the International Wine & Spirit Research

February 2011

6

The US will overtake Italy and France as the world’sbiggest consumer country of wine by 2014, according to thelatest IWSR-Vinexpo report.

Italy was the top consumer country in the world, withpreliminary estimates that sales were 296.9m nine-litrecases. This was roughly flat on 2009 and sales are forecastto decrease by 0.8% over the next five years. The USmarket, meanwhile, is predicted to grow by 9.4% in thefive-year period, lifting consumption to 315m cases by2014. Vinexpo CEO Robert Beynat said: “Italy is now themain consumer of still light wine by volume in the world,but will be second before 2014. It’s a trend we’ve seen foryears – the US will be the first market by volume by 2014.”

This shift reflects a trend that is occurring around theworld: while global wine production remains relativelystable at around 3bn cases each year, traditional consumermarkets such as France, Spain and Argentina are seeing adecline in consumption, while newer markets open up.These traditional markets have high consumption per capita– in 2009 per capita consumption for drinking ageconsumers in France was the highest in the world at 57.8litres, according to the IWSR-Vinexpo report. Asconsumption habits shift due to factors such as increasedtaxes, less lunchtime consumption, stricter marketing anddrink-driving laws and a desire for fashionable importedproducts, these mature markets are inevitably in decline.

Meanwhile, newer markets such as the US, China and

Russia are the biggest drivers of consumption growth. Allhave low per capita consumption despite high totalconsumption volumes. Although the US will be the numberone consumer market for still light wine by 2014, per capitaconsumption will be “13 litres, which is half that of theBritish,” points out Beynat, leaving great potential forfurther growth.

Last year, the wine industry was confronted with one ofthe more difficult years in recent memory owing to thedeep recession in many key markets, such as the US andthe UK. Nevetheless, the global still light wine market hasproved largely resilient to the crisis, at least in volumeterms, but downtrading remains a general trend in a fewmarkets. Global still light wine returned to growth in 2009with a moderate 0.25% increase on 2008 levels or an extra6.4m cases. North America and Asia are responsible for allgrowth, while Europe continues to shed volumes. Fastergrowth of 0.6% is expected in 2010, with the global marketexpected to reach 2.5bn cases by 2013.

Sparkling wine, from a much smaller base, suffered badly from the economic crisis (-1%), but is expected torecover and overcome its 2007 peak this year. Challengingeconomic conditions worldwide in 2009, especially in the first half, are largely responsible for this decline. Animprovement in sparkling wine sales in the key Christmasand New Year period is responsible for the better-than-forecast performance.

Comment 2

News 3

New products 6

Irish whiskeyWhy Irish whiskey is one of the 8hottest categories in the global market

CachaçaWe look at theexport potential 12for Brazil’s top spirit

UK spiritsThe IWSR Magazineforecasts a difficult 17road ahead for theUK spirits market

AgaveDespite a currentglut, some foresee 19another shortage in agave production

InterviewHow SPI plansto rejuvenate its 21iconic Stolichnaya vodka brand

Wine news 24

Global forecastAnalysis of the next five years for 25still light and sparkling wines

InterviewBarton & Guestier’sPhilippe Marion 28discusses the wine firm’s future

Retailer interviewHow the new Emporium shop in 30Dubai is raising travel retail standards

Spirits Section

Wine Section

Vinexpo CEO Robert Beynat announces the latest results from the IWSR-Vinexpo report to the media

February 2011

A new year, a new look. The IWSR Magazine has been through afew changes since your last issue, not least a new name. No longer TheIWSR Drinks Record, The IWSR Magazine has been renamed to reaffirmthe close links between the market research done annually for TheIWSR database and the insight provided by our magazine.

In addition to the new name, The IWSR Magazine has a fresh newlook with new colours, a new logo, a new layout and new features. Thebrand new look, created by Martin Warnes – martin@warnesidco.co.uk,is intended to make the magazine easier to read, more contemporaryand bring it closer to the parent company’s overall brand identity, whileretaining its independence. New features include a full index of articlesin each issue, a global news round-up of key stories, clearer tables andcharts and an expanded new product section. Despite these changes,the aim of our magazine remains the same, which is to bring you theinsight, intelligence and analysis to explain why, and not just what, ishappening in the wine and spirits industry around the globe and whatthe implications are for the future.

Also retained are the items that make The IWSR Magazine distinctive:interviews with leading figures from the major producers and retailers;our data-backed market reports on regions, countries and categories;exclusive IWSR news; our global brand performance rankings and, ofcourse, exclusive access to The IWSR database.

Several things set The IWSR apart. Tracking over 16,000 brands, TheIWSR offers the drinks industry’s most detailed, most accurate and mostwidely used database, tracking global brand volumes by country,category, price/quality and owner. We also pioneered drinks research insuch developing markets as India and China long before they were ofimportance to the multinationals. Our analysts now visit 115-pluscountries every year, where they interview the key local players and weare opening new territories, such as Africa. These are some of thereasons why The IWSR remains the leading provider of global marketintelligence for the wines and spirits industry.

The other is our experience. Some of our analysts, such as companyfounder Val Smith, have been in the field for more than 40 years. Over thatperiod, we have developed many industry contacts. Moreover, we haveseen many changes in the industry. If you are in the business of forecastingdata you have to understand the past. Interpreting data and providinginsights is always about the context.

In the new-look IWSR Magazine, we bring this expertise andexperience to bear. Everyone would like a crystal ball, but failing that,we use The IWSR’s data and market knowledge to draw out the likelytrends in key markets. As the world endeavours to move beyond thechallenges of the last few years – from tax-happy governments to highunemployment to cautious consumer spending – there are morechanges to come in the global wine and spirits market. The IWSR canprovide a signpost for the opportunities ahead. See the story unfold inthe new-look IWSR Magazine.

Comment Alex SmithThe IWSR MagazineEditor-in-chief

The IWSR Magazine has exclusive access to the full IWSR database, the industry’s source of data. Drawing onthe expertise of over 1,300 companies each year, the database contains more detail on more brands across morecountries than any other.

this Issue

3 Spirits news

6 New products – latest launches and marketing

8 Irish whiskey – tracking the European trends

12 Cachaça – the next hotdrinks ticket?

15 Morocco – a tale oftaxing problems

17 UK spirits – a difficultroad ahead

19 Agave – a shortage predicteddespite the glut

21 Interview – SPI revealsplans for Stolichnaya

24 Wine news

25 Global wine forecast –analysing the next five years

28 Interview – Barton & Guestier’s future plans

30 Retail review – a look at Dubai’s new Emporium

NewsWe welcome your news,views, photos and commentsabout the wine & spiritsindustry.

Subscription Rates The IWSR Magazine is published monthly; annualairmail subscription: £195 (or US$equivalent). Published by © SystemThree Communications (London) Ltd2011.All details contained in this publication are believed to becorrect at time of going to press. Thepublisher cannot be held responsiblefor information which changessubsequent to going to press.All rights reserved. Nothing may bereprinted or reproduced in whole or in part without the written permissionof the publisher.Printed in the UK by Printflow.

To contact usThe IWSR Magazine254-256 Goswell RoadLondon EC1V 7EB, UK

Tel+44 (0)20 7689 6841

Fax+44 (0)20 7689 6827

Emailmagazine@iwsr.co.ukISSN 1749-3331

Editor-in-chiefAlexander T SmithEmail: alsmith@iwsr.co.uk

Production EditorEluned Woollven

Deputy EditorLaura Tovey

Editorial AssistantThalia Fourie

PublishersVal SmithAlastair Smith

Brand & Promotions ManagerHelen Windle

Sales & SubscriptionsManagerJustyna Bednarska

Advertising ManagerRina MaidenEmail: rina@iwsr.co.uk

Research DirectorsVal SmithAlastair Smith

Travel Retail Research ManagerSandra Newman

ResearchersAgata AndrzejczakGiles GoughJose Luis HermosoSophia HollidayDaniel MettyearPiotr PoznanskiHumphrey SerjeantsonTim SimmonsHelen WindleAnia Zymelka

2

“Our aim remains the same – to bring you insight, intelligence and analysis”

UK drinks giant Diageo has entered into intoa strategic partnership agreement with HanoiLiquor Joint Stock Company (“Halico”) inVietnam. In addition, Diageo has agreed toacquire a 23.6% stake in Halico fromVinaCapital Vietnam Opportunity Fund Limited,for approximately £33m.

Halico is the largest domestic branded spiritsproducer in Vietnam and represents asignificant venture by Diageo into the fast-growing Vietnamese branded spirits sector. AsHalico’s strategic partner, Diageo will assistHalico in enhancing its capabilities across arange of functions, including innovation,branding, supply, distribution and corporaterelations. In return, Diageo will become a

long-term equity investor in Halico and its mainbrand, Vodka Hanoi.

In parallel and separately, Diageo willcontinue to develop its international premiumspirits portfolio, led by Johnnie Walker, Smirnoffand Baileys, through its wholly-ownedsubsidiary Diageo Vietnam.

Diageo Asia-Pacific president Gilbert Ghostinesaid in a statement: “Halico is Vietnam’s numberone local sprits company with the number onevodka brand, Vodka Hanoi. Their strongdistribution and recent investment into theirstate-of-the-art production facility speaks oftheir ambitions in this market. Partnerships areintegral to the way we want to grow ourbusiness in this [Asia-Pacific] region.”

Cognac shipments reached an all-time high in 2010, rising by just under 30% to reach €1.86bn($2.55bn), according to the Bureau National Interprofessionnel du Cognac. Volume climbed by17.9% to 12.8m nine-litre cases.

The last year confirmed the shift in demand for superior quality Cognacs (VSOP, XO andexclusive blends), which now represent the lion’s share of the total market, at 54.5%. The XOcategory grew by 36.6%, VSOP by 27% and VS by 6%. This partiallyreflects a decision by houses such as Martell to reduce their focus onthe less profitable VS category and preserve inventories for higherqualities. It also reflects the shift in sales towards Asia, which is skewedtowards higher qualities.

Asia, which accounts for 33.2% of the world market in volume, at 4.42mcases, saw sustained growth at 34.3% over the year.

North America (the US, Canada and Mexico) with 32.2% of the worldmarket, performed well in 2010, particularly the US, which is still the world’sbiggest market in terms of consumption (3.89m cases in 2010).

Production volume is also high at 555,000hl, as the houses respond toconcerns that demand could soon outstrip supply.

February 2011 3

in briefVirginia to privatiseliquor storesThe Governor of the US state ofVirginia Robert McDonnell plans toclose 332 state-owned ABC liquorstores and, instead, issue licenses for1,000 private retail outlets. Thestores would be sold off over an 18-month period that wouldcommence on July 1.

Under the current legislativeproposal, the state government willcontinue to act as the wholesaler ofliquor in Virginia, buying directly fromsuppliers and selling them at a profit toprivate retailers, which would then setprices for consumers. McDonnell failedto get support for his original proposalto privatise the wholesale tier.

The sale of the liquor licences isanticipated to raise $200m. Theprivatisation programme forms part ofthe state’s budget, being deliberated bythe General Assembly this session.

spirits news

www.prowein.com

For tradevisitors only

Hotel/travel packages:Düsseldorf Marketing &

Tourismus GmbH

Tel. +49(0)211/17202-839

messe@duesseldorf-tourismus.de

http://business.duesseldorf-

tourismus.de

Hotel/travel packages:Düsseldorf Marketing &

Tourismus GmbH

Tel. +49(0)2 11/17202-8 39

messe@duesseldorf-

tourismus.de

http://business.duesseldorf-

tourismus.de

Messe Düsseldorf GmbH

Postfach 10 10 06

40001 Düsseldorf

Germany

Tel.+49 (0)2 11/45 60-01

Fax+49 (0)2 11/45 60-6 68

www.messe-duesseldorf.de

Online tickets at www.prowein.com/ticket_2

ProWein 2011 – Good business starts here- 3,395 exhibitors from 51 countries*- Unique tasting zone- Comprehensive ancillary programme - Special show eco and organic wines*statistics from ProWein 2010

The UK Government has proposeda ban on alcohol sales below exciseduty and value added tax in Englandand Wales. The government hasbeen under pressure to introduceminimum pricing.

Critics of the measure said it will do little to affect supermarketprices. Brigid Simmonds, CEO ofthe British Beer & Pub Association,said: “This is a clear measure that can be implemented quicklyand will stamp out the worst cases

of below-cost selling. However, it will not have a significant impact on low-priced alcohol insupermarkets.”

The ban was welcomed by TheScotch Whisky Association (SWA)which has campaigned for over twoyears for such a measure to beintroduced as a legal way to set afloor price for alcoholic drinks. TheSWA also called today for the samefloor price arrangements to beintroduced in Scotland.

If you have a story for The IWSR magazine, email Alexander Smith on alsmith@iwsr.co.uk

The US distilled spirits industry is showingsigns of recovery, but remains threatened byrising tax burdens, said Distilled Spirits CouncilCEO Peter Cressy at a recent industry briefingin New York.

According to 2010 economic data releasedby the Council, supplier (shipment) volumesrose by 2% to 190m cases and revenue rose2.3% to $19.1bn, but Cressy pointed out thatgrowth rates remained below the robust pre-recession growth rates, and the importanton-premise (restaurants and bars) sector wasstill experiencing a fragile recovery.

Cressy also noted that in 2010 consumersbegan to return to their preference for high-endand super-premium spirits products, withrevenue in the super-premium categorygrowing 10.9% – but from a very soft 2009.

In addition, he added, revenue-based marketshare for spirits overall versus beer and winegained 0.4%, rising to 33.3% of the beveragealcohol market. However, beer lost 0.7%market share to below 50%, as consumerscontinued their decade-long migration frombeer to cocktails.

Vodka, which accounts for 31% of industryvolume, was up 6.1% to 59m nine-litre cases,

and in the important super-premium category,volume was up nearly 18% and revenue wasup approximately 14%.

Whisk(e)y showed strong revenue growth,particularly in the super-premium segment,which increased by 8.1% overall to over$1.1bn. Within the super-premium segment,Bourbon and Tennessee whiskey revenueincreased by over 17% to $161m; single maltScotch grew nearly 18% to $140m; and Irishwhiskey rose 30% to $23m. Super-premiumbrandy and Cognac were also up almost 10%to $315m.

“In 2010, the industry improved itsperformance over the previous year, but thisrecovery remains fragile, and we are not yetout 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 averagepre-recession performance.”

The budget shortfall in many states and localmunicipalities has led to concerns that liquorwill be targeted for higher taxes, particularly inthe year following an election. “We know thatthere is going to be a rush to tax in somestates,” added Cressy.

The entry of discount chain Lidl in 2010into the Maltese market with five new stores(due to double in the next two years) had amajor impact on the wines and spirits trade.The impact was not only on margins, but hada major beneficial effect on Italian wineries –the main import sector – as the project waslaunched by Lidl Italia. The launch of muchlower-cost, but good-quality Italian wines alsohit Maltese wineries, which are still adjusting

to EU regulations on wine production.The spirits market was also flat, though

tourist numbers rose by 12% in 2010. Thetourists tended to be “all-in” package tourists.

