|Lessons from the US liquor industry|
Keith Stewart attends a Nielsen presentation and finds a thirst for innovation. Nielsen USA’s liquor industry specialist Danny Brager delivered an insightful summary of the current status of the US liquor market recently, an overview that was notable for the presence of at least two elephants in the room – a brewery duopoly.
The reason for their presence was the striking similarities between the state of liquor sales in the US as reported by Brager, and in New Zealand, with both markets tracking a sharp decline in beer consumption, while wine and spirits continue to take market share from the brewing sector.
Brager made the comparisons keen for most in the room, not least representatives of the two dominant beer producers, when he declared part of the problem in the US was complacency by the major companies.
“The two big companies dominate the sector, with 80% of the market between them. Perhaps they have been too comfortable in their position and allowed wine and spirits to gain without them noticing,” he said. But there were signs, he said, that they were fighting back and becoming more innovative in their approach.
However, the bottom line for beer was that in spite of booming craft beer sales across the US, beer now represented less than 50% of the liquor market for the first time, after four consecutive years of declining sales volumes. With big beer brands failing to claim a share of the innovative product sector, it has been left to craft beers to hold up the sector. Craft beer sales in the US grew 17.3% in value in 2011, and 15.6% in volume.
Which is a pretty good performance given that wine’s share grew just 2.5%, consolidating the United States’ position as the world’s largest single wine market. This is evidence that craft label marketers have kept in touch with consumer trends and sentiments, and showing their giant compatriots the way to maintain beer’s credibility in the dynamic US marketplace.
These are signs that the US beer duopoly is getting the hint in the expanding share of beer sales in the new products category. According to Nielsen data, 10% of beer sales in 2011 were of products that did not exist five years ago. One way for brewers to match the taste for new flavours and drink experiences that seem to be driving the entire US alcohol beverage market right now.
This increasing diversity of products is setting up numerous micro-trends that capture segments of the market, rather than one product wave that dominates growth. The range currently covers products from ciders and fruit beers, mix-your-own craft beer six-packs, and bespoke tea and adult lemonades, to flavoured whiskies, and an almost circus-like selection of flavours in the vodka category.
Spirits continue to outperform the beer sector in the US, and flavoured spirits are particularly strong. While vodka as a whole is growing steadily to maintain its position as the market leader, unflavoured vodkas managed just 2% growth in 2011, while flavoured vodkas returned a massive 21%, and now account for 20% of the total vodka sector.
For Brager’s New Zealand audience, these details carried significant comparisons with recent developments in the New Zealand market, not least the rising success of ciders and fruit beers, and the continued strength of the craft beer sector. This is of particular interest to grocery, where most beer sales are now made, especially as the US appears to be slightly in advance of trends in New Zealand.
Brager estimates that at-home beer consumption in the US is probably 10 to 20% ahead of where it is in New Zealand, but he expects that with similar trends panning out in both countries the New Zealand share will continue to grow. Because of this, innovative ideas that have worked in the US could be worth considering here, in particular the creative packaging that allows consumers to select their own range of beers for a do-it-yourself six-pack, or the growing fashion for fill-your-own craft beers.
Don’t stand still
Marlborough-based Moa has already launched into this area, and others are investigating the options and packaging opportunities that need considering to meet this challenge, both at a producer and retail level. Brager’s point is that nobody can afford to stand still in an increasingly dynamic market where sophistication is as valuable as innovation.
In this context, clever packaging that allows greater consumer input appears more effective. And there is more demand in the United States for enhanced retail experiences, especially when selling premium products such as craft beer, top end spirits and wine.
Perceived added value has become the name of the game in all beverage sectors, where notions of craft, individuality, flavour enhancement, and lifestyle value are all tangible brand assets that need endorsing in well tuned retail operations.
Brager cited a number of retail operations where expertise is the feature, and in many cases an essential for success, as the number of retail liquor outlets in the US skyrockets.
One of the features of the US market that could be worthy of more attention here, is the demands of disparate ethnic tastes that make up the market. New Zealand’s increasing cultural diversity may not offer the same fractured market opportunities as the various ethnic sections of the US do, but in Maori, Pacifica, South and East Asian communities there is certainly scope for innovation of approach.
In the US, for example, the large Hispanic market consumes 20% more beer and 20% less wine than the white sector, while poorer and ‘black’ markets have recently increased consumption of sweet, fruity wines, usually labelled as Moscato, said Brager.
Wine it seems has recovered from the economic crisis well, with Nielsen data showing growth in all price points over US$9 per bottle, with the over $20 category the fastest growing. Female customers continue to dominate the wine sector, especially in grocery, and online retail is the fastest growing portion of the retail wine market.
Brager had some good news for New Zealand wine, with sales up 22% in value and 24% in volume for the 2011 year. However, in a market where higher priced wines are growing, New Zealand’s strongest growth was in the under $5.99 sector, with volumes up 23.9%. Wine exporters need to be cautious here, as this trend has dropped the average value of New Zealand wine sold to $10.95 per litre.
In summary, the overview was all good news, unless you were an elephant. There seems to be plenty of scope for market development and a thirst for innovation, if the US market is in any way an indication of what could happen here in the coming months. Certainly Nielsen, as masters of the US and local liquor data business, were well placed to give the sort of high quality intelligence that should benefit local operators. With 150 clients contributing to Nielsen’s beverage alcohol team across the US the standard of information was as high as you can get.