The U.S. spirits market is showing continued growth, with even the challenged on-premise, restaurant/bar market showing signs of improvement, according to Rabobank's latest report on the global spirits industry.
However, there are underlying challenges. While the dollar value of off-premise consumption rose by nearly 5% in the first 10 months of 2014, case volume growth was just over 2%, the slowest growth rate since the recession.
The "premiumization" trend — sales growth driven by higher-priced spirits, particularly within whiskeys — combined with the success of flavored whiskies and some other product innovations, have masked that marked slowdown in volume growth, according to Rabobank.
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Sales growth for super-premium bourbons, single malt Scotch and several ultra-premium vodka brands have helped average prices continue to rise, even as prices come under mounting downward pressure in other segments, say the analysts.
"Given the soft trends in many other major global markets, spirits companies appear to be looking to the U.S. to drive sales growth, which is helping to create pricing pressure in categories that do not have supply constraints" — notably, premium vodkas, they point out.
Two domestic brands, Tito's Handmade and New Amsterdam, grew so strongly that they not only stole volume share from other domestic vodkas, but appear to have taken share from similarly priced imported vodkas (such as Absolut).
In fact, whereas imported spirits drove the vodka category's growth in recent years, domestic brands grew about 2.7% during the 10-month period covered by the report, versus about 0.4% growth for imported brands, according to National Alcohol Beverage Control Association data cited by Rabobank.
Furthermore, within the flavored vodka subcategory that's driven growth in recent years, domestics showed volume growth of 3%, while imports were down about 5%.
Imported flavored vodkas also appear to be losing share to flavored whiskies and whisky-based liqueurs and cordials – the hottest segment in the U.S., accounting for more than half of spirits growth in the 10-month period.
During the period, Irish whisky showed volume growth of 10.1% and other imported whiskies (excluding Canadian) jumped 41.1%, versus 3.2% growth for domestic whiskies and a decline of 1.6% for Canadian brands.
Rabobank reports that the super-premium and flavored American whiskey trends "show no signs of slowing any time soon," while vodka's volume growth will likely be driven by lower prices resulting from "intense" competition.
Looking forward, the analysts believe that Cognac and brandy may emerge as growth-drivers in the U.S., since they fit with the key premiumization (perceptible quality differences at higher prices) and flavor profile (mixability) trends.
Cognac hasn't gained mainstream acceptance, but the brandy/Cognac segment had nearly 7% volume growth through October of last year, NABCA data show.