Paralleling continued to hurt the importers ofleading brands, as Italy and Spain, in particular,suffered from the recession, and is said to beincreasing parallel shipments every year. Asignificant proportion pays no tax in the countryfrom which the parallels come.

Heaven Hill-owned Hpnotiq has become ahot brand in the French Caribbean islands ofMartinique and Guadeloupe where it is beingmixed with Champagne. The brand sold inexcess of 2,000 cases in Guadeloupe and is alsogrowing in Martinique.

Both territories have one of the highest in theworld per capita consumptions of Champagne,with both islands consuming in excess of

100,000 cases of Champagne every year for arough population of just 400,000 people oneach. Competition is fierce and brands continueto reduce retail prices. Nicolas Feuillatte, Mercierand Jacquart are the leading Champagne brandsin the market.

Direct imports from major French retailer E Leclerc in Martinique further depressedChampagne prices.

February 20114

peopleKenton is Ascentia CEOIndustry veteran Michael Kenton hasbeen appointed CEO of Ascentia WineEstates. He succeeds Jim DeBonis,who has taken on the position ofvice-chairman for corporate mattersand will remain a member of theboard of directors. Kenton previouslyworked as president and CEO ofArtesa Winery and Aveniu Brands.

Brown-Forman’s Asian bossBrown-Forman has appointed MichaelMcShane as managing director forAsia-Pacific, effective February 1,2011. McShane succeeds Stuart Beck,who is to retire from the company inMay 2011. McShane will be based inHong Kong. He joined Brown-Formanin 1999 and most recently served asmanaging director, North Asia.

Grey to head Bacardi ME&ABermuda-based Bacardi hasannounced with immediate effect theinternal appointment of Jon Grey asregional president of the newly createdMiddle East & Africa (ME&A) region.

With Bacardi since 2005, Grey willcontinue his role as senior vice-president of global operations,responsible for all global supply chain,brand product production procurement,and research and development (R&D)activities, and head of the company’scorporate responsibility programme.

In another key appointment, RobertFurniss-Roe is the new regionalpresident of Latin America. He wasmost recently chief of staff and VP ofgobal sales, corporate communicationsand corporate responsibility forBacardi. In addition to his new duties,he will retain responsibilities for globalsales and corporate communications.He succeeds Robbie Jamieson, whoresigned from the company forpersonal reasons.

Gaynor to Beam GlobalBeam Global Spirits & Wine hasappointed Donard Gaynor to seniorvice-president, corporatedevelopment. Gaynor previouslyserved as senior vice-president andmanaging director international.

spirits news

THE INTERNATIONAL WINE AND SPIRITS EXHIBITIONBORDEAUX 19 -23 JUNE 2011

www.vinexpo.comPromosalons UK (Ltd) - 2nd Floor, Northside House - Mount Pleasant - Cockfosters- Barnet EN4 9EB – Hertfordshire - London - United Kingdom

Tel : +44 (0) 20 8216 3106 - Fax: +44 (0) 20 8447 1146 - Email: enquiries@promosalons.co.uk

The world of wine and spirits is constantly changing. Vinexpo is a major event for trade professionals, which gives you a unique view of world trends. For 5 days, meet and do business with as many major groups and small producers from all over the world as you can and learn from how some of the best experts see things. Look at your own markets differently and understand them better in order to raise your business to the next level.

February 2011

new products

Age statements for Courvoisier: BeamGlobal has taken the unusual step ofattaching age statements to its newCourvoisier Connoisseur Collection range.The new limited-edition Courvoisier 12yo(RRP $49.99) and 21yo (RRP$250)variants are now being rolled out

selectively into high-end outlets withinthe US market.

Courvoisier is the first of the fourmajor Cognac houses to introduce aproduct with a declared agestatement. While age statements arecommon in the Scotch or rumcategories, Cognac has historicallyused its own system of categorisationwith the main descriptors being VS(aged for two years), VSOP (fouryears) and XO (six years).

Beam Global believes consumers donot readily understand thesetraditional designations. Beam GlobalVP tequilas and Cognacs Chris Peddysaid: “[There] was an opportunity inCognac to educate and demystifywhat makes Cognac so special, so we

thought it was a great opportunity totalk a little bit more about age and crus (growing area).”

He concedes the move will provoke some opposition within the Cognacregion. “It will undoubtedly provoke some controversy in Cognac, but we’rethinking more about the consumer in this instance. We’ve had a reallyinteresting reaction from consumers and the trade, who view it as realinnovation and very revolutionary.”

Midleton launches rarewhiskeys: Irish DistillersPernod Ricard has launchedtwo new rare, single cask,single pot still whiskeysunder the Midleton VeryRare banner. Bothbrands were createdexclusively for The CelticWhiskey Shop onDublin’s Dawson Street,and the new IrishWhiskey Collection shopat Dublin Airport’sTerminal 2.

Terminal 2’s release,the Midleton Single PotStill – Single Cask#48709, was laid downin first-fill AmericanBourbon barrels in 1991. It has been bottled at cask strength (53.7%abv), a new departure for the Midleton brand. Only 200 bottles areavailable, at €260 ($351) RRP each.

The Celtic Whiskey Shop release, the Midleton Single Pot Still –Single Cask #71578, was laid down in 1996, also in first-fill AmericanBourbon barrels. It has been bottled at 46% abv. This release retailsat €225 ($304) per bottle (270 bottles only).

Halewood toasts the Royal Wedding: HalewoodInternational will be launching a commemorative

Prince William Champagne to celebrate theforthcoming wedding of Britain’s Prince William toCatherine Middleton on April 29, 2011. It will retail

at around £25 ($40) RRP. Stocks are limited andare sold on a pre-order basis only; mid-February is

the cut-off date for trade orders. Halewood International has owned the PrinceWilliam Champagne brand for over 20 years.

Said MD Andy Smallman: “As owner of thetrademark for both Prince William and RoyalWedding, Halewood International felt it was

fitting to launch a limited-edition commemorativelabel to mark the wedding… Our fine wine

division Chalié Richards, which is distributing theproduct, has held a number of royal warrants

through its history, so we thought this decisionwas particularly fitting and appropriate.”

FirstCape renews Lions partnership: FirstCape Wines willbe sponsoring the British & Irish Lion’s rugby tour toAustralia in 2013, thereby renewing a partnership whichstarted with the Lions’ tour to South Africa in 2009.FirstCape Wines and their brand ambassador, Sir IanMcGeechan, the legendary former Lion’s player and coach,made the announcement at Bath University in the UK.

The first partnership proved highly successful – FirstCaperose from the 28th to the fourth-largest selling wine brandduring the course of that sponsorship, according to founderand joint director Steve Barton, who added that the company’sfocus would now be on the new Australian range. The build-uptowards the 2013 tour will be full of brand activity,” he said.

6

& marketing

Rémy Martin’s clear focus: Rémy Martin has launched RémyMartin V, an innovative white distilled grape spirit. The launchcomes in “response to the consumer insight that our urban,influential young adult target is seeking the mixability of awhite spirit, with the flavour and character of a brownspirit”, according to brand manager Roberto Cruz. He added

that the target market for Rémy Martin V is “the urbannightlife trendsetter”; the new brand’s key channel will

therefore be the on-premise sector where it willcompete with mixable white spirits such as GreyGoose, Cîroc and Patrón.

Rémy Martin V is made from grapes sourcedin the heart of Cognac, but unlike Cognac it isrested and cold-filtered at -10°C; no ageingtakes place. The resulting clear spirit hasaromas and flavours of pear, mint and plum.It is highly mixable: expert NYC mixologistCharles Hardwick has created four cocktailsfor the brand.

Rémy Martin V retails at $40 RRP. It iscurrently only available in San Franciscoand Atlanta, but there are plans to launchit throughout the US in April 2011.

Crystal Glenfiddich gondolas dazzletravel retail: William Grant & Sons has atravel retail-exclusive packaging updatefor Glenfiddich, and is supportingthe roll-out with a cutting edgemerchandising campaign. Thisincludes wall units, podiums,lightboxes and visual assetswhich will be rolled outacross the world’s top 20airports and venuesthroughout the year.However, the fulcrum of thecampaign lies in the threeGlenfiddich Crystal StagGondolas, on display at WDF’sWorld Duty Free Store at LondonHeathrow Terminal 5, as wellas Frankfurt and Dubaiairports. Each gondolasculpture features a 24%lead crystal stag’s head (thesymbol of Glenfiddich).

7

Rare Baron Otard Cognac introduced: BacardiGlobal Travel Retail Division launched BaronOtard’s Fortis et Fidelis Cognac in global travel

retail in December.With a suggestedretail price of$4,500, the launchhighlights thegrowing market forsuper-luxuryproducts withintravel retail.Produced from theoldest and raresteaux-de-vie inBaron Otard’scellars at Châteaude Cognac, Fortiset Fidelis paystribute to BaronJean-BaptisteOtard, whofounded the

company in 1795. French designer Christophe Pillet designed the

Fortis et Fidelis decanter, which was thenhandcrafted by the master crystal makers atCristallerie Royale de Saint-Louis. Each decanter ispresented in a wooden box, and comes with acertificate of authenticity. It retails at $4,500 RRP.

Jacob’s Creek goes regional: Pernod Ricard has launchedthe new Jacob’s Creek Regional Reserve range in the UK. Therange focuses on three key Australian wine regions: Barossa

Shiraz 2007 and Riesling 2010; Coonawarra CabernetSauvignon 2008; and Adelaide Hills Chardonnay 2009,

Sauvignon Blanc 2010 and Pinot Noir 2009. Eachretails at £9.99 ($15.79) RRP.

Pernod Ricard UK head of marketing for winesMathew Bird said in a statement: “With the

introduction of the Regional Reserve range, we willengage existing Jacob’s Creek Classics consumerswith a more premium offering suitable for special

occasions. For these kinds of occasions, consumersare making more discerning choices and are

prepared to pay more for higher-qualitywines made from iconic grapes from

well-known winemaking regions,driving higher value into the category byencouraging consumers to trade up through the portfolio.”

Early Times launches new extension: Brown-Forman’sEarly Times Distillery is introducing Early Times 354Bourbon, the brand’s first Bourbon launch in the USmarket since 1983. Early Times 354 Bourbon ($15.99 RRP,80 proof per 75cl bottle) is named after Early TimesDistillery’s federal permit number – 354 – which is thelongest held operating permit in Kentucky. The Early TimesDistillery was founded in 1860 and, by the 1950s, EarlyTimes Bourbon was the best-selling Bourbon in the world.In 1983, Brown-Forman changed the brand from a

Kentucky Bourbon to a Kentucky whiskey.

February 2011

spirits reviewIrish whiskey boomThe Irish whiskey renaissance continues

Irish whiskey continues to be one of thehottest categories in the global marketplace.Between 2004 and 2009, the category rose bya 6.5% compound annual growth rate (CAGR)to 4.4m nine-litre cases. The early indicationsare that the category continued to performwell in 2010 despite the difficult economicenvironment in key Western markets.

It is the performance in the US that is thegreatest cause for optimism. According to TheDistilled Spirits Council of the US (DISCUS),Irish whiskey shipments rose by 20% in volumeto 1.38m cases in 2010, and by 30% in valueto $256m. DISCUS chief economist David Ozgosaid: “Every year we say that Irish whiskey isgrowing at a phenomenal rate from a smallbase. It is still growing at a phenomenal rate,but now from a substantial base.”

Cooley sales and marketing director JackTeeling explains the factors driving that growth:“We are riding that wave at the moment. A lot ofthe growth of Irish whiskey is coming from theUS right now. Because Irish whiskiesunderperformed in the US for so many years, wedon’t have the baggage in terms of an olderdemographic, something that Scotch suffersfrom. We are a fresh category for youngerconsumers to come into. We also have the tasteprofile of Irish whiskey, smooth and sweet, whichmakes it very accessible for people enteringbranded spirits and whisk(e)y in general.”

Jameson spearheads growthIn December, Pernod Ricard announced thatJameson, the industry flagship brand, hadsurpassed 3m nine-litre cases for the first time.Despite the recent economic downturn, salesvolume increased by 9%, while value grew by12%, for year ending June 2010. While USsales grew by 24%, key markets such asRussia (+8%), South Africa (+7%) and France(+7%) also enjoyed success.

Although Jameson surpassed 1m cases inthe US in 2010, there remains considerablescope for growth. Jameson is still relativelysmaller than much of its whisk(e)y peer groupwith Jack Daniel’s (around 5m cases), CrownRoyal, Jim Beam (3.2m) or Dewar’s (1.2m).“There is huge room for the growth ofJameson in the US,” says Jameson commercialdirector Conor McQuaid. “We will certainlysurpass Dewar’s, the leading Scotch referencein the US, within the next 12 months and, fromthere, it is into that North American whisk(e)yspace. Taking on the likes of Jack Daniel’s and

Crown Royal is where our real opportunity andreal competition is going to come from. Ouraspiration is to be as big as those brands.”

McQuaid notes that the really encouragingaspect of that performance was itsbroad-based nature, with 49 states indouble-digit growth and California overtakingNew York as the single largest state market forJameson. “Boston, New York, Chicago andPhiladelphia would have been our mainstaymarkets historically, but latterly our biggeststate is California, so we have grown beyondthat ethnic Irish heartland and we are seeinggreat growth across all markets with aparticularly impressive growth coming throughin places like Florida and Texas.

“Texas could be significant, as Crown Royalsells about 600,000 cases there and it is amarket where Jameson has traditionally beenmuch bigger than Crown Royal. If consumersentiment in Texas starts to shift in our directionwe could be in a position to make big gains.”

It is also worth noting that the contraction ofthe on-premise sector in the US market duringthe recession didn’t affect Jameson despite itson-premise bias. McQuaid adds: “Growth wasreflected in both the on- and off-premise, withboth being equally as strong. We haven’t beenaffected in any way by the recession and quitethe opposite actually – we’ve picked upmomentum in the past 12 months.”

The importance of the US market extendsbeyond its borders. A lot of drinks trendsemanate from the US. The international successof brands such as Absolut or Jack Daniel’s owesmuch to the initial adoption by US consumers.

McQuaid says: “What is working and what ishot in terms of the US market has a hugeinfluence on so many markets around theworld. If we can be recognised as one of thehottest brands in the US, that will have such apositive benefit on other countries that look tothe US for drinks trends. We are seeing that, inthe initial stages, it has translated over into theborder in Canada or across the Atlantic in theUK. We are also seeing good growth comingfrom unusual places for Irish whiskey, such asSouth Africa, where the new emerging middleclass has really taken Jameson to their heartsand, again, we are probably positioned atnumber three or four in the market in terms ofinternational whisk(e)y brands.”

