumer understands what makes that region differ- ent. Regionality can only be part of the solution to building value.”

Australian Vintage interim CEO Neil McGuigan says: “You have to be careful. We understand that premium, regional wines are one part of what we do. But they have to be stylistically appropriate at a commercial level. Let’s not forget that 86% of the wine sold in the UK is sold at under £6. We have to make sure that we are continuing to add value for that consumer, while also doing the premium regional wines that create the halo for the brand.” Pernod Ricard wine development director Adrian Atkinson believes that consumers are gradually following the Australian wines upmarket. “The centre of gravity is now more at the upper mass-market level. We are help- ing to do that by working on our Regional Reserve wines.” He says Pernod Ricard has learned from its research that, at premium price points, consumers are looking for some regional identification – a need not necessar- ily present in more mass-market wines. “In the premium sector, consumers are looking for strong brand recognition, but they are also looking for a combination of strong vari- ety and regional classification. The latter is just adding another layer of interest and com- plexity. It is going to be a long process to real- ly communicate those premium extensions. But everything we are doing is focused on building value. That is the only way our brands can survive long term.”

Export woes

In 2008, Australian wine export volumes declined for the first time since 1995, while export value decreased for the first time since records began being kept in 1992. According to the Australian Wine & Brandy Corporation, in 2009 exports con- tinued to fall in value, down by 7.9% to AU$2.27bn ($1.9bn), while volume increased by 9.4% to 764m litres. Overall volume growth was driven by an increase in bulk ship- ments of 119m litres. Contributing to this performance were very low pricing, a strong Australian dollar, which influenced Australia’s competitiveness, more shipments of branded wine for packaging in the UK and US and the unstable global economy. The rise in low-priced bulk shipments resulted in the average price of wine falling to below AU$3 ($2.50) per litre. In 2009, the aver- age price of a litre of Australian wine fell to its lowest ever level – AU$2.97 ($2.47), 15.8% less than in 2008 and a drastic drop from the all-time highest average of AU$4.78 ($3.97) in 2002. In volume, the UK and US account for almost 70% of all exports. In 2009, exports to the UK, Australia’s leading mar- ket, fell marginally in volume to 260.6m litres and fell by 21.8% in value terms to AU$630.9m ($524.6m). As a result of increasing local bottling of branded wine, the average price of a litre exported to the UK fell by 21.5% to AU$2.42 ($2). More positively, four of the top 10 markets posted volume

and overall value increases – the US, China, Germany and Sweden. Exports to the US – the second most important export market in terms of volume – increased by 25.7% to 243.2m litres. In value terms, the US remained number one and was also the second-fastest growth market. AU$691.5m/$575m- worth of wine was exported to the US in 2009, an AU$18m ($15m) increase on 2008. China was by far the best performer with the value of export increasing by 77% (AU$57m/$47.4m) to reach AU$130.1m ($108.2m). China is now Australia’s fourth-largest market by value. There was a strong growth in bottled shipments, up by 60% to AU$41m ($34.1m) and bulk exports also increased, up by 378% to AU$16m ($13.3m). The average price per litre exported declined strongly to AU$3.22 ($2.68) due to increas- ing share of low-priced bulk. Germany is the number two volume growth market after China, with exports up by 27.7% to 29.7m litres and total value shipped at AU$49.4m/$41.1m (+2.7%). Most of the growth is very low-priced bulk. Red wine dominates the exports at 60% share of all ship- ments, but it is white wine that shows higher growth. White wine shipments were up by 16.2% to reach 297.8m litres, and red wine was up by 5.7% to 448.9m litres.

26 | IWSR JUNE 2010

Special Report Wine closures Acorking argument The debate over the best stopper for wine rages
Special Report Wine closures Acorking argument The debate over the best stopper for wine rages

Special Report

Wine closures

Special Report Wine closures Acorking argument The debate over the best stopper for wine rages on,

Acorking argument

The debate over the best stopper for wine rages on, with the argument now moving increasingly towards sustainability and environmental factors. Joe Bates reports

T he battle for market share among rival

closure manufacturers is currently

being waged on three highly contested

fronts. Over a decade ago, the high

incidence of cork taint – the musty

aroma found in wines sealed with natural corks affected by the fungus trichloroanisole (TCA) – was the opening shot fired in what has turned out to be a long-running con- frontation between screwcap, composite cork and synthetic closure producers on side, and natural cork suppliers on the other. Ten years on and TCA is no longer the sole issue of contention between the rival camps. With millions of euros having being spent by the cork industry to deal with TCA, the debate has broadened to include the environmental track record of the three major closure types. As wineries and retailers look to reduce their carbon footprint and dis- play their green credentials, so natural cork producers have sought to portray themselves as the most environmentally friendly option. They argue that natural cork is recyclable, carbon-neutral, and helps to maintain the delicate ecosystems of Spain and Portugal, where the majority of cork trees are grown. Screwcap and synthetic cork suppliers have responded by highlighting the recyclable nature of their products, and their increased efforts to improve sustainability and reduce carbon emissions. The issue of oxidisation is the last major area of discord. A decade ago, it was gener- ally thought that the ideal wine closure allowed no oxygen to permeate it, but more recently, a number of scientific studies have cast doubt on that assumption. It is now believed by some that a degree of oxygen transmission (OTR) is beneficial to the development of wine post-bottling. Where closure manufacturers vehemently disagree, of course, is the ideal amount of oxygen ingress and the right closure to create the wine that the winery originally intended to produce. Synthetic cork and composite cork producers argue they are best-placed to take advantage of these new insights into wine development by offering

Harvesting the cork by hand: cork suppliers argue that natural cork helps to maintain the
Harvesting the cork by hand: cork suppliers argue that natural cork
helps to maintain the delicate ecosystems of Spain and Portugal
Special Report Wine closures wine-makers a range of consistently per- forming closures, with varying OTR
Special Report Wine closures wine-makers a range of consistently per- forming closures, with varying OTR
Special Report Wine closures wine-makers a range of consistently per- forming closures, with varying OTR

Special Report

Wine closures

wine-makers a range of consistently per- forming closures, with varying OTR rates to suit different wine styles. In return, natural cork producers question how fine wines stoppered with alternative closures will perform when aged for long peri- ods. They also highlight the problem of “reduction” found with some screwcapped wines, which display sulphurous aromas (pos- sibly caused by a complex chemical reaction between the screwcap liner and the wine).

Market division As to the exact size of the global closures mar- ket, no definitive data exists, but internal industry estimates put the business at about 18 billion closures per year. As might be expect- ed, given the global economic downturn, the overall market was flat last year. Natural cork still enjoys a dominant 70% share, but this has been eroded considerably since the mid-1990s when its share rose to 95%. Screwcaps continue to gain momentum at the expense of both natural cork and syn- thetics, taking around a 10-15% market share. They enjoy a dominant position in New Zealand and Australia and are growing fast in Chile and Argentina. With a 15-20% share of the market, the overall synthetic cork sector continues to decline. Quite how much of a hold screwcaps can take over the market is a matter of fierce debate. At a closures and packaging work- shop at the London International Wine Fair last month, Bruno de Saizieu, capsules sales director at Amcor, the producer of the cate- gory-leading Stelvin screwcap range, esti- mated that screwcaps’ current share of the closure market was as high as 20%. He went on to predict screwcaps would have a 50% market share by 2015, fulfilling a predic- tion first made by US wine critic Robert Parker in 2005. “Five years ago, my figures for New Zealand were that they would have a 50% mar- ket share and no more,” he added. “Today, how- ev