Blog Entries in Category: General Blogs

Over a barrel

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Category: General Blogs

As we were putting the finishing touches on this year’s Beverage Almanac, it became clear that whiskey was, once again, the big story in alcohol. However, to say that whiskey is doing well across the board would be a bit of an overstatement. In fact, there’s one major segment that didn’t have a good year at all. 

The Scotch Whisky Association reported that exports—the part of the business it relies on for most of its growth—fell 7 percent in 2014. And, can you guess which market was mostly to blame? That’s right, exports to the U.S. fell a full 9 percent. 

And remember, this is all happening when bourbon, Tennessee and Irish whiskey are enjoying high single-digit/low double-digit volume and revenue growth. 

So why is Scotch, which long has been seen as the whiskey drinker’s whiskey, struggling to hold on to its consumers? There’s no easy answer. One could argue that all of the new Irish whiskey drinkers are pulling from Scotch, but Irish tends to be the spirit that introduces consumers to whiskey and is more likely to be attracting drinkers away from vodka and other white spirits. 

Another argument is that drinkers are gravitating away from Scotch toward bourbon and other American whiskeys, but that’s probably not the case either. Though the bourbon boom can be attributed to growth across most demographic segments, millennials are responsible for an outsized portion of the volume. And before they were drinking bourbon, most millennials weren’t really drinking whiskey. 

However, some insight might be gleaned from the bourbon/millennial connection. Bourbon makers have been able to connect with and become relevant among those of the younger LDA demographic. The authenticity component, which is at the very core of bourbon’s value proposition, has been particularly attractive to millennial drinkers. There’s also been a very obvious kinship that bourbon and other American artisanal whiskeys share with craft beer and marketers in both categories have been able to promote that link through efforts like beer/bourbon pairing events, barrel aged beers and hop-infused whiskeys. And those marketers have been quite adept at telling consumers about those activities through social media—the direct hotline to the millennial generation. 

What’s really pulling Scotch down is the fact that the vast majority of volume is blended versus single malt, by a more than four to one margin. Single malt volume, for the most part, is doing well. There’s just not enough of it to keep the category in the black. There’s a lingering perception that Scotch is grandpa’s drink because its most visible brands are the blends widely consumed by earlier generations before single malt was even a viable segment. 

But things are changing, albeit slowly. My recent tour of Scottish distilleries revealed that many have been working around the clock to ramp up the innovation with new single malt expressions and new barrel finishes. Some potentially game-changing products are still sitting in barrels. 

Hopefully, Scotch marketers will be able to turn the tide before the whiskey wave subsides. Their segment could be the next stage in the renaissance that has brought bourbon, rye, Tennessee and Irish whiskey to a new generation. However, first they’ve got to figure out how to connect with that generation—and fast. 

News by-the-numbers

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Category: General Blogs  |  Tags: soft drink, CSD

Days before our May issue went to press, Pepsi announced, rather unexpectedly, that it was reformulating Diet Pepsi, substituting one sweetener, aspartame, with another, sucralose. Reams of copy and commentary followed the announcement, mostly about the controversy—real and perceived—around artificial sweeteners.

Some of it debated the risk Pepsi was taking in making such a move, harking back to when Coke decided it was reformulating its flagship brand and the resulting marketing disaster (eerily, Pepsi’s announcement last month was within days of the 30th anniversary of the New Coke debacle).

Is the Pepsi move a case of unneeded risk-taking? Pepsi explained it was making the move because consumer research indicated it should. “Diet cola drinkers in the U.S. told us they wanted aspartame-free Diet Pepsi and we’re delivering,” a Pepsi statement declared.

Within days of that announcement, PepsiCo chief executive Indra Nooyi was in a conference call with analysts discussing first quarter financial results. Responding to a question, Nooyi made an interesting statement: “We have never seen the consumer as confused as they are today. And I use the word ‘confused’ in a neutral way, not a negative way. If you had asked me a few years ago, people were moving to diet sodas. Now, they view real sugar as good-for-you. They are willing to go to organic non-GMO products even it has high salt, high sugar or high fat.”

All of this provided a great contextual point for our Beverage Almanac, our annual “beverage-world-by-the-numbers” feature in this issue. Volumes of traditional carbonated soft drinks, especially colas, have been falling for years, and the decline has been accelerating over the past few. Dramatic volume declines of diet soft drinks, for Coke as well as Pepsi, are a relatively new phenomenon.

But even 10 years ago, in this same data-based feature, we reported on indications that diet soft drinks were about to go soft. In the April 2006 issue we wrote: “For the past several years diet has been the one thing marketers have been able to consistently count on to keep the CSD market in positive territory, but the low-cal CSD segment proved to be much less of a tent-pole than in previous years.” We reported that diet soft drinks grew by just 2.2 percent in 2015, a sluggish performance following years of solid growth.

This is not to pick on Pepsi, or Coke, or even the fate of the soft drink market. After all, 10 years ago we reported that the beer market had slipped into decline, too. Most big beverage marketers, exemplified by Indra Nooyi’s recent comments, have that disorienting feeling over what to market and to whom.

In a broader context, the Beverage Almanac in this issue shows, sometimes in stark relief, just how a wide range of beverage categories and brands—some established and some still emerging—are moving. It’s the “by-the-numbers” context for the analysis we deliver regularly. And it happens to provide the numbers behind one of the most recent beverage news items of the day.  