France also represents a considerableopportunity given the dramatic growth of theoverall whisk(e)y category in recent years.Added to that is the strength of Pernod Ricarddistribution in its home market. McQuaid says:“France is a big opportunity. We grew by 7%last year and the market is massively dynamicat all levels within whisk(e)y. We have a greatroute-to-market, which we are clearly focusedon leveraging. There is also a sense that there

8 February 2011

Jamesoncarved out the

category

ENJOY COOLEY WHISKEY SENSIBLY

Vis i t www.cooleywhiskey.com fo r fu r ther in format ion

THE STANDARD OF IRELAND

OVER 100 GOLD MEDALS AND STILL GOING STRONGCooley Distillery is Ireland’s only Independent whiskey distiller. Cooley’s Award winning portfolio of Irish

whiskeys including Greenore Single Grain, Kilbeggan Irish whiskey, Tyrconnell Single Malt and Connemara Peated Single Malt have won over 100 gold medals over the last 10 years and Cooley has been honoured as

European Distiller of the Year for the last three years.

Cooley Distillery ensuring the Independent Spirit of Ireland is alive and well.

spirits review

10 February 2011

is space in the market and an opportunity foran alternative whisk(e)y experience that is notbeing catered to by Scotch brands at present.We have big plans for France; it could be a realengine for growth for us.”

Central European rise Central and Eastern Europe, in particular, havebeen the source of particularly strong categorygrowth in recent years, for a number ofreasons. Irish whiskey tends to be smootherthan Scotch because it is triple distilled. It isthus more accessible and less challenging foryounger consumers. This applies to all markets,but it is particularly pertinent in the vodka beltcountries of Eastern Europe and Scandinavia,where consumers are likely to be transitioningfrom vodka. There is also less of a tradition andknowledge of Scotch whisky than in mature orformer British colonial markets.

Bushmills global brand director Sam Readersays: “Within Central and Eastern Europe thereis a general trend toward dark spirits andtowards whisk(e)y. We have seen a strongperformance on our overall whisk(e)y portfolio.Traditionally it has been such a strong vodkamarket and the whisk(e)y category offers theopportunity for more masculine importedspirits with a very distinctive flavour.”

She adds: “Irish whiskey has a laid-backatmosphere and an easy-going taste, so itoffers a point of differentiation within what is agrowing category overall.”

Premiumisation opportunityThe leading Irish brands are roughly pitched atwhat The IWSR would categorise as standard orpremium pricing levels – roughly on a par in theUS with Absolut or Johnnie Walker Red. Thecategory is relatively under- weighted atsuper-premium levels compared with Scotch orvodka and, as it develops, it will naturallysegment to a greater extent. A premium tier isgradually emerging.

In October, Bushmills Irish Whiskey unveilednew premium packaging for its 10yo, 16yo and21yo single malts. The company said theredesign would bring the range of single maltIrish whiskies to the attention of a wideraudience. Reader says: “There is a bigopportunity as in all categories to havepremium variants of the core brand. Above ourcore Bushmills Original we have got Black Bushin addition to the malts. Consumers just wantto have a different version of something they

love and they want to try different tasteexperiences and, for different occasions, to beable to purchase something that offers thatlittle bit extra or special.”

Cooley has also been a leader in the movetoward Irish malts. Cooley distills peated singlemalts brands Connemara and Kilbeggan,among others. Most Irish whiskey is unpeated.

Teeling says: “Cooley was the innovator interms of trying to develop the Irish malt area.The growth in Irish whiskey has really been inthe standard area. Consumers are coming in atthe standard level and, eventually, they will lookfor something different. That is how wepositioned ourselves with a full range ofdifferent styles of Irish whiskies, from agedblends to single malts and even single grain.We’re creating tools for consumers to trade up.”

Critical mass of investmentFor a long time, Pernod Ricard and its IrishDistillers subsidiary was the only major groupinvesting in the Irish category in internationalmarkets to any great extent. This may seemadvantageous, but Pernod Ricard was taskedwith both brand- and category-building. Irishwhiskey generally lacked the critical mass ofplayers and investment enjoyed by other

categories, such as Scotch or vodka. This has changed recently with the entry of

Diageo into the category, through itsacquisition of Bushmills from Pernod Ricard in2005. Last year, another heavyweight enteredthe arena with William Grant’s acquisition ofC&C International’s spirits business and theTullamore Dew brand. Independent producerCooley is the other significant player.

A lot of the progress that Jameson has madeis attributable to the heavy investment andfocus that Pernod Ricard placed upon it priorto its Seagram acquisition in 2001. Jamesonwas essentially its main whiskey play. Thesame could be said of Tullamore Dew underC&C ownership.

It seems inevitable that there could be moreinterest from the other major drinks groupswithout an Irish whiskey in their portfolio if Irishwhiskey continues growing at the current rate.

McQuaid says: “The competition issomething we welcome. We have been outthere since 1988, as part of Pernod Ricard,ploughing that furrow and bringing people intothe Jameson brand. Now, the more investmentdollars and the more advertising andpromotion money that is invested behind Irishwhiskey in general will be to everybody’sbenefit if it helps to grow the overall pie. Othermarketers within the Irish whiskey businesswill help bring other consumers into thecategory and widen the appeal. That issomething we absolutely welcome.”

Teeling agrees: “Yes, it is more competition,but it is still a very small category and there isroom for plenty of players. The more people inthere introducing Irish whiskey to consumersand presenting the category in a positivefashion, the better. More investment dollars andmore advertising and promotion is what thecategory needed. We see it as a big positiveand anticipate that there will be more entrantscoming into the category in the years ahead.”

More players will inevitably lead to greatercompetition, including on price. McQuaid says:“That is the danger. If there is a lesson from ourexperience in Scotch, it is not to commoditiseIrish whiskey through price fighting. The wayahead is to build brands and relevant consumerpropositions that are unique in their own right.If we all do the right things and take a long-termperspective by not devaluing the category, thenthe future looks great. That is the challenge andthe opportunity.”

The IWSR Magazine editor Alexander Smith

Irish whiskey

Bushmills (top) and Cooleys (above) arehelping to make the sector vibrant

Polmac UK Ltd

Book now and save atwww.whiskyconference.com

12-1 3 April 2011 GLASGOW

REGISTER

NOW

Tuesday 12th & Wednesday 13th April 2011The Radisson SAS, Glasgow, Scotland

“...thought provoking and stimulating presentations”

“...a look at a wide scope of issues concerning the industry,including innovation and future growth possibilities.”

“Bringing together the great and the good of the world’swhisky distillers...a hot bed for discussion and debate.”

THE 6TH GLOBALWHISKYBUSINESS SUMMIT...

REGISTER N

OW

FOR EARLY B

IRD R

ATES

- HELD FROM

2010!

David PolinchockInnovation CatalystEmerging Tools for Social Media

Mark GormanSenior V-P, DISCUSThe US Whisk(e)y Market

Chris Brook-CarterJust-Drinks.com Challenges of Innovation

Steven SturgeonHead of Marketing, SpeedoInternational (ex-Wm Grants)To see ourselves as others see us...

Jon PotterPartner, McKinney RogersCountering the counterfeiters*subject to confirmation – further speakers to be announced.

PLUS:Brand development, luxurygoods, whisky retailing, USAwhiskey, Japanese whisky... and further names to beannounced very soon; keep intouch with regular visits towww.whiskyconference.com

SPEAKERS INCLUDE*

IN ASSOCIATION WITHKeynote Sponsor

Conference Partners

Drinks Reception Sponsor

Exhibitors

Signet

spirits reviewCachaça the next hot ticket?With a falling home market, what is the export potential for Brazil’s top spirit?

Cachaça has been widely tipped by industryexperts as an up-and-coming internationalspirits category. Although its internationalprogress remains limited to date, the categoryticks many of the necessary boxes for potential success.

For most, cachaça is closely associated withthe Brazilian lifestyle. Brazil is currently trendyand is set to become even more so, as it is dueto host the 2014 Football World Cup and 2016Summer Olympics. Brazil seems set to be oneverybody’s lips over the next few years andleading cachaça producers are hoping that theirproducts will be as well. These high-profileevents present one giant sampling opportunityfor the cachaça industry. As well as a globalfashion for exotic Latino-themed bars andrestaurants, Brazilian- and samba-themedparties are deemed trendy, especially in beachoutlets along the Mediterranean coast.

Leblon president and CEO Steve Luttmannsays: “The growth of ‘Brand Brazil’ overall isdriving the cachaça category’s growthinternationally. This has been a consistenttrend, going back 10 years ago, in manydifferent industries and categories – fashion,food, culture, sports, and so on. It has beenfaster in some markets than others,particularly the US and Western Europe.”

He adds: “The main issue is the continuedpopularity of Brazil as a culture – this is whatdrives drink interest. From the consumerstandpoint, a caipirinha cocktail is simply acheap ticket to Rio. What is going todramatically accelerate the process is what’shappening in the next four to six years, whenthe world turns its attention to Brazil for boththe World Cup in 2014, and then the Olympicsin 2016. These will be major drivers ofawareness and adoption, as millions will visitBrazil for both of these events, discovercachaça, the caipirinha, batidas and otherfantastic drinks, and bring them back to theirhome country. This, combined with thecontinual evolution of Brazil as a major global‘brand’ of interest in various industries, willdrive the category’s expansion.”

As Luttmann notes, cachaça is inextricablylinked with the caipirinha, Brazil’s nationalcocktail. The caipirinha is made with cachaça,muddled lime and sugar. As cocktail cultureexpands globally, so does the caipirinha and,theoretically, people’s exposure to cachaça.Companhia Müller de Bebidas export managerDarleize Barbosa says: “In Brazil, cachaça ismostly consumed straight. However, on theinternational market, it is consumed only incocktails, due to its versatility. The balance in

taste and aroma makes cachaça a perfectcombination in several cocktails. The caipirinhais still the cocktail ambassador for cachaça.”

However, Salto founder and president SteveDrawbell says: “There are a number of barriersto export success. The first is the lack ofconfidence in the genuine character of cachaçathat has persuaded the major drinks companiesto launch brands with much of the flavourstripped out. The result has been a series of palevodka imitators. The second barrier has been thecaipirinha, whose very success has limited thegrowth of cachaça.Mixologists havebeen hesitant toexperiment beyondthis classic Braziliancocktail and, as aresult, cachaça hasremained a nicheopportunity.Cocktails providethe potential for cachaça to expand beyond thecurrent limited usage, but this requires a shift inattitudes with mixologists and bar staffembracing the versatility of cachaça.”

In markets such as France and Italy, theawareness of the caipirinha is very high, withBacardi’s research indicating levels of around65% among cocktail drinkers, while awarenessof cachaça itself is moderately high at around40%. In the US, awareness has growndramatically – from essentially zero for

cachaça and the caipirinha in 2005, to nearly25% for cachaça and over 40% for thecaipirinha, (as measured in the summermonths of 2010 in the main regional markets).

Drawbell says: “A lot of money is currentlybeing spent in the US on establishing cachaçabrands. These have predominantly entered theultra-premium white spirit space where bothGrey Goose and Patrón have succeeded overthe years.”

Luttmann believes that the key to buildingcachaça awareness has been on-trade

adoption, particularlyon cocktail menus and feature boards, aswell as significantcoverage of thecategory in the foodand culinary press.

Sagatiba directornorthern Europe andtravel retail Nick

Woodward believes that the growing popularityof the caipirinha is an opportunity, but that it canalso be limiting. “Sagatiba has focused heavilyon cocktails so far (educating both the trade andconsumers that they can use Sagatiba as thebase spirit in numerous cocktails) and we arelucky that the caipirinha is becoming increasinglypopular. But complex cocktails are hard toreplicate at home, so the challenge is to strike abalance between developing sophisticated mixed

12 February 2011

“The caiparinha is stillthe cocktail ambassador

for cachaça”– Darleize Barbosa, Cia Müller de Bebidas

Making the popular Brazilian cocktail, the caipirinha –cachaça’s ticket tointernational markets

spirits review

14 February 2011

drinks that excite and inspire, and simple servesthat can be made easily by non-professionals.We are currently developing some new drinkideas that we are confident will get peoplechoosing Sagatiba in the aisles of thesupermarket as much as they ask for it in theirlocal cocktail bar. This has huge potential as itwill really open up the home market for us.”

Despite the optimism surrounding cachaça,the reality is that it remains largely a Braziliancategory. The Brazilian market now accounts for99.1% of global sales. With a vast domesticmarket to service, there has been relatively littleincentive for producers to focus on exports. Butas domestic sales have declined recently,producers are beginning to look towards exportmarkets to offset this. They are also recognisingthat export markets offer the potential for higherpricing and profits. And several new brands havebeen launched, such as Sagatiba and Leblon,that are geared for export markets.

Barbosa of Cia Müller de Bebidas, whichproduces Cachaça 51, the largest brand, adds: “Idon’t believe cachaça is any different from anyother Brazilian product, which got an exportfocus only a few years ago due to the changingeconomic scene. International markets are nowvery much a focus for cachaça producers.”

Many producers and bottlers, both large andsmall, have succumbed to the temptations ofshipping bulk cachaça. They are often companiesthat, in the domestic market, rely chiefly on twoor three main sales channels – wholesalers,supermarket chains or brewery distributorships –to get their product to the marketplace.International consultant Peter Armstrong says:“Very few have any real knowledge ofbrand-building efforts at home and even less soabroad. Restriction on radio and TV advertisingfor alcoholic beverages in Brazil seems to haveled many cachaça brand owners to believe theonly alternative is to participate in exhibits andtrade fairs. I don’t see the kind of focus requiredand believe it will ultimately be up to foreignimporters/ distributors and companies to buildthe category abroad.”

Cachaça has also been held back ininternational markets by the lack of realmultinational involvement. While most of themultinationals own cachaça brands, few haveshown any real inclination to invest in them sofar. Bacardi, through its shareholding in Leblon,is a recent exception, but the main playershave largely overlooked cachaça. It willprobably require the multinationals to lead theway for the conservative and ofteninexperienced Brazilian cachaça

producers/bottlers in broaching theinternational marketplace.

Luttmann believes that greatermultinational involvement isinevitable. “The multinationals willhave a significant impact, as theywill all enter the category withcachaça brands of their own.This category will develop alongsimilar lines to tequila, withdifferent types and personalitiesentering the market to appealto different consumer tastes.The multinationals will soonhave their players carving outmainstream share, and therewill be the niche offeringsas well. In five years, don’tbe surprised if the category inthe US alone reaches 500,000-1m cases– and potentially double that worldwide.”

He adds: “Like any new category, there isalways a hesitancy to lead the way in terms ofcategory development and investment inawareness, education and distribution. It doesn’ttake a rocket scientist to recognise that Brazil isaspirational and that the long-term trend will bea significant global category, along with rum,vodka and tequila. Initially, there were very fewcachaça [companies] investing in the exportmarket; however, that has started to change inthe past couple of years – not necessarily fromthe large multinationals and the large Brazilianfirms, but from the small craft brands andentrepreneurs. It’s interesting to note that this issimilar to the development of tequila in the US.”

