In the spirits industry, the on-premise business – restaurants, bars, casinos, hotels, or any facility where alcohol can be consumed on site – can account for more than half of a brand’s total sales and volume. When Covid-19’s security guidelines began closing these stores in March, it initially signaled major problems for luxury brands across the industry.
“It was a roller coaster,” says Thomas Mooney, co-founder and CEO of Westward Whiskey. The Portland-based craft brand is generally smaller in the industry, but is growing: in 2018 it was invested by the Distill Ventures Accelerator, whose sole investor is industry giant Diageo.
While the on-site reopening in 2021 remains uncertain, luxury liquor brands are generally rosy when it comes to a rebound over the next year.
“We are optimistic,” says Shem Blum, Senior Brand Manager at Flor de Caña. “Our national on-premise accounts manager is very optimistic and we have the resources to weather the slowdown and develop programs that will support small businesses and on-premise accounts going forward.”
The positive outlook is twofold: The forced expansion of e-commerce in 2020 was driven by a relaxation of American obsolete liquor laws (based on the “three tier system” that kept production, distribution and retailing deliberately separate and largely reserved to states) regulate while suppressing any kind of significant digital business) and continued demand for ultra-premium brands in multiple categories.
“No CPG industry was as ready for digital transformation as ours,” says Pamela Forbus, CMO of Pernod Ricard. “Amid the pandemic, digital commerce rollout, expected to take more than three years, came in less than nine weeks.”
As the devastating effects of the shutdown on the hospitality industry became more apparent, many states eased regulations to allow online sales, home delivery and take-away cocktails. This provided a lifeline for smaller brands and gave traditional names a new channel for business development.
In Westward’s example, Mooney says it took the company a few months to develop a viable e-commerce strategy, but sales outside of the company (in liquor stores, grocery stores, and on the internet) grew 50% over the year. (Takeaway cocktails are not yet legalized in Westward’s home state of Oregon.)
He also finds an unexpected pivot on certain on-premise accounts that are licensed and capable of doing so. Citing an example of an Arizona golf club that had an existing membership base that couldn’t drink liquor locally (due to Covid-19 regulations), the account turned to a whiskey membership model for income and interest.
Blum estimates that prior to the pandemic, less than 5% of Flor de Caña’s business was in e-commerce and the move to off-premise accelerated that channel significantly, bringing the brand 8% year-over-year growth. (However, the brand’s on-premise volume is down 47% since the start of the year.)
Alluding to the continued momentum in the ultra-premium category, Blum says sales of their higher-end brands (those over 12 years old) have increased 41% this year, and distributor William Grant & Sons has a new team Built by Luxury Ambassadors have focused on growing that part of their business through 2021 and beyond.
Patrón Tequila Marketing Vice President Adrian Parker also highlights the growth not only across the product range, but particularly in the Gran Patrón line ($ 200 to $ 400). The brand’s digital business grew five times a year and has grown more than 50% since the pandemic began.
“People haven’t replaced their (drinking) habits,” he says, “they just brought them home.”
Jim Brennan, Senior Vice President for Malts and Innovation Brands at Edrington (whose labels include The Macallan and The Glenrothes), confirms this assessment.
“Although discerning consumers drink less overall, they will certainly drink ‘better’ if they continue to look for premium products,” he says. “Interestingly, any on-site decline has been largely offset by an increase in off-premise products for The Glenrothes’ core products.”
“It’s been a roller coaster ride,” says Thomas Mooney, co-founder and CEO of Westward Whiskey.
Photo by Jeff J Mitchell / Getty Images
The luxury whiskey sector appears immune to the waste generated by the pandemic. There is still a growing market for premium and infrequent labels, whether they were acquired through a drink at the bar or through an off-premise channel.
Brennan says they are still pushing the launch of The Glenrothes 50 – for $ 35,000 a bottle with only 50 available – and like many brands, they expect a significant rebound in on-premise products over the next year.
“It was really interesting to see a noticeable increase in spending in certain categories. In the US, our whiskeys (Scotch, Bourbon and Irish), which make up about half of our total portfolio, are growing strongly, led by Jameson, ”says Forbus. “We’re also seeing an explosion in cognac sales, especially our $ 100 offerings, which rose 78% in September.”
Becky Harris, president of the American Craft Spirits Association and primary distiller of Purcellville, Va., Catoctin Creek Distilling Company, expects continued strong demand for smaller offerings, generally driven by demand in the off-premise category, and larger economic trends resist. In Virginia, local craft spirit sales are down 70% compared to 2019, and she estimates these numbers are similar elsewhere.
“The craft distillers I know are a resilient and motivated group of entrepreneurs who have used new ways to reach consumers. If we can prevent our sector from suffering additional economic shocks like big tax hikes, we will survive, ”she says. (Harris recently spoke to Penta about the unique challenges artisanal distilleries face.)
For the larger brands and portfolios, the on-site shutdown signaled additional opportunities to examine consumer behavior while also figuring out how to make up for the lost brand discovery that often sparked a consumer’s relationship with a new favorite product at the bar.
“The pieces that get hurt the most are the emerging categories and the brands within those emerging categories,” said Britt West, vice president and general manager of Gallo Spirits (the liquor arm of the wine giant).
Gallo has made a significant investment in the brandy category, and West notes that while the local interest has been “huge” with the recent on-site opening in the Napa area, it is difficult without the support of local bartenders build a national dynamic.
According to Forbus, Pernod Ricard believes in the continued importance of on-premise for long-term business in North America. The question for them, however, is: “What is normal again and what new habits persist?”
Parker adds that Patrón (along with the support of parent company Bacardi) is taking a monthly forecast approach for 2021 and not planning too far in advance as the situation on site remains fluid.
What brands brands in this fluidity is a huge consumer base ready to hit bars and restaurants again as soon as it is safe to do so.
“People haven’t genetically changed in the last few months,” says Mooney, “they just got stuck at home.”