Producers Great and Small

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Category: General Blogs  |  Tags: beer, alcohol

The beer industry is always trying to figure out how it can better emulate the spirits business. After all, distilled spirits volume has been growing steadily, while beer, overall, has been flat to down in most years. 

Last year, for instance, MillerCoors unveiled Miller Fortune, whose marketing directly targeted spirits drinking occasions by playing up its whiskey-like hue.

It’s true that there’s a great deal that macro beer can learn from the distilling community, but it’s got little to do with consumer usage occasions or image advertising. 

It was at the recent American Craft Spirits Association’s (ACSA) second-annual conference where a key difference between the beer and spirits categories became crystal clear to me: collaboration. 

The sometimes uncomfortable relationship that craft and macro beer share seems to make headlines every month. Industry observers may say that big brewers are finally embracing craft by acquiring small brewers. However, as the peach-pumpkin-flavored advertising misstep I referenced in last month’s column proved, the macros’ attitude toward craft is more a grudging acknowledgment than full-fledged respect and admiration. They’re making acquisitions because they feel they have to, not because they want to. 

But when it comes to spirits, there’s more of a cooperative dynamic beginning to play out between the mega-marketers and the burgeoning craft distilling segment. The Distilled Spirits Council’s (DISCUS) presence at ACSA’s conference in the event’s inaugural two editions has reflected that. But this year, a comment DISCUS VP for government affairs Michele Famiglietti made to the audience of artisanal producers perfectly encapsulated the relationship between big (DISCUS member companies) and small: “You are the face of the industry.”  When the DISCUS team meets with members of Congress, the first thing they usually ask is “Do I have any distilleries in my Congressional district?” The crafts are a huge asset in the talking points of an organization whose membership is largely composed of foreign-owned conglomerates. 

It’s odd that crafts don’t get the same recognition from the macro-brewers, which, after all, are predominantly foreign-owned entities. 

When it comes to public policy, Famiglietti noted that DISCUS “actively and aggressively” supports craft distillers’ efforts to get Congress to roll back the excise tax on small producers. Meanwhile, in the beer world, macros and crafts are competing for Congressional attention on the tax front. Craft brewers, led by the Brewers Association, have been lobbying for the Small BREW Act, while the large companies, represented by the Beer Institute, have been pushing the Fair BEER Act. The latter’s tax cuts apply to all brewers, macro and craft, while the former’s only applies to craft. 

The bigger issue is that the beer industry is not speaking with a single voice on Capitol Hill.  Getting on the same page, as the large and small distillers seem to be, enables the industry to present a unified front—which is more likely to generate results favorable to everyone. 

Small beverage producers have different needs than large ones, so it’s unrealistic to think that they’re going to agree on everything. But, as the spirits world already is demonstrating, there’s always some common ground to be found.

Taking Sides in ‘Tier’ Disputes

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Category: General Blogs  |  Tags: craft beer

Last month, the craft beer industry for the first time claimed a double-digit share of the beer business. That means that now one in every 10 beers sold in the U.S. are not produced by a big brewer.

Volume for craft brewers increased 18 percent last year, while overall beer volume grew by less than 1 percent. The number of craft brewers in operation similarly has grown significantly: 3,418 at the end of last year, according the Brewers Association, a 19 percent increase over 2013.

All of that growth has come to mean some political clout for craft brewers, where none existed just a few years ago. After all, in many states craft brewers are credited with leading a manufacturing renaissance. Craft brewing has equated to jobs and economic salvation in hundreds of communities across the U.S.

That clout also is leading to challenges to laws enacted in the wake of Prohibition, laws that established the three-tier system of producers, distributors and retailers of alcohol. Craft brewers say the laws have not kept up with the rapidly evolving market and need to be changed. On the other side, distributors say the craft brewers are trying to break up a system that has worked well for decades.

The particular local issues are complex and sometimes difficult to follow. Recent activities in two states are representative of the sides being drawn.

In Texas, craft brewers say they want to be able to sell beer to people who visit their breweries, like wineries and distilleries are allowed to do in the state. A legislative measure has been introduced to allow that. At the same time, a group of craft brewers have sued the state to allow more control over distribution, essentially overturning a 2013 law that prohibited brewers from selling distribution rights. Still another legislative measure introduced in the state would roll back the number of barrels that small brewers could self-distribute—from 40,000 to 5,000.

In Alabama, a bill recently was introduced that would allow brewers that account for 20 percent or less of a wholesaler’s total sales to amend, modify or terminate its territorial agreement based on the terms of a mutually agreed upon contract. The brewers say that the state franchise law effectively trumps written agreements between the between the brewer and the distributor.

Craft brewers in Alabama are also backing two other pieces of legislation that would create a license that would allow them to sell their products for on- and off-premise consumption and allow other rights.

In Texas and Alabama—and in many other states—the issues are real and the emotions are high. Have the franchise laws set in the post-Prohibition era kept up with the modern craft-beer era? Many have not.

Has the system establishing the distribution tier and franchise laws for alcohol served the vast majority of producers predominantly well for decades? Undoubtedly, yes.

As in all political disputes, compromise is what’s needed to untangle the issues. The phenomenal growth of the craft beer business is a truly positive development for the brewers and distributors alike. Let’s hope that politics doesn’t screw it up.