Modest export presenceDisappointingly, international sales are onlyshowing modest growth. To view thecachaça category you really view it astwo distinct markets: Brazil andinternational. In international markets,cachaça remains niche, selling morethan 100,000 nine-litre cases in onlytwo export markets – Germany(229,000 cases in 2009) and the US(115,000 cases), according to TheIWSR. Portugal (95,000 cases) canbe expected to break the100,000-case mark this year ifcurrent growth rates continue.

Part of the challenge is toidentify those markets wherecachaça might have somepotential. Luttmann says: “NorthAmerica continues to be veryinteresting, given the huge

popularity of Latin spirits in general, andthe similarity of cachaça to tequila. Weare focused on the cultural capitalsaround the world, where the ‘world citizen’consumer likes to drink different globalcocktails.”

Many believe it would be most logical tofollow the footprint established by the rumcategory and target those markets. That isbecause cachaça most closely resemblesrum in terms of product qualities andimagery.

Luttmann, however, believes the internationalconsumer profile more closely resembles

tequila. “The competitive set for cachaça in mostinternational markets is not rum or vodka. Themain competitor for cachaça is tequila, mainlybecause margarita-drinkers are drawn to thecaipirinha, given its sensorial similarity, and it’s anew Latin thing. There is no question that otherwhite spirits, such as rum (the mojito) and vodka(the cosmo), are in the competitive set, but wefind that cachaça interacts mostly with tequila[drinkers].”

Sagatiba is targeting the travel retail sector.Woodward says: “The key markets ofBrazil, North America and Europeremain our focus. Perhaps the bigopportunity is in travel retail. Sagatiba istargeting the younger adult spiritsdrinkers who tend to be far moreinvolved in the premium spirits category,and [who are] far more likely toexperiment with new drinks than any

other age group. They also like totravel, so creating premium andsuper-premium brands that cater tothis market is an obvious step.”

He adds: “People understand theconcept of premium white spirits farbetter than they did a few years ago –look at the explosion of premium ginbrands to hit the market in recent years.Sagatiba has taken it a step further, by notonly offering a new premium brand, but alsobringing a whole new spirits category –cachaça – to the attention of airportpassengers. Consumers are far morebrand-savvy than ever before, and they nowexpect to find premium white spirits brands intravel retail stores, so the category is certainlymore relevant than it was.”

The IWSR Maagazine editor Alexander Smith

Left: Cachaça 51: the largestbrand in the marketplace;below: Sagatiba is targeting thetravel retail sector

Cachaça

Taxing problems in MoroccoThe first tax rises in 32 years saw most categories fall

The Moroccan drinks market saw little effectof the global economic downturn in 2009, butby 2010 the borrowed time had run out.Following years of growth for both wine andspirits, including super-premium importedspirits and Champagne, the market stagnatedin 2010, with some categories losing morethan others.

As in so much of the world, taxation increasedin 2010: Interior Consumption Tax (TIC) rose tobring the total tax paid for a 75cl bottle of spiritsto 32 Dirham ($4.24). As the TIC is based onthe alcohol content rather than the value of theproduct, this affected lower-priced brandssignificantly: a 70cl bottle previously selling atDh45 ($5.30) jumped in price to Dh65 ($7.66).This was Morocco’s first tax increase for drinks in32 years, and the change has been hard toabsorb for both producers and consumers.

Last year also saw the introduction of newbanderoles (required labelling), for beer inJune and for spirits in July, which combined toaffect the drinks market. As banderoles areapplied per unit, whether it be 1L in size or20cl, small formats were most affected by thenew requirements. The problem was logisticalas much as anything: cases of imported beerand spirits had to be opened in order to stickon the new banderoles manually, leading toboth distribution delays and increased costs.

Imported wine is heavily taxed in Morocco toprotect the local wine industry, with the resultthat only around 4% of still light wine isimported. Despite this, things were not easy

for the largest local wine producer, Cellier deMeknes, which claims almost 90% of the totalstill light wine market in Morocco. Thecompany changed its premises in October lastyear and logistical problems meant it could notdeliver for one month. On top of this, itslow-priced range, which includes the brandsMoghrabi and Chaud Soleil, saw pricesincrease significantly due to the TIC andbanderoles. Initial estimates suggest thecompany’s volumes will have fallen by 6-7% in2010, dragging the whole wine market down.

At the quality end of the wine market, those

selling at over Dh40 per bottle ($4.70), there is aclear trend towards rosé: up to a third of thequality local brands sold is now rosé. Thisproved to be a mixed blessing for new brands:Renouvo had a record year for wine sales, whileVolubilia could not keep pace with the increaseddemand and lacked stock from May onwards. Anew player also entered the quality wine market,La Ferme Rouge. Led by Boris Bille, previouslywine sales director for Ebertec, the companysold around 12,000 cases in its first year.

At the top end of the market, Champagnewas not greatly affected by the increased TICor banderoles; high-priced products are betterplaced than value offerings to absorb extracosts. The tourist season was still good inMorocco, but the economic crisis meant lessshow-off consumption in the form of largeformats such as jeroboams and mathusalems,and less-recognised brands are finding it harderto make an impact than the established ones.

Whisk(e)y reboundsIn the spirits market, vodka remains popularamong younger consumers, although somereturn to whisk(e)y consumption – mainlyScotch – has been reported, largely throughincreased sales of Johnnie Walker Red indiscos and nightspots. Ballantine’s repositionedits price closer to its international rival, thuslosing some volume. The fact that Ballantine’s– as with much of the ex-Allied Domecqportfolio in Morocco – has a large share of its

15February 2011

spirits review

All volumes in ’000s of 9-litre cases Source: The IWSR Database 2011 ©

Morocco: top 15 whisk(e)y brands

Johnnie Walker Scotch Diageo 35.9 53.5 54.5 +1.9Jack Willows French whisky Ryssen 40.0 60.0 50.0 -16.7Gold Field French whisky Ryssen 30.0 38.0 30.0 -21.1Ballantine’s Scotch Pernod Ricard 14.8 23.8 21.3 -10.5Golden Eagle French whisky La Martiniquaise 7.0 17.3 15.0 -13.0Chivas Regal Scotch Pernod Ricard 6.8 13.5 13.7 +1.6King Charles Scotch Wm Grant & Sons 4.8 9.8 12.5 +28.2Gentlemen Italian whisky Distilleria Sari – 11.0 10.0 -9.1Grant’s Scotch Wm Grant & Sons 4.0 7.5 9.3 +23.3Duke Winner French whisky Ryssen 3.8 9.0 8.0 -11.1J&B Scotch Diageo 7.5 6.5 6.6 +1.5Black & White Scotch Diageo 6.5 8.5 6.5 -23.5Jack Daniel’s US whiskey Brown-Forman 2.0 3.9 4.9 +25.6Wm Lawson’s Scotch Bacardi-Martini – 3.0 4.5 +50.0John Langer Other whisky La Martiniquaise – 4.0 4.0 No changeOther whisk(e)y 44.6 51.6 47.1 -8.8Total whisk(e)y 207.5 320.8 297.8 -7.2

Brand Category Owner Volume Volume Volume % change2006 2009 2010 2010 on ’09

spirits review

16 February 2011

sales in small formats (usually 20cl flasks) alsosaw the brand more affected by the tax riseand costs associated with banderoles. ScotchWhisky Association MAT figures to September2010 show shipments to Morocco rising by+4.7%, but some brands (usually low-priced),which are bottled in and exported from France, fell.

In the premium segment, Johnnie WalkerBlack still clearly dominates although Chivascontinued to progress in 2010 through stronginvestment by the brand owner. There was alsoa strong performance by Jack Daniel’s.

Vodka hits the wallVodka was stagnant as entry-level brandssuffered through price increases. Absolut,having previously seen double-digit growthyear on year, was flat, and Absolut Citron wasdown, because of refilling bottles with cheaperbrands – a problem that has been widelyreported in the past. Mainstream vodkas alsodeclined, due to a rise in consumer prices,while at the top end of the market Belvédère isa hot brand and Grey Goose is also growing,although from a lower base.

Vodka remains the white spirit of choice inMorocco, partly because it is odourless inthis tolerant but nevertheless Muslimcountry, as well as easy to mix and withattractive packaging and marketing. MostMoroccan distributors put much of theirefforts behind this particular category, withgood returns; while both gin and tequila aresmall. Bombay Sapphire grew from a smallbase while value gins were hit by priceincreases. In tequila, Sierra reported stockruptures, which may have benefited leadingbrand Camino Real. 2011 is seeing the arrivalof new international brands, including Sauzaand Patrón via the distributor Drinks. Theycould boost this small category.

Although larger than the tequila category,rum has not really gained significant traction inMorocco, lacking the trendy image that vodkahas built in this market. Havana Club alsosuffered intermittent stock shortages last year, which in turn benefited leading importedbrand Bacardi.

The pastis market, still a healthy size due totourists and a large number of Frenchnationals now settled in Marrakech, saw thesame effect as other categories: value brandswere down strongly due to rising prices, whileestablished brand names held up better.

Success storiesThere have been some interesting recentdevelopments in the Moroccan market:Vaissiere et Amar is the first local producer toproduce Western spirits locally. It claims totalsales of 40,000 cases in 2010, of which 20,000were vodka, 12,000 whisk(e)y, and the restgin, pastis and bitters. Most of its sales are insmall convenience shops and some all-inclusivehotels, although Menalco largely dominatesthis channel.

Perhaps the only beneficiary of the risingtaxes on alcoholic drinks in Morocco in 2010was mahia, a local eau-de-vie made fromdates. Its annual sales volume is estimated ataround 800,000 to 1m nine-litre cases per year.The vast majority is illegally produced, untaxedand sold in reused 20cl soft-drinks bottles.Mahia is often consumed by labourers as aone-shot drink or to get a kick with a beer. Byfar the largest spirits category in Morocco, forthe vast majority of Moroccans, mahia is theonly drink they can afford, and in rural areas, itis usually the only spirit available. Consumptionsurged in 2010 as price rises put other spiritsout of many Moroccans’ reach.

In many markets, price sensitivity has led toincreased beer consumption as the price of asingle bottle is more accessible than the priceof a bottle of spirits, but that is not the case inMorocco. As The IWSR forecast, beer declinedstrongly in 2010, down by 12%. The localbrewery, owned by France’s Castel Group,accounts for over 98% of beer consumed inMorocco, but in 2010 one of the productionfacilities in the country was shut in a bid tomaintain profitability, leading to greatly reducedoutput. Castel is trying to fight the government

regarding taxes and the new banderoles andthe case is to be taken to the Supreme Court.The chances of winning the case are slim andsome operators in the sensitive industry ofalcoholic drinks in Morocco believe that thiscould have consequences in the future.

Next year the market will see Carrefourarriving in Morocco, as it acquired the fourMetro Cash and Carry branches in the country.Carrefour intends to convert these outlets intohypermarkets, fighting the supremacy of localoperator Marjane, which has 17 stores in thecountry. Most local operators think this is agood business opportunity, as Metro has beenlosing money in recent years and its operationwas a complete failure. Carrefour’s arrival willinject the market with competition; if Marjaneand Carrefour engage in a competitive race;prices and margins could suffer.

Positive outlookThere is hope in 2011. As the economic crisiseases in most of Europe, tourism shouldreturn to growth: Morocco wants to reach10m tourists per year by 2015. Price rises willalso have been accepted and the newbanderole system better implemented. TheMoroccan population is still growing, with alarge pool of young people coming to drinkingage, many of them much more exposed toWestern products and ways of life than theprevious generation.

Wealth is also slowly spreading in the ruralareas and the fight against corruption, still amajor issue, continues. For Western operatorsit is important to understand that the marketstill largely works with ‘backshish’ – free casesor cash, etc. – in all the steps until a productreaches the consumer. The bar manager in ahotel would get a ‘gratuity per case’ from asupplier. These relationships go back for yearsand are very difficult to eliminate. Most keynight outlets are sponsored by one of the twoleading players.

Between recovering tourism, increasedwealth, and market developments, such asthe investments by Carrefour and Vaissiere etAmar, 2011 should prove a better year. Theonly major setback next year could beRamadan falling in August: all liquor storesand sales are banned of the whole month,which next year falls at the peak of Europe’sholiday season.

The IWSR head of researchJose Luis Hermoso, reporting from Morocco

Morocco spirits

Tough going in UK marketThe ongoing tough economy means a difficult road ahead

UK consumers went back to work after thefestive season to be faced with steep hikes inrail fares and a 2.5% rise in VAT, bringing it to arecord 20%. These are only the latest measuresguaranteed to squeeze already tight consumerincomes. The VAT increase will certainly pushinflation towards 4% by the end of the year,according to analysts. Added to this unfortunatescenario are tight credit conditions due to thebanks’ reluctance to lend to small and medium-sized businesses, falling house prices, theelimination of child tax credits and a dramaticand unpopular increase in university tuitionfees. The Governor of the Bank of EnglandMervyn King recently stated that it could be amatter of years before the UK returns to pre-recession levels of economic activity.

The wine and spirits industry has also beentargeted with specific tax hikes in the pastthree years, but fortunately the currentCoalition Government didn’t raise alcohol taxesin its emergency budget at the beginning ofJuly. The government’s much-anticipatedAlcohol Review, issued in November, yieldedfew significant changes to the duty structure.The government is currently sticking to plansto increase alcohol duty rates by 2% aboveinflation each year to 2014-15, with the nextinstalment coming in the March budget.

Driving it homeThe duty and VAT increases will certainlycontribute to the further expansion of homeconsumption, one of the most obviousfeatures of the recession. Large supermarketshave significant purchasing power and oftenchoose to cross-subsidise the sale of alcoholproducts to draw in consumers. This meansthat, over recent years, alcohol prices insupermarkets have not risen by as much asalcohol duties. Small retailers and pubs do nothave the same price flexibility as supermarkets.Prices in pubs have risen by more than dutyincreases and this is, in part, due to the pricingstructures employed by pubs. An increase insupplier price by £0.01 ($0.02) can lead topubs increasing prices by at least £0.02 ($0.03)to maintain profit margins.

The big pricing differential between the on-premise and take-home market, coupled witha squeeze on disposable income, hascontributed to a broad shift towards homeconsumption. This has led to calls for minimumpricing in supermarkets, both from politicalbodies and some on-premise organisations. InNovember, a vote on minimum pricing wasrejected by the Scottish Parliament, but theissue continues to resonate. The government is

now seeking a voluntary UK-wide ban on alcoholsales below cost while it studies the relationshipbetween pricing and problem drinking.

