Spirits - Top 5 Emerging Markets

Most certainly the biggest story in the spirits industry, like virtually all other industries, was the economic downturn that struck the world this year. Despite the claims of many spirits companies, that they offer “affordable luxury” with their products, trading down seems to be here to stay for the foreseeable future. For the wine industry, 2008 was not a year of huge deals and seismic shifts in the corporate landscape. Instead, the downturn made its presence felt, accentuating the pressures already affecting businesses all around the world. The Top 5 emerging countries (Brazil, China, India, Mexico and South Africa) contributed $26 billion to the global spirits industry in 2007, with a CAGR of 4.4% between 2003 and 2007. India is the leading country among the Top 5 emerging nations, with market revenues of $8.7 billion in 2007. In 2012, the market is forecast to have a value of $32.7 billion, with a CAGR of 4.7% over the 2007-2012 period. The spirits market consists of the sale of brandy, gin & genever, liqueurs, rum, specialty spirits, tequila & mezcal, vodka and whisky. The Liqueur & Spirits production in the US industry acquires a range of ingredients such as grains and sugar which are distilled into alcoholic spirit beverages and packaged (in purchased glass bottles) before being sold to liquor wholesalers, bars, casinos, restaurants, hotels and other retail stores. This industry comprises establishments primarily engaged in one or more of the following: (1) distilling potable liquors (except brandies); (2) distilling and blending liquors; and (3) blending and mixing liquors and other ingredients. In the US the beer, wine, and liquor store ("liquor stores") industry includes about 30,000 stores with combined annual revenue of about $30 billion. No major companies dominate; individual states have different laws regulating liquor stores, complicating the ability to form national chains. The industry is highly fragmented: the top 50 companies account for less than 20 percent of sales. COMPETITIVE LANDSCAPE Personal income, consumer tastes and entertainment trends drive demand. The profitability of individual companies depends on effective marketing and competitive pricing. Large companies offer wide selections and deep discounts, but small companies compete by offering specialized merchandise, providing superior customer service, or serving a local market. Liquor stores compete directly with grocery stores, warehouse clubs, convenience stores, and gas stations, and indirectly with restaurants, bars, and other establishments that serve alcohol. PRODUCTS Major products include distilled spirits, beer, and wine. Spirits or liquors account for almost 40% of sales, beer for 30%, and wine for 25%; other products include groceries, cigarettes, and cigars. Liquor (or hard liquor) includes gin, vodka, rum, whiskey, brandy, and liqueurs. State laws dictate the type of alcohol sold in a particular venue. In some states, only liquor stores can sell hard liquor. Liquor stores may also be known as “package stores,” referring to the post-Prohibition law requiring stores to cover or “package” alcoholic beverages in public.