Consumers Returning to Super Premium Spirits Products–

New York, NY – The distilled spirits industry is showing signs of recovery but policy makers need to refrain from increasing tax burdens because the economy is not out of the woods yet, Distilled Spirits Council CEO Peter Cressy said today at an annual industry briefing for media and analysts.

According to 2010 economic data released by the Council, supplier volumes rose 2% to 190 million cases and revenue rose 2.3% to $19.1 billion, but Cressy pointed out that growth rates remain below the robust pre-recession growth rates, and the important on-premise (restaurants and bars) sector is still experiencing a fragile recovery.

Cressy also noted that in 2010 consumers began to return to their preference for high-end and super premium spirits products, with revenue in the super premium category growing 10.9% — but from a very soft 2009. In addition, he added, revenue-based market share for spirits overall versus beer and wine gained four-tenths of a point rising to 33.3% of the beverage alcohol market. However, beer lost seven-tenths of a point of market share falling below 50%, as consumers continued their decade-long migration from beer to cocktails.

“In 2010, the industry improved its performance over the previous year, but this recovery remains fragile, and we are not yet out of the woods,” said Cressy. “Consumers did begin to trade back up to premium spirits products, but the hospitality industry is still far from its average pre-recession performance.”

Cressy cited a number of factors that contributed to the industry’s return to growth, including legislators in every state declining to raise hospitality taxes in 2010; the trend toward home entertaining; and the companies’ wide portfolios including quality value brands that ensured consumer interest in spirits continued throughout the recession.

Further, he noted that nationwide state policy modernization over the last decade, including permitting spirits tastings (like wine tastings) and Sunday sales at package stores, contributed to the consumer premiumization trend, which in turn supported improved state revenue without raising taxes.

The 2010 elections also produced positive results for the hospitality industry, including: many more state policy makers elected on anti-tax platforms; the repeal of the sales tax on liquor in Massachusetts; successful wet/dry elections in 34 Texas localities and 12 other states; and the passage of Proposition 26 in California requiring a two-thirds vote in the legislature to pass fees.

“Tax and regulatory restraint on the part of policy makers are the keys to sustaining a stronger revival of the hospitality industry,” Cressy pointed out. “However, this will continue to be a challenge for the industry in a very tough fiscal climate in the states.”

2010 Spirits Category Highlights

Vodka, which accounts for 31% of industry volume, was up 6.1% to 59 million 9-liter cases (the standard measure of industry volume), and in the important super premium category, volume was up nearly 18% and revenue was up approximately 14%.

Whiskey showed strong revenue growth, particularly in the super premium segment, which increased by 8.1% overall to over $1.1 billion. Within the super premium segment, Bourbon and Tennessee Whiskey revenue increased by over 17% to $161 million; single malt scotch grew nearly 18% to $140 million; and Irish grew 30% to $23 million. Super premium Brandy and Cognac were also up almost 10% to $315 million.

Exports Rebound – Exceed $1B for Fourth Straight Year

2010 preliminary U.S. distilled spirits export data showed a fourth consecutive year exceeding $1billion, and a rebound from the slight downturn in 2009. The Council predicted final results could break the $1.1 billion record set in 2008. American whiskeys now represent 71% of all U.S. spirits exports. The Council urged policy makers to aggressively pursue free trade and other market opening agreements around the globe in order to sustain continued spirits export growth.

Industry Committed to Social Responsibility: 

Underage Drinking/Drunk Driving at Record Lows

Cressy also noted the spirits industry remains fully committed to social responsibility and highlighted the latest government data showing that underage drinking by 8th, 10th and 12th graders as well as the total number of drunk driving fatalities in the United States are at historic low levels.

“Working together as a society, we continue to make important progress on underage drinking and drunk driving,” said Cressy. “There is more work to do to further reduce these numbers, and our companies are fully committed to this important effort.”