Asda (owned by Walmart) became the firstretailer to abolish below-cost sales. In a letterto the government from chief executive AndyClarke, he reasoned that “a ban on sellingbelow a floor price of duty plus VAT wouldraise the price of the cheapest alcohol dealsand promotions and give government the leverto ensure that increases in tax are passed onto consumers”. The other retailers are holdingoff until the results of a government study areknown. There is, however, some scepticismfrom the lobby group Alcohol Concernregarding Asda’s move, as they believe it couldbe an attempt to escape future, tighter,restrictions. Taking the cost of duty plus VATas a floor could see some drinks becomingeven cheaper and therefore have the oppositeeffect to what is hoped for.

As consumers have been cutting back over

the last two years, spend per head is down inthe on-premise sector as consumers have been“preloading” before going out to bars andclubs. Nightclubs have been particularly hardhit by this. The retailers have been fighting aprice war, with some deep discounts beingused in order to drive footfall. Some premiumbrands were on the shelves at Christmas atsuch low prices that John Beard, chiefexecutive for Whyte & Mackay, said at aconference: “There’s something wrong whenthe market leader is often priced below own-label: that’s commoditisation.”

Consumers trading down to cheaper drinksand categories, lower-alcohol shooters, goingout less and shifting from the on-premise tothe take-home market are the main factorscontributing to the mixed bag of results seenacross the UK spirits market.

The Scotch whisky category was only slightlydown (-0.7%) in its domestic market in 2009(the last year for which data is available) as on-premise losses were recovered in the off-trade,with price promotions starting earlier in the yearand lasting for longer than in previous years.This had the detrimental effect of encouragingconsumers to solely buy on promotion or to waituntil their brand of choice was discounted.

Beam Global managing director EuropeJonathan Stordy says: “This is the homemarket for Scotch; if we cannot make asustainable profit in the UK, then we have

17February 2011

spirits review

Spend per head on alcohol in the on-premise sector is down as consumers have been ‘pre-loading’ before going out to bars and clubs

“There’s something wrongwhen the market leader ispriced below own-label”

– John Beard, Whyte & Mackay

spirits review

choices. We want to compete in the UK, but it’snot profitable. We don’t see the collapse inprices in other markets as we do here. Some ofthe pricing we see is difficult to comprehend.”This adds to the speculation that many Scotchdistillers will look even more closely at exportmarkets in future for better profitability.

Stordy goes on to say that the UK is the“least profitable market on a unitary basis inEurope”. First Drinks Brands managingdirector Chris Mason supports this: “Value isan interesting word. If you talk to retailers it’sabout low pricing; if you talk to your boss it’sabout getting prices up. Over this Christmasperiod, we saw some very low prices. Thiscomes at the expense of margin- and brand-building.”

Malt whisky, as one of the most expensivespirits categories, was affected by consumerscutting back on spend. The segment was onlydown by 1.8%, but ultra-premium malts inparticular (-42.9%) suffered the most fromconsumers economising. Malts were also heavilypromoted in the off-premise sector throughoutthe year, but despite increased footfall in theretailers, this failed to see the category return togrowth, as most malt purchases are made inspecialist outlets, not the big retailers.

The US whiskey market, mainly JackDaniel’s, continued to grow in 2009, despitethe on-premise contracting. Jack Daniel’srecovered any losses from the decline of theon-trade by promoting in the off-trade asconsumers looked to replicate theirexperiences of nights out at home. This drovethe category as a whole and is the strongestindicator as to why the market will continue torise. Most of the other brands stagnated ordeclined, with the notable exception ofToorank’s Old Samuel blended Bourbon, whichhas risen to be the third-largest brand in onlyits third year in the market.

White spirits gain A revival in the gin market saw super-premiumand premium gins surprising many by growingstrongly, despite the slowdown in the on-premise sector. Hendrick’s continues toincrease distribution in top-end bars and is byfar the largest super-premium brand. BombaySapphire, up 6.2% in 2009, has benefited fromconsumers looking to replicate their on-tradeexperience at home. Tanqueray grew over25% in 2009, reportedly increasing share inthe off-premise sector.

One of the largest categories to see a drop insales was vodka. The vodka market in the UKdeclined for the first time since 1996, due to an

estimated 10-15% slowdown in on-premiseoutlets. Additionally the recession means thatmany Eastern Europeans, mainly Poles, havereturned home in search of work as theconstruction industry in particular was hit hardin the UK. The value segment of the market,

led by local brand Glen’s, continues to benefitfrom consumers trading down, while thestandard and premium markets declined.

Super-premium vodkas, however, gained, atthe expense of Champagne in high-endnightclubs. Vodka is perceived as a lessostentatious – and costly – alternative toChampagne to have on the table in anightclub. Both Grey Goose and Belvédèreincreased sales, with Grey Goose in particularbenefiting largely from increased distribution.

The UK market has been one of the mostdynamic rum markets of late, well outpacingthe broader spirits market. Almost all segmentsgained sales. White rums were buoyed by theperformance of Bacardi, and the importedsector by Wray & Nephew’s Appleton brand.Both benefited from the demand for rumcocktails. Spiced rums were also hot, driven bySailor Jerry and the renewed growth ofCaptain Morgan Spiced.

This healthy performance came despite thecontraction of the on-premise sector, whichaffected premium imports in particular.Nevertheless, the premium and super-premiumrum categories are slowly emerging across allsegments as mixologists use more premiumbrands to drive up profitability. The growth of therum category has also led to more competition,with a proliferation of new rum brands. J Wray &Nephew (UK) general manager Diane Edwardssays: “The competitive landscape is actuallyfierce – more entrants are attracted to thecategory, from various origins. The recent

Rumfest [in London] saw over 55 differentbrands jostling for position in a premium rumcategory that, in the UK, only amounts to around240,000 nine-litre cases. The competition in theon-trade is especially crowded – too manybrands chasing a small market. Eventually, therace will be won by the ones with a strong andconsistent message of quality.”

Other categoriesThe Cognac market has been rapidlycontracting over the last four years, losingvolume to vodka as well as to golden and, morerecently, flavoured rums. Cognac has sufferedthe same fate as malt Scotch as consumers cutback on spend. In 2009, all quality segmentswere in decline except the very small super-luxury Extra: XO was down by 8.5%,VSOP -5.7% and VS -7.3%. The compoundannual growth rate (CAGR) for the categoryfrom 2005-09 is -3.5%.

The liqueurs market grew by 4.1% in 2009,despite the recession. With consumers going outless, but looking to keep drinking the sameproducts at home, liqueurs benefited enormouslyfrom the shift from the on- to the off-premisesector. “Pre-loading” with lower-alcohol shootersalso became the norm among youngerconsumers as they began to drink at homebefore going out to nightclubs to save money.

Lower-alcohol shooters were already popular.Sourz (+18%) and Mickey Finns (+37%)benefited from this in 2008 and, with therecession hitting in 2009, consumers looking toreplicate their shooting experiences in the on-trade bought bottles of Sourz to drink at home.Despite the slowdown in the on-premise sincethe end of 2008, in 2009 Jägermeister almostdoubled in size (+92%) due to increaseddistribution in both the on- and off-premise andis believed to have seen further growth in 2010.Although on-premise spend has declinedsignificantly, the on-trade remains an importantchannel. First Drinks’ Mason says: “Consumersare becoming increasingly aware of the range ofspirits on offer to them and are looking todiscover new niche brands and servingsuggestions. They are trying new drinks in theon-trade and, if they like them, are investing in abottle for the home. Successful seeding in theon-trade is vital for brands looking for long-termgrowth and success in the off-trade”.

With taxes rising, an increasing diversificationof brands and the economy still not seeinggrowth that translates to consumers’ pockets,2011 is set to be a challenging, if interestingyear for the UK drinks industry.

IWSR analyst Tim Simmons

18 February 2011

“Value is an interestingword. If you talk to

retailers it’s about lowpricing; if you talk to your

boss it’s about gettingprices up”

– Chris Mason, First Drinks Brands

UK spirits

The challenge for agaveDespite a current glut, some are predicting a shortage of agave

One of the clear success stories of recentyears has been the export growth of tequila.While about 85% of consumption remainslimited to the domestic and US markets –which account for 51% and 33.5% of totalglobal consumption respectively – consumptionoutside Mexico has a strong compound annualgrowth rate (CAGR) of 6.2% over the past fiveyears as exports have really taken off.

The most recent figures from the TequilaRegulatory Council (CRT) show exports up11.8% in 2010 compared to 2009. Demand islikely to intensify as the economies of leadingconsumer countries, such as the US, recover.Importantly, the category has grown at least inpart through the phenomenal success ofsuper-premium brands, such as Patrón,Diageo’s Don Julio and Sauza’s TresGeneraciones, boosting both the prestige andthe value of the category.

Exporters of niche categories such as mezcaland cachaça look with envy at the way inwhich tequila has been able to transform itselfin certain key markets – most importantly theUS – from little-known novelty into mainstreamheavyweight. But while the growth of tequilamay be very welcome for the industry, thescale of success in recent years may be leadingto supply issues for the future.

Some industry experts are predicting acoming shortage of agave, tequila’s rawmaterial, due to the cyclical nature ofproduction. While tequila requires less ageingthan categories such as Cognac and agedScotch – the oldest category, extra añejo, isachieved after three years’ ageing – its rawmaterial, agave, takes around eight years tomature, making the planning of supply everybit as challenging: unlike sugar cane for rum,barley for Scotch or grapes for Cognac, a

larger crop one year does not ensure greaterproduction the next. It is now eight years sincethe height of the agave crisis and, withdemand for tequila booming at home andabroad, some industry experts are foreseeing anew crisis on the horizon.

With a current glut of agave on the marketforcing prices down, this pessimism may seemcounter-intuitive, but the glut itself is both asymptom and a cause of a possible futureshortage. The last agave crisis at the turn ofthe century, largely caused by the ‘marchitez’disease (actually caused by two bacteria) led toa shortage of agave and resultant high prices.This encouraged speculative plantations byfarmers hoping to achieve similarly high pricesthat are just coming to maturity, leading to acurrent excess in supply. Agave prices remainat rock bottom at about MEX2 ($0.16) per kilo– not much reward for eight years of tending alabour-intensive crop. These low prices areleading some farmers to switch productionfrom agave to crops that give a quicker return,such as maize.

For as long as there is a glut of agave, thisend to speculative plantations can be seen as agood thing, bringing the industry closer to abalance of supply and demand, with farmerswho are committed to the tequila industry inthe long term continuing to invest and cultivateagave. But some of these speculative farmerswho are unable to make a profit from currentplantations are abandoning their agave fields,rather than investing further labour in them.Abandoned fields tend to be more vulnerableto disease, which could in turn threaten thehealth of neighbouring agave crops. Somevoices from the industry are foreseeing apossible repeat of the epidemic of disease thatstarted the current cycle in the early 2000s.

Independent tequila consultant IvanSaldaña, who as a biochemist is well-placed toknow, says: “Now the offer of agave is huge.It’s like the blue fever that happened in 2000.The greatest risk is not how much agave thereis, but epidemics. If farmers are not benefittingfrom a decent sale price and are notmaintaining their plantations, next year therecould be a big epidemic. It’s very probable thatthat will happen. These crises are stronglylinked with biological issues that are influencedby the way humans are managing the tequilabusiness.” He adds, “Agave is subject to asingle demand. Prices are more volatilecompared with other grains or sugars, whichare subject to multiple demands.’’

This volatility in price, compared with theaverage eight years needed to grow agave tomaturation, is a recipe for the cycles of glut andscarcity that have plagued the industry, asgrowers are not able to respond quickly to

19February 2011

spirits review

Low prices are leading some farmers toswitch from agave production

“Agave is subject to a single demand. Pricesare more volatile thanother grains or sugars”

– Ivan Saldaña, independent consultant

Consumption of agave for mixto tequila and 100% agave tequila

’000s of tonnes

PH

OTO

S:

LA

UR

A T

OV

EY

Source: CRT

spirits review

market tendencies. With this in mind, theMexican Government is investing in otherindustries that exploit the sugars from agave,including – but not limited to – the popularisationof agave syrup as an alternative to cane or cornsugars. In the long term, developing furthermarket uses for agave, including that not grownwithin the denomination of origin area, wouldgive farmers alternative markets for their cropsand help to stabilise the industry.

Not everyone agrees that another shortage ison the horizon. Casa Camarena CEO JuanCarlos Camarena says, “I think that forcompanies of a certain level of production, weare protected by having our own agave crops,and by using traditional suppliers, who havealways been there [in the industry]. I don’tthink there’s going to be a big shortage. I don’tsee it in the short term or the long term. I thinkthere is going to be sufficient raw materials.”

Nonetheless, most producers are taking theprecaution of building up large stocks oftequila, to age or keep, while the raw materialis cheap. Camarena adds: “What has happenedin the tequila industry is that many companieshave stored large supplies as a back-up as well.The most likely is that they will have stored ayear-and-a-half or two years of supply. This willallow them not to depend too much on buyingexpensive raw materials. So [even if there is ashortage] the agave [price] will not rise – itmay increase a little, but not a big increase.’’

Tequila Regulatory Council managingdirector Ramon Gonzalez Figueroa says, “Ibelieve that, today, the industry is much betterprepared to withstand a growth in demand, sothe supply of tequila is guaranteed. Todaythere are big stocks. That is the big difference.It’s very expensive, but it costs more in thelong run not to have [enough] tequila.”

An important factor in the way the tequilamarket has developed since the last agavecrisis is the growth in 100% agave tequila,made only with sugars from agave, comparedto ‘mixto’ tequila, which is made with 51%-and-above agave sugars. As consumersbecome more knowledgeable and discerning,both in Mexico and abroad, 100% agavetequila is the benchmark for those not solelyfocused on price. The fashion for tequila in theUS is almost entirely fuelled by 100% agavetequila, with brands such as Patrón, Brown-Forman’s El Jimador and the Beckman family’sLunazul currently driving the trend.

The increased demand for 100% agave

tequila naturally has ramifications for the supplyof agave. According to the CRT, totalconsumption of agave for the production oftequila increased by 12.6% in 2010 comparedto 2009, and the trend has been ever-upwardssince at least 1995 (see table on page 19).Within that increase, the consumption of agaveto produce 100% agave tequila increased 9.3%in 2010 and agave consumption to producemixto tequila was up by 10.7%. Despite thissurge, while ever-more agave has been used toproduce 100% agave tequila, production ofmixto tequila is in fact down compared to fiveyears ago. Production of 100% agave tequilaovertook that of mixto tequila in 2008.

Consumer demandPart of the reason for the increase in sales of100% agave tequila is consumer demand, butthat, in turn, is at least partly driven by the factthat, with low agave prices, there are some verycompetitively priced 100% agave tequilas on themarket. If prices were to rise, as will happen ifthere is an agave shortage, the demand for100% agave tequila may drop off somewhat.Tequila Corralejo CEO Raffaele Berardi explains:“Obviously it’s cyclical. From 1999 to 2002,everybody started to grow. Now we have anoverflow of agave, so everybody’s switching to100% agave [tequila] and this will createanother shortage, because agave needs eightyears [to mature]. So whatever was predicted inthe last three to four years is unlikely to beenough. Probably in a year or two we’ll haveanother increase in raw material prices. If thistrend goes on, it will be very difficult for thesecompanies [that make cheap 100% agave

tequila] to sustain themselves with their currentpricing. That will make it less attractive.’’

