LEADING SPIRITS COMPANIES WEATHERING THE STORM

Published: 23 July, 2008

The leading players in the worldwide premium spirits market will weather the upcoming economic storm and continue to make gains in business efficiency, according to the Strategic Review for 2001 from global beverage industry analysts Canadean. Consolidation over the last two years has reduced retailer pressure on prices, it says, allowing the nine companies which now hold more than 60% of the market (Allied Domecq, Bacardi Martini, Brown-Forman, Diageo, Jim Beam, LVMH, Pernod, Rmy and Vin & Sprit) to achieve significant increases and improve performance. The 200-page review concludes that there is a growing consensus on the strategies needed to improve profits, in the face of the downturn accelerated by 11 September. Diageo, Allied Domecq and Rmy have sought to become pure players in the alcohol business by clearing away non-core operations, or pulling out of those less profitable markets. The report states that most of the big nine now appear to believe that the premium beverage sector will remain strong, so long as the leading brands continue to benefit from sustained investment in marketing. Diageo's choice of Smirnoff as its flagship is said to be responsible for much of the group's recent growth. Meanwhile, Brown-Forman , is now seeing the result of two years' promotion of its famous Jack Daniel's family of products. Advertising is also much more sharply focused. Diageo has increased marketing spend by 10%, putting the greatest emphasis on its eight top-selling brands, at the same time as LVMH has supported its luxury products by investing 12% of sales revenues in marketing. Canadean's Wines and Spirits Service, which prepared the report, warns that those who fail to follow this strategy will suffer in the longer term. Jim Beam, for example, achieved higher operating margins than most other beverage groups during 2000/2001. However, this was partly achieved by lower expenditure on advertising and promotion, and the results of this lack of brand building, says the report, could well become apparent as the US economy declines.

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