Rising agave costs would cause arationalisation of the market, which has seen aproliferation of new brands in recent years –there are now over 1,000 brands of tequilaregistered, with many new ones launched eachyear as more and more companies try to catchthe wave. Many have very small, regionalsales, but a stiff increase in production costswould weed out those without a clear USP assome brands of low-priced 100% agave brandswill be forced to choose between raising pricesand switching to a mixto formula, losing theirraison d’être in either case.

Premium brands will be able to absorb higherraw material costs more easily, but only to apoint – during the last shortage, prices were atleast MEX7-MEX8 ($0.57-$0.65) a kilo, over fourtimes what they are today. Large companiesthat mainly own their own agave plantations –such as Sauza – should find things easier, aslong as they are able to keep their cropsdisease-free. Those that have built up largestocks of tequila should also be able toovercome drastic volatility in the market,although no companies are likely to haveenough supply to last the eight years it wouldtake to grow new agave. Big international firmsmaintain long-term contracts with suppliers, butduring the last crisis, these were not alwayshonoured. Each approach carries risks andrequires significant investment. But the industryas a whole is better managed and more awareof growing international demand than it wasbefore the last crisis, with greater interactionbetween tequila producers and agave suppliers– at least the long-term ones, rather than thespeculators looking for a quick profit – andcareful planning to try to ensure good suppliesin the future. Gonzalez Figueroa says: “Thegovernment is taking action, including a cordonsanitaire – they pay a small amount for[abandoned] agave and the governmentdestroys it, precisely to avoid diseases.”

Opinion remains divided with regards towhether or not there will be another agaveshortage in the next few years, but one thingis clear: with the category reaching anincreasing number of consumers in evermorecountries, and developing new lines ofinnovation, tequila has much to bring to thetable in the coming years.

The IWSR Magazine deputy editor Laura Tovey

20 February 2011

During the last shortage, agave priceswere over four times what they are today

agave

21February 2011

interview spiritsNew era for StolichnayaSPI plans to rejuvenate its iconic vodka brand

It is fair to say that that there are few brandsthat have endured such a tumultuous historyas Stolichnaya vodka. Over the course of thepast decade, it has coped with numerousdistribution changes, almost as manymarketing campaigns and an ongoingownership dispute.

Nevertheless, Stolichnaya remains one ofthe most widely recognised and attractivetrademarks in the global spirits industry. Itcurrently ranks as the 12th-largest vodkabrand worldwide, with global sales in 2009(the last year measured) of 3.4m cases,according to The IWSR.

The modern history of the brand dates backto 1997, when Yury Shefler, a young Russianbusinessman, purchased the Stolichnayatrademark – along with 42 other brands – for$300,000 from the Russian Government, thenled by Boris Yeltsin.

The deal proved contentious and thesuccessive Putin government invalidated thecontract, contending that it was one of anumber of illegal sweetheart deals betweenthe former Yeltsin government and his croniesduring the privatisation era. The RussianGovernment subsequently renationalisedStolichnaya, taking control of the branddomestically and attempting to claim back itsrights in international markets.

Legal battles are continuing in around 20European countries between the RussianGovernment and SPI. The company has wonmost of these legal rulings, but continues to beprohibited from operating in Russia. SPI wasalso forced to move the bottling of Stolichnayafor its international markets to Latvia, althoughthe company claims that the vodka is distilledand produced in Russia, using Russian grain andwater. SPI is now incorporated in Luxembourg,but operates largely out of Cyprus.

Andrey Skurikhin, minority shareholder ofSPI Group, says the group remains confidentabout its legal standing. “If we were notcomfortable, we would not invest so muchmoney in the brand. We are investing asheavily as we are because we are very certainof the outcome. It’s not just theoreticalconfidence or hope, we have a very solid legalbase for our position.”

Skurikhin believes there is a possibility thatthe dispute between SPI and the RussianGovernment may eventually be resolved. “Itwould be better for the brand if it was unifiedunder one owner in all markets. Right now, we

don’t control the brand in Russia. We want tosee whether we can [unify the brand]. Icannot say when that will happen exactly, butit will happen at some point.”

Until then, SPI will focus upon thosemarkets where it is free to operate. Thebrand’s development in the US, its mainmarket, has undoubtedly beendisrupted by a series of forceddistribution changes. During theSoviet era, Coca-Cola and Diageo(then IDV) distributed the branduntil the break-up of Seagram in2001. Diageo then acquiredmost of the global distributionof Absolut, and Stoli passedover to Allied Domecq. Thatended when Pernod Ricardacquired Allied Domecq in2005. Pernod Ricard thentook on the distribution, butthat came to an end whenthe French companyacquired rival brandAbsolut in 2008, as partof its takeover of Vin &Sprit. In November2008, SPI appointedWilliam Grant & Sons

as distributor in the key US market. Given theseries of changes, it is remarkable that thebrand has held up as well as it has.

The appointment of the privately-ownedWilliam Grant holds out the possibility of morestability and sustained brand-building.Skurikhin says: “Stoli has changed distributorsa number of times. It was never an intentionaldecision to change, but became necessarythrough circumstances. We chose William

Grant & Sons because there wasno conflict within its brandportfolio, as it didn’t have a vodkabrand. That will ensure we receivea lot of attention. William Grant isalso a rapidly growing company witha good record of brand-building.Because they are a privately heldcompany, they will tend to take more of a long-term view of brand-building and less of aquarter-to-quarter approach thatyou see in public companies. Weshare the same mentality and areculturally more attuned withWilliam Grant.”

This time around, SPI isavoiding a global distributionarrangement and, instead, is takinga market-by-market approach. “Ineach country we are choosing thestrongest independent distributor thatdoes not have a portfolio conflict.”

Corby Distilleries distributes thebrand in Canada (Stoli’s third-largestmarket after the US and Russia), whileEdrington handles the brand in the UK,and WS Karoulias in Greece.

Skurikhin says: “We are happy wherewe have ended up. We are now in theright hands and we can finally concentrateon the business of brand-building.”

Part of the problem with so manydistributors is that each had different ideasabout the best way to market the brand, and

AndreySkurikhin, SPIGroup minorityshareholder

Stolichnaya: the12th-largest vodkabrand in the world

“We can concentrate onthe business ofbrand-building”

– Andre Skurikhin, SPI Group

spirits interview

campaigns changed regularly.Most of these campaigns focusedupon the brand’s Russianprovenance, with Soviet and ColdWar imagery prominent. In adeparture last July, the companyintroduced a lifestyle campaign withthe tagline ‘Would You Have A DrinkWith You?’ The ads challenged theconsumer to ponder how theymeasure up: ‘Are you daringenough?’; ‘Are you an original?’; ‘Areyou experiencing and living your lifein an authentic, interesting way?’;‘Are you someone you'd want to sharea Stoli with?’. The ads featurecelebrities who represent a spirit oforiginality. Playboy owner Hugh Hefnerfeatured in the first executions. “Whilewe are proud of our heritage, you reallyneed to talk about something that ismuch closer to the consumer. It is abouttheir own values irrespective of where theylive,” says Skurikhin.

Key US marketStolichnaya now derives about 56% of itsglobal volume (or 1.92m cases) from the USmarket, where it is positioned as a premiumbrand. As with other premium brands,Stolichnaya has suffered from thedowntrading evident in the US market.

Skurikhin says: “The recession has led to thegrowth of economy brands and Stolichnaya haslost volume and value. Because we are long-term brand-builders, we took the decision tomaintain and even increase prices. This is at atime when many of our competitors, such asAbsolut, were dropping prices. We thought thatwas a short-term strategy. First, you do it as apromotion. Then it becomes your normal price.We think it is a death spiral for a brand.

“Now, some of the brands that were aboveus in pricing terms before the recession arebelow us. This naturally affected our sales, butthe important thing is that we didn’t damagethe brand. That is one of the luxuries of nothaving to report quarterly results. We alsomaintained investment. We think we will comeout of the recession in a stronger position. Wesaw excellent sales in the second half of 2010.”

Flavours are now a big element of the vodkabusiness, particularly in the US market.Stolichnaya boasts 11 flavours and the firmcontinues to launch innovative and new versions.

Most recently, it launched White Pomegranik,which is naturally flavoured with the white

varietal of the pomegranate fruit. Skurikhin says: “Stolichnaya has

pioneered the flavour segment. The cocktailculture has skyrocketed in popularity and,increasingly, consumers even want to tryand be their own mixologists andexperiment with different flavours. It ismore important than ever to have great-tasting and interesting flavours. But themarket for flavours is crowded and it isvery difficult to come up with a newunknown taste, so you need to bevery innovative. Pomegranate-flavoured vodka has really grown inpopularity and is doing very well inthe marketplace. There was nopoint in just launching anotherpomegranate. We needed a pointof difference and we hit on it withthe white pomegranate.

“You cannot become tooquirky and launch fruits thatare so rare that there is little

consumer recognition,” he adds.

“Niche flavours means niche volumes. The bigvolumes will continue to lie in the big recognisedcitrus and raspberry flavours; that is where themain battleground is in the flavours market.”

SPI also pioneered the so-called ultra-premium vodka segment with the introduction ofStolichnaya Elit in 2006, at a price point of $60.It is aimed at high-end on-trade outlets, whichspecialise in bottle service. The brand hasgained limited traction since its introduction. “Ihave to admit that the recession was not goodfor Elit, but in the last year we saw animprovement in sales. There are still consumersout there looking for luxury products. Nowpeople are beginning to shrug off the shock of

the recession and are returning to normal life.Some consumers are again looking for thehighest-quality products at the highest price. Wecontinue to see a lot of potential for Elit and weare currently planning a very intensive andstrong programme to promote the brand.”

Broader portfolioWhile Stolichnaya is SPI’s main brand, thecompany does own a broader portfolio of wineand spirits brands. These include Moskovskayavodka, which sells 720,000 cases globally.Moskovskaya’s largest market is Germany andit has significant sales in Spain, Italy, Latviaand Canada. “We are paying attention to thosemarkets because we have a loyal consumerbase there.”

In 2001, SPI acquired Latvian spirits producerLatvijas Balzams, a leading producer of alcoholicbeverages in the Baltic region, with thesignificant market share in Latvia and substantialannual sales growth in Lithuania and Estonia.With more than 120 products, Latvijas Balzamsis widely represented in practically all segmentsof alcoholic beverages, from vodka, brandy andgin to sparkling wine and ready-to-drinks.

The Baltic markets were hit hard by therecent recession. “In the Baltic markets, ourconsumers suffered and we also suffered.Fortunately, we have a wide local portfolio andplay in most price segments, so we captured alot of the downtrading. The Baltic markets arenow beginning to improve.”

Open to future acquisitions “Acquisitions have always been on ouragenda,” says Skurikhin. “We are alwayslooking for opportunities and, if the right onearises, we will jump on it. We want to grow ourpremium brand portfolio and regionalcoverage. Acquisitions are a way to acceleratethat. We are now considering our strategicapproach to acquisitions.”

He adds: “We have come a long way in 10years since we were just a Russian company. Wehave overcome a lot of challenges. Now we areembarking on our next phase of growth. Wehave ambitious plans to grow Stolichnaya by100% in the next four to five years and ourdynamic plans reflect that, with new partners,new routes-to-market and significant investmentfrom the group. We are confident this strategywill catapult Stolichnaya to the position of globalleader that is its rightful place."

The IWSR Magazine editor Alexander Smith

22 February 2011

Ultra-premium vodka Stolichnaya Elitwas introduced in 2006, but has gainedlimited traction, due to the recession

“We are planning a veryintensive programme to

promote Elit”– Andre Skurikhin, SPI Group

Stolichnaya interview

Based on the IWSR's experience of local markets The IWSR’s Forecast Report 2010 - 2015 analyses current and future trends for all wine and spirits categories. The report covers 53 countries and includes detailed explanations as to why and how trends have been forecast and what factors are currently important in the market. The report also features a detailed global summary, including global category totals and an analysis of volumes by quality

For more information, to receive a free sample or a list of countries covered please contact Agata on:t:+44(0)20 7689 6841 or by email at agata@iwsr.co.uk

the IWSR 254-258 Goswell Road, London EC1V 7EB, UKt: +44(0) 20 7689 6841 f: +44 (0) 20 7689 6827 e: info@iwsr.co.uk w: www.iwsr.co.uk

The IWSR’s Forecast Report 2010 - 2015

WDF has introduced a new 400sq ft (37.2sq m) specialist wine concept entitled‘Wine Collection – Rare & Vintage’ which hasopened as a specialist shop within WDF’s mainWorld Duty Free store located in LondonHeathrow Airport’s Terminal 5.

WDF says that the new concept has beendeveloped to meet the ongoing demand fromcustomers for a more premium wine offering atthe airport. The new store offers around 180SKUs of premium wines and vintageChampagnes, ranging in price from £15 ($24)to £2,000 ($3,161) per bottle.

Remarking on the new concept, Fraser Dunlop,

head of category for Liquor at WDF, told TheIWSR Magazine: “We have always been aware ofthe customer demand for more premium andspecialist wines in the airport environment. Forty-five per cent of wine transactions in our main T5store to date are over £40 ($63), so theopportunity was clearly there to introduce a morepremium wine offering.”

It is also strategically important for thegroup. Dunlop added: “This is a small concept,but strategically important going forward. Stilllight wine has never been more than 7-8% ofour [liquor] sales mix. This will move it on intodouble digits. That is what we are expecting.”

Nearly all major wine suppliers saw exportvolumes improve in 2010 compared to 2009,according to the latest Rabobank Wine Quarterly.But price volatility remains a key challenge forsuppliers, due to varying foreign exchange rates.“Wine demand from countries such as Brazil,Russia and China is supporting volume growth,but many suppliers are facing fierce pricepressure,” said Steve Rannekleiv of Rabobank’sFood & Agri Business Research department.

The UK, the world’s largest wine importer (byvalue and volume), is facing serious structural is-sues. Seeing their profitability threatened in a mar-ket they had come to rely on, major suppliers haveturned their attention to finding new markets – andwith some success as Australia, Argentina, Chileand Spain reported double-digit growth in wine ex-ports to China, Russia, Brazil and Mexico in 2010.

But even with the astounding growth of wine

consumption in emerging markets, it will be yearsbefore the volumes sold there match traditionalimport markets, said Rannekleiv. “In many cases,the prices suppliers receive in emerging markets,especially Russia, are far below their traditionalmarkets, although Australia is proving an inter-esting exception,” he added.

In recent years, the pricing power of Australianwine exporters to the UK and the US was hurt bycontinued discounting to offload overproduction.In contrast, Australian wine now commandsmuch higher prices in emerging markets thanwines from Spain, Chile, Argentina and France.Rannekleiv stated: “In new markets where con-sumers have no preconceived ideas about wine-producing regions, it pays to invest in educatingyour customers. Suppliers who take the troubleto promote their region and build their brand willbe able to improve pricing in the long run.”

February 201124

in briefAustralian wine value dropsAustralian wine exports declined bynearly 9% in 2010 on 2009 toAU$2.1bn ($2.1bn), according totrade organisation Wine Australia.Excess supply, the growth in bulkshipments, the growing presence ofbuyers’ own-brands, and the ongoingstrong Australian dollar all contributedto the difficult environment.

Volume exports increased by 2% toreach 781m litres, driven by bulk wineexports.

During the year, the volume ofbottled wine shipments declined by10% to 416m litres, valued atA$1.7bn and an average value ofA$4.12 per litre. An improvement inthe average value of bottled exportshas been recorded for six consecutiveMAT periods, although the averagevalue is still lower than it was 12months ago. This is an encouragingsign, given the Australian dollar hasremained strong over this period.

The UK remained the largest exportmarket (+4% to 272m litres), followedby the US (-15% to 206m litres),Canada (+19% to 56m litres), China(+36% to 55m litres) and Germany(+22% to 36m litres).

Consolidation for proseccoCantina Produttori di Valdobbiadene,the largest co-operative in theprosecco industry, has acquired ashareholding in niche producerCantinae Clara C di Clara Carpene.

Founded by Clara Carpene, thecompany’s brand competes mainly inthe premium and luxury sparklingprosecco segment in many European markets. Its main brandsinclude Clara C, Fiori di Prosecco,Donnaclara, Feminine Prosecco, and Fiori Rose.

Cantina Produttori di Valdobbiadenemanaging director Aldo Franchi said:“This investment is in line with ourstrategy of working more and morewith products from the Conegliano-Valdobbiadene area and withhigh-end brands in the premium andsuper-premium product range,seeking out new market niches.”

wine news

Global wine market forecastUsing The IWSR’s forecasts and IWSR-Vinexpo report, we analyse the next five years

The global wine market will grow slowly andsteadily over the next five years, at a compoundannual growth rate (CAGR) of 0.7% for still lightwine and 1.3% in the sparkling wine segmentacross the continents, according to The IWSR’sForecast Report. However, the landscape ofconsumption will continue to change, ascountries with traditionally high consumptionrates will lose volumes, while new markets willgain. Consumption in many of the major wine-producing countries, such as Italy, France,Argentina and Spain, is expected to decrease,while the Asia-Pacific region, as well as the US,Canada and Russia, will see the strongestgrowth. On a global level, the still light winecategory is expected to gain 100m cases, andsparkling wine will gain over 15m cases by 2015.

Losses in EuropeOver the forecast period, four of the fivefastest-declining markets for still light wine arepredicted to be European.

France is leading the decline, and is expectedto lose nearly 20m nine-litre cases over theforecast period. The market has been shrinkingin volume for over a decade, and a lack of Britishtourists in Calais and a decline in the on-premisesector are contributing to the negative trend.

In Italy, the largest still light wine exporterin the world, sales are also expected tocontinue to fall: the market, of which over99% consists of local wine, is failing to attractsignificant numbers of new consumers, asyoung people are increasingly drinking morebeer than their parents. While Italian exportscontinued to grow throughout 2009, thedomestic market is expected to decline bymore than 3.5m cases by 2015.

Spain and Greece are also among the losingcountries of Europe. The only significant volumegrowth is expected to come from the Nordiccountries. Although growth is also forecast forCentral and Eastern Europe, imported winesrepresent only a small fraction of totalconsumption in these countries – and their sharehas shrunk even further in many markets, asconsumers have become more focused on price.

In Scandinavia, on the other hand, still lightwine consumption is likely to continue its steadygrowth. The increase is as a result of the lastingtrend towards consuming a glass of wine or twowith a meal during the week, instead ofrestricting consumption exclusively to Friday andSaturday nights. Nearly 6m cases are expectedto be gained in the region until 2015, withSweden taking the biggest share of the growth.

25February 2011

wine review

All volumes in ’000s of 9-litre cases Source: The IWSR Database 2011 ©

Forecast consumption for the top 20 still light wine markets

USA 248,402 281,205 301,665 321,960Italy 296,875 297,710 295,691 294,057France 312,846 280,010 265,103 260,497Germany 240,595 240,287 240,584 241,003United Kingdom 125,276 136,603 139,858 141,816China 40,207 93,121 115,769 124,922Argentina 120,330 117,084 112,908 107,783Spain 115,517 91,945 92,213 90,090Russia 38,885 61,811 63,636 67,628Romania 54,740 56,805 57,685 59,210Australia 41,873 48,990 50,640 52,240Canada 30,267 39,181 43,990 50,555Netherlands 37,382 41,552 43,931 45,285Portugal 43,371 42,685 43,272 43,411Brazil 31,037 32,900 35,170 36,840South Africa 33,358 32,761 32,219 32,685Switzerland 30,950 30,510 30,829 30,857Belgium & Luxembourg 28,795 29,373 30,007 30,584Greece 29,201 30,697 29,715 30,170Hungary 26,880 27,935 27,998 29,250Other 384,301 426,479 441,355 456,343Total 2,311,087 2,439,643 2,494,237 2,547,187

Market Volume Volume Volume Volume2004 2009 2012 2015

February 2011

wine review

Overall, Europe’s share of the global winemarket will shrink over the coming five years,although the continent will still representaround 60% of global still light wine sales by2015. In total volume terms, consumption onthe continent is likely to remain fairly flat.

China to overtake JapanIn contrast to the situation in Europe, the Asia-Pacific region is expected to continue its strong

growth. As in previous years, the positive trendwill be spearheaded by China. Consumption percapita is still relatively low in the country, andwine is becoming increasingly popular as a giftitem for both business and private occasions.There is therefore no reason to believe thatgrowth will slow in the foreseeable future, andthe still light wine market is forecast to gainover 30m cases by 2015.

As imports are rising fast, China is likely to

26

All volumes in ’000s of 9-litre cases Source: The IWSR Database 2011 ©

Forecast consumption for the top 20 sparkling wine markets

Germany 40,024 40,933 40,845 41,101France 30,536 31,933 32,363 32,448Russia 14,272 23,103 25,666 26,458USA 13,287 14,713 15,535 16,596Italy 11,515 11,694 11,605 12,022UK 7,184 8,883 9,979 10,371Spain 8,685 7,993 8,426 8,575Australia 4,553 5,430 6,067 6,980Ukraine 4,671 5,176 5,570 5,777Poland 4,362 4,337 4,465 4,452Belgium & Luxembourg 2,035 2,802 3,150 3,396Brazil 1,979 2,528 2,833 3,029Austria 2,141 2,618 2,679 2,790Japan 1,613 2,304 2,617 2,674Argentina 2,208 2,169 2,156 2,405Switzerland 1,687 1,948 2,052 2,148Hungary 2,459 2,106 2,024 2,134Netherlands 1,085 1,325 1,469 1,552New Zealand 1,156 1,302 1,395 1,480Canada 1,053 1,233 1,332 1,398Other 16,989 19,907 20,965 22,738Total 173,490 194,434 203,191 210,522

Market Volume Volume Volume Volume2004 2009 2012 2015

All volumes in ’000s of 9-litre cases Source: The IWSR Database 2011 ©

Top five growth markets, still light wine

USA 281,205 301,665 321,960 +40,755China 93,121 115,769 124,922 +31,802Canada 39,181 43,990 50,555 +11,374Russia 61,811 63,636 67,628 +5,817UK 136,603 139,858 141,816 +5,213

Market Volume Volume Volume Volume change2009 2012 2015 2009 to 2015

All volumes in ’000s of 9-litre cases Source: The IWSR Database 2011 ©

Top five growth markets, sparkling wine

Russia 23,103 25,666 26,458 +3,355USA 14,713 15,535 16,596 +1,883Australia 5,430 6,067 6,980 +1,550UK 8,883 9,979 10,371 +1,489Ukraine 5,176 5,570 5,777 +601

Market Volume Volume Volume Volume change2009 2012 2015 2009 to 2015

overtake Japan as Asia’s largest import countryfor still light wine. However, the largest winesegment in China by far is currently, and willremain, local ‘yellow wine’, or ‘huangjiu’. Thetraditional drink has been growing rapidly since2008, when the government lifted a ban on theproduction of rice-based wines and spirits.Despite the popularity of huangjiu, Western-style still light wine is expected to increase itsshare of the Chinese wine market fromcurrently around 22% to nearly 25% by 2015.

Although the region’s gains in the still lightwine category are not as impressive as inmany spirits sectors, Asia-Pacific isnevertheless forecast to grow more than anyother region in the world in percentage terms.Its share of the global market is expected toincrease to 9% by 2015.

US – largest growthWhile consumption is increasing rapidly inChina, the US is expected to be the fastest-growing market for still light wine globally overthe forecast period. The country is likely toovertake Italy as the largest consumer of stilllight wine in the world as early as 2012.

Although growth slowed down somewhat in2009, when the on-premise sector took a hit,the market nevertheless continued to grow.Wines from Argentina are increasingly popular– in particular malbec. The biggest increase,however, is a consequence of inexpensive bulkwine coming in from Chile, as local producersare seek out cheap supply. A spreading beliefin the health benefits of regular, moderatewine consumption is further benefiting themarket. By 2015, the market is expected togain around 40m cases.

While North America will benefit fromgrowth, both in the US and the Canadianmarkets, South America will be one of the fewregions worldwide that is expected to losevolumes. The largest losses are forecast inArgentina, which is predicted to decline by10m cases – around 8.5% of its currentvolume. Other countries, in particular Brazil,will continue to grow, moderating the overalldecline of the region to some extent.

Wine consumption in Argentina has been insteady decline for over 20 years, and there is asyet no reason to believe that this will change inthe foreseeable future. Argentina will be thesecond fastest-declining wine market in theworld in volume terms, preceded only by France,and followed by Italy, Spain and Greece.

Global wine market forecast

Sparkling wine set to fizzThe global sparkling wine market will continue to gain volumes over theforecast period, as the style is increasingly popular as an aperitif in manymarkets. While Europe will continue to dominate global consumption, theCIS, Asia-Pacific and the Americas are expected to see strongerpercentage growth in the foreseeable future. On the whole, the categoryis expected to gain over 15m cases by 2015.

The order of the 10 largest markets – led by Germany, France, Russia,the US and Italy – is forecast to remain unchanged to 2015. While somecountries, such as Germany and France, will see only very marginalgrowth, hardly any markets are expected to lose volumes over theforecast period. Among the top 20 markets, none are forecast to decline.

Sales in global market leader Germany will be nearly stable, as themarket is already very mature and very large. In France, local AOCsparkling wines are believed to have the strongest potential to grow, asconsumers trade down from Champagne. The second-largest sparklingwine market in the world is forecast to gain around 0.5m cases.

The largest growth is expected in Russia, where the market is forecastto gain 3.3m cases. The recovery is predicted to come after two years ofsteep decline: between 2007 and 2009, the Russian sparkling winemarket lost around 2m cases. All segments are expected to rise; localproducts will benefit from better marketing and packaging. Sparklingwines from New World countries are likely to lead the growth in theimport segment, while Champagne sales will show strong percentagegrowth as the country’s affluent elite regains both the means and theconfidence to display its wealth.

The market in the US will increase, as drinking occasions are diversifyingand sparkling wines are benefiting from the growing popularity of still lightwine. Around 1.9m cases are expected to be gained by 2015. WhileChampagne sales shrank in 2009 and consumers traded down to othersparkling wines, the segment is expected to regain its volumes over theforecast period. In Australia, the category is attracting an increasingnumber of young women. Australians seem willing to experiment withnew brands and wines from diverse countries, which should benefit thecategory as a whole. At the same time, attractive price offers in themajor retailers are stimulating consumers to trade up to Champagne.

As in the US, Champagne sales in the UK dropped dramatically between2007 and 2009. For the first time, cava overtook Champagne to becomethe largest sparkling wine category in the UK in 2009. Growth for sparklingwine is predicted in the future, however, as people are drinking it on amore regular basis, rather than treating it as a celebratory drink only.

In terms of exports, Italy, Spain and France – in that order – were thelargest exporters of still light wine in 2009, according to The IWSR/VinexpoReport 2010. French figures declined for the second year in a row, whileItaly increased exports and Spain remained fairly stable. Chile has seen themost impressive growth rates over the last few years, but at around 76.5mcases it remained the fifth-largest export country behind Australia.

After years of steady growth, Italian exports of sparkling wine exceedthose of France in 2009, and Italy is now the largest exporter of sparklingwines worldwide, with over 15m cases. France is pushed to a close secondplace, followed by Spain, Germany and Australia.

IWSR analyst Ania Zymelka■ More details and analysis of exports, production and the global winetrade in general can be found in an article on the 2010 IWSR-Vinexporeport in next month’s issue.

27February 2011

wine review

February 2011

wine interviewNew beginning for B&GBarton & Guestier sales and marketing director Philippe Marion talks to The IWSR MagazineBarton & Guestier – one of the mostrecognisable French wine brands – has beenthrough some significant changes in the lastyear. In July, the brand was sold by Diageo toCastel. According to Barton & Guestier [B&G]sales and marketing director Philippe Marion, itwas “a very smooth transaction. [The sale]happened at a very good time, after the crisis.If it had happened during the crisis it wouldhave been more difficult, first of all for Diageoto find a buyer, and secondly maybe some ofthe distributors would have found a reason todiscontinue the B&G range. Now, our brand isgrowing again, the economy is growing againand the demand for French wine is comingback a little bit.”

The struggles of French wine in the US –B&G’s number one market worldwide, withabout 20% of its total sales – were one of themotivations behind Diageo’s sale of the brand.Marion says, “Diageo did not want to keep itsinvestments in French wines; it is re-focusingon its Californian wineries. French wines weredeclining in the US and Diageo was not reallygoing to invest to change the trends, so itthought, instead, that B&G would be bettersomewhere else.

“I think the spirits companies are all gettingout of wine. Wine is a strange animal forspirits people; it requires much moreattention, a greater workforce. There aretwo reasons why B&G declined in the US.Factor number one was the exchange rate[between the dollar and the euro] – wine thatcost $15 six years ago costs $20 now, sothat’s a huge difference. Factor number twowas that, being a wine company in Diageo, wedidn’t benefit from the attention we used tohave with Seagram [which bought the brand in1954]. There were 80 sales people in 2001; Ithink it’s down to 17 or 18 today. We need tohave manpower in order to grow our business,because French wines are more complicated tosell than any other category. In wine we do nothave enough volume or profit to access thesame media as spirits.”

With this in mind, B&G has been increasingmarketing investment even during theeconomic downturn. “I would say we increasedby probably 30% last year overall,” saysMarion, “and we just opened our ownimporting company in the US to give to ourbrand the focus it deserves.”

With over 95% of B&G’s sales as exports,Marion sees the purchase by Castel as “a goodfit, because Castel sells 70% in the Frenchmarket and we export 95%. Castel is muchmore into châteaux and domaines and

own-label. We don’t sell to supermarkets inFrance; B&G is more the branded offering forthe export markets.”

US potentialOf these export markets, North Americaremains number one, despite the fall in volumesince 2007. In 2009, the most recent year forwhich data is available, sales of French winedeclined by 9.8% or almost 1m cases. Sales ofB&G fell by 17.2% or some 100,000 cases in2009, according to The IWSR. Marion says,“Sales are down [in the US]. That’s why wehave to transition as quickly as possible. It hasbeen stable in terms of depletions, but I’mafraid that, in terms of the investment, it hasbeen down; we do not benefit any more fromthe push from Diageo that we used to have, sowe need to move very quickly there.”

However, Marion believes the US remainsthe most exciting market for the brand. Hesays: “We are probably the oldest branded

wine being sold in America. Thomas Jeffersonbought bottles of B&G in 1802. We are lookingto come back very strongly. The market isstruggling, but the potential is huge – 300mpeople; consumption per capita is growing, sothat is a very exciting market.”

The number two market in terms of volume,Canada, is a tale of two regions. Marion says: “InCanada, you have Quebec on one side, and theother provinces on the other side. Unfortunately,for whatever reason, B&G lost its position inQuebec 10 years ago and is struggling to comeback. Ontario and the other provinces do nothave the French culture there, so it’s much moreabout varietals and it’s difficult as we’restruggling against California and Argentina.”

While Marion sees work to be done in B&G’shome market, France, he is clear that the brand’saim in the French market is not to take on theown-label wines. “If you go into brands [inFrance], you need to have a huge amount ofmoney behind them, and what would be thepoint of doing that when Castel already ownsseven of the top 10 brands in the Frenchmarket?” he says. “So it doesn’t really makesense for us to go into supermarkets. What Iwould like to do in the French market would beto keep B&G in a nice position, so that wheneveryou have foreigners travelling into France theycan see the brand. So we would focus on the on-trade sector or on independent shops.”

The third-largest market for B&G, Nigeria, is

28

Philippe Marion:‘spirits companiesare all getting out of wine’

“The US market is struggling, but the potential is huge”

– Philippe Marion, Barton & Guestier

a very different proposition. “Nigeria is actuallyour third-biggest market, with about 80,000cases,” says Marion. The consumers are“government workers, mainly. You need toreach the middle class. A bottle of B&G there isabout $10. We sell at entry level, but onceyou’ve paid the taxes and so on, wines arepretty expensive. The wine is sold mainly off-trade in open markets. You also have supermarkets, but they are basically reservedfor expats. So the open markets are like thesmall stores: every corner, where two streetsmeet, you have no traffic lights – you just havea market there, and that’s where B&G sells.You also have drink shops – and in the drinkshops, 50% of the wines sold are B&G. Sothat’s quite amazing. [Wine culture] isdefinitely growing. Nigeria is very nice to have,even if it’s not a mature market. We developour brands in the same way as we do in othercountries – we try to educate consumers andattract them to more premium bottles.”

Other markets seeing positive movementsinclude Ireland. “In depletion terms, saleswere up 20%, which was very good. Inshipments it was a bit lower,” says Marion.Over in the UK, on the other hand, things wereless positive. Marion says: “It’s verychallenging. Deep discounts are the only thingthat works. So you have to create specific

brands for the discounts. If not, you justdamage your brands. [To avoid this] we havetried to focus on brands that we get an awardfor. We put the medal on the bottle and it sellsvery well in Asda. But what happens if, nextyear, we don’t get a medal? That’s the risk.

“The way the UK market is going, the wineaisle is very poor; the choice is very limitednow compared to what you used to have.There are fewer and fewer brands and you seebrands like Blossom Hill covering everywhere,from California to Chile, France, and Italy. Ithink Blossom Hill is now the number fiveFrench brand in the UK!”

Emerging opportunitiesLooking to the key emerging markets, Marionsays: “In Russia, we did pretty well actually. Wesuffered from the crisis, but we didn’t see a fullstop. In 2008, our sales went down by 30%, Iwould say, but not 70-80% like mostcompanies. That’s because our distributor, RotorHouse, has been extremely good at managingthe cash, making sure they are paid by theircustomers – so they were ready to redeploy asthe economy got better. Now we are growingagain and we launched a brand called Partagerwhich is slightly cheaper than B&G. So if B&G isaround RUB350 ($11.40), Partager would bearound RUB290 ($9.50). People traded down in

quality, so instead of people switching to someother brands, they are able to stay with us andhave a choice between our two brands.”

In Latin America, meanwhile, he says:“We’re doing pretty well, especially in Brazil.We changed distributor about 18 monthsago – [to] Interfood. I think we’ve made avery good move there, so Brazil is lookingmore than promising.”

In Asia, he adds: “Of course, China is veryexciting, because it’s all new and we have tolook at the possibilities. In China, Castel is byfar the biggest operator and we are trying tolearn from them. But the success of Castel inChina comes from people recognising the Castelbrand. So launching B&G is like launching anyother brand. We are benefiting from theexperience of Castel, but we won’t benefit fromtheir name, so that’s not going to be easy. Butit’s definitely the fastest-growing area for B&G.”Indeed, China is the fastest-growing market forFrench wines in general – they gained close to2m cases in the market in 2009, a little morethan the volumes lost on the UK market.

Marion continues: “Japan is still our numberone market [in Asia]. Right now, it’s about27,000 cases, but it used to be more than that.[The Japanese market] is really struggling. Theyen devaluated a lot, so that has been aproblem. Our number two Asian market is

South Korea, but there is the sameproblem there – the wondevaluated a lot. But hopefully,with the new free-tradeagreement between the EU andSouth Korea, we will have fewertaxes on French wines.”

While the final 2010 numbersfwere not yet in at the time of

writing, Marion estimates:“For the six months fromJuly to December weprobably did around450,000 cases. I couldn’ttell you exactly, but it’s [upby] at least 50,000 cases.”

With new ownership,new investment and newmarkets opening up, 2011may prove to be a positiveyear for B&G.

The IWSR Magazinedeputy editor Laura Tovey

29February 2011

interview wine

Barton & Guestier ismore a branded proposition for the export markets

February 2011

retail interviewRaising the bar for luxury retailingThe new Emporium shop at Dubai airport marks a new step for travel retail

In December, Diageo Global Travel & MiddleEast (GTME) opened a luxury spirits, finewines and Champagne retail store, calledEmporium, at Dubai airport’s new Terminal 3,in partnership with Moët Hennessy, Dubai DutyFree, Le Méridien Group and Dubai Airports.

The store is the latest and best example ofDiageo’s efforts to lead the transformation ofthe way that liquor is sold in travel retail.Diageo general manager Gulf Hugo Millsexplains: “Right now the retail space is notattractive. The [travel retail] environment thathas been created thus far is not compellingenough for people to say, ‘I have to part withmy money’. People are looking for experiences,they love to be informed and they want to beeducated. They have a couple of hours on theirhands. They are also looking for somethingdifferent. The reality is that the travel retailenvironment is not where it should be, becausepeople are not buying as much as they should.Our ambition, as the leader of the category, isto contribute to making that transition possible.”

Diageo has sought to convince the broadertravel retail liquor industry that the currentlow levels of customer footfall and conversioncan be improved through a betterunderstanding of consumer motivations –something the group has researchedextensively. By establishing these motivations,

operators, suppliers and airport authoritiescan then implement so-called growth driversthat will excite the consumer and, ultimately,drive purchasing. The company contends thatif suppliers and operators work together, thereare efficiencies and value to be created. Thiscollaboration involves setting sales targets,sharing insights and data and moving thefocus away from global price discussions. Theessence of the programme is a call for greaterindustry co-operation between the so-calledtravel retail ‘trinity’ of suppliers, operators andairport authorities – in a bid to drive sales.

Retail transformationCommenting at the opening of the Emporiumstore in December, Diageo GTME managingdirector Jane Ewing said: “It is a project thathas had its roots in ideas and concepts thathave been around for a couple of years, butnobody really had the guts to go away and doit. Emporium in Dubai is certainly the bestexample of retail transformation that we havedone. We really tried to push the boundariesout in terms of what we could achieve.”

Under the partnership arrangement, Diageo and Moët Hennessy rent the unit from Dubai Airports and provide the majorityof the investment. Dubai Duty Free handlesthe retailing of the store and enjoys the

retail sales, while the bar is run by Le Méridien Group.

Dubai Duty Free deputy managing directorGeorge Horan says: “With Diageo, DubaiAirport Company, Moët Hennessy and LeMéridien Group we have taken ‘trinity’-styleworking to a new level, not only in sharing thephilosophy, but in actually delivering the vision.The most important aspect was that ourshared approach included a common startingpoint – the shopper experience. Every aspectof the project, from initial design to delivery,has been focused on creating the best possiblecustomer experience.”

It is also significant that Diageo is working inpartnership with Moët-Hennessy. The twocompanies operate joint-venture distributionfirms in certain domestic markets, such as China,but have never co-operated in travel retail. Ewingsays: “We have gone for a retail experiencearound super-deluxe products and we felt it wasvery fitting that we would work with MoëtHennessy, [who] bring fantastic offerings ofChampagne and Cognac for a holistic categoryapproach… We are working with Moët Hennessyfor the first time. That is a big step forward forus. There are some strategic alliances that havebeen established here with Moët Hennessy andalso Le Méridien Group that can be extended intomany other parts of the world.”

30

Diageo hopes to recreate the Emporium concept at other topairports around the world

Dubai airport was seen as the ideal venuefor the first Emporium outlet, owing to itshigh passenger growth rate and the largenumber of heavy spending emerging marketconsumers. Dubai is still regarded as theluxury capital of the Middle East and, despiterecent financial uncertainty, retail sales arestarting to recover following a turbulent 2009.In 2010, Dubai Duty Free posted record salesof $1.27bn, thereby retaining its position asthe single largest airport retail operation inthe world. Within that, liquor sales increasedby 13%.

Broader significanceFormer Diageo Global Travel & Middle Eastmanaging director Phil Humphreys threw downthe gauntlet back in 2009, when he challengedthe travel retail liquor industry to double insize, from $6bn to $12bn, within five years.The basis for Diageo’s ambitious targets wasbased on some well-documented analysisconducted by the company in 2009. Diageoestimated that footfall – the percentage ofairport passengers entering shops – was only23%. Of that, only 50% convert and actuallypurchase. Thus, overall penetration(passengers purchasing) stands at just above11%. Only one in 10 people moving throughan airport purchase a liquor product. If the

industry can just raise footfall by 50% from23% to 37%, which is still far below thefragrances and cosmetics or confectionerycategories, it would double the category.

Mills says: “The liquor category itself nowaccounts for about 17% of all categories withintravel retail. With the work we are doing andour ambition, we are sure that our share ofthat pie will increase, particularly within theAsian and Middle Eastern markets. Diageo isalmost 20% of the total liquor category. Weare the industry leader and what we do willhave an enormous impact on where thisindustry heads. The way that we show up, thedecisions that we make and the ambitions thatwe set ourselves will certainly influence theway this industry develops over the next fewyears… As an industry leader, we need to startsetting the benchmark of where this categorycan go and that retail transformation is one ofthe biggest opportunities for unlocking growthin the future. Emporium is our example ofwhat we believe is going to be the nextgeneration of retailing.”

Diageo is now seeking to convert theindustry to its views and is working hard to puttogether further partnerships. Diageo has hadanother major Johnnie Walker F1 promotion atAbu Dhabi airport in conjunction with DFSGroup and Abu Dhabi Airport Authority. It has

also had a number of smaller concoursepromotions at JFK and Miami airports forTanqueray and Ron Zacapa respectively.Ideally, the company would like to have majorprojects with the top 14 largest airports.

Ewing believes that the success of theEmporium store at Dubai may eventuallyinfluence other leading international airports tointroduce the Emporium concept. “We aregoing to be working with our top 14 airportsaround the world on such ‘trinity’ projects, tosee how we can make the sort of things thatyou see in Emporium come to fruition in theother big airports.”

She adds: “We have talked a lot, but haven’tdelivered a lot. We have delivered a big F1activation in Abu Dhabi and now we havedelivered a huge Emporium activation inDubai. We have tangible evidence thatsuccessful ‘trinity’-style partnerships arepossible. Now we have to get the partnershipsgoing and really make things happen. We arestarting to get a longer list of airports open tothese sort of partnerships. A lot of eyes will be on Emporium. We certainly hope thesesorts of activations will be the catalyst tounlocking the next conversations with thoseother 12 airports.”

The IWSR Magazine editor Alexander Smith,reporting from Dubai

31February 2011

interview retail

Emporium combines luxury retail space with a contemporarybar and experiential zones. The central bar serves as theimmediate point of interest – something that invites thetraveller to step inside and discover more. Positioned at thefront of the store, to each side of the central bar area, are twoRetail Gallery zones supported by Dubai Duty Free, whichfeature a display of rare and premium bottles, while tabletopdisplays convey information on the heritage, production andtasting notes of each brand. Emporium’s two side walls andhalf of the back wall are dominated by the CategoryShowcases – a display of the major highlights from across theDiageo Reserve portfolio and the Moët Hennessy collection. ABrand Showcase occupies the left side of the rear wall. Thisflexible display area highlights each selected brand in detail,including variants.

Immediately in front of the Brand Showcase is theExperiential Zone, which includes special promotional spacefor new launches, exclusive products and limited editions. Inresponse to Diageo’s insight findings, the range addressesspecific demands from the target shopper for unique,convenient-to-carry, inspiring products for sale that theycannot buy anywhere else.

The product assortment is interesting too, in that it ispitched strictly at the super-deluxe-and-above level. Diageofeatures its so-called Reserve portfolio – including JohnnieWalker Blue Label, Zacapa, Tanqueray Ten, Ketel One and DonJulio. In addition, the Moët Hennessy brands include HennessyParadis, Hennessy Richard and Hennessy XO and Champagnesfrom Dom Pérignon, Veuve Clicquot and Moët & Chandon. Millssays: “It is quite bold that we are going for a super-deluxecategory offering. We know that Johnnie Walker Black Label isour stronghold in this region, but we are trying to get theseconsumers access to – and ultimately to upgrade them to –products that they probably don’t know about.”

The high staffing ratio enables the team of brandambassadors and bar specialists to provide their guests with ahosted encounter that engages shoppers with brands andproducts. Mills says: “This is all about one-to-one personalinteraction. It absolutely translates into higher sales. We thinkthat, in this part of the world, people are affluent, but they arenot very well-informed… We believe that if you can get a glassin somebody’s hands or have a brand ambassador spend twoor three minutes talking to a consumer, then you stand a muchbetter chance of converting them and making the sale.”

The store