Spirits not so bright this holiday season


The people running the nation’s large liquor companies may need a few stiff drinks right about now.

Typically this is the best season for the industry as we toast another year of accomplishments and look ahead to the next with a vodka martini or a fifth of Scotch. Consumption of alcoholic beverages typically kicks up from Thanksgiving through Jan. 1 as households and companies entertain more.

But this year the business has been plagued by a slump in the bar and restaurant trade, frugal consumers who are trading down to less expensive brands and stiff price-cutting to boost sales.


The distilled spirits industry is dealing with customers such as David West, who on a shopping trip to a CVS pharmacy in Seal Beach picked a $13.99 bottle of Finlandia vodka over more expensive brands.

“I hear that Stolichnaya is good, but there is not that much difference to make it worth $17.99,” said West as he perused the shelves in the liquor aisle.

Others are taking the same approach when it comes to year-end entertaining.

“Normally I drink Grey Goose or Ketel One but this is all about feeding the masses,” said Jennifer Kucera as she ran a 1.75-liter bottle of Smirnoff vodka through the self-check scanner at the Seal Beach Pavilions supermarket. It was on sale for $16.99 compared with its regular price of $27.49.

Such buying habits have already taken their toll.

“November was weaker than we and I think the rest of the industry anticipated. . . . We have lowered our expectations for December,” Ivan Menezes, president of Diageo North America, told investors recently. He made his comments after a nationwide tour of 11 of the beverage company’s most important markets. Diageo owns Smirnoff vodka, Johnnie Walker Scotch and Jose Cuervo tequila among many large liquor brands.

Other spirits companies are similarly cautious.

“No doubt, there continues to be a lot of uncertainly about consumer behavior, particularly as it relates to this holiday season,” Paul Varga, chief executive of Jack Daniels owner Brown-Forman Corp., told investors recently.

The liquor industry finds itself fighting the same economic head winds buffeting other consumer product companies, said Nick Lake, an analyst for market research firm Nielsen Co.


People are spending less on holiday gifts this year, they are spending less entertaining at home and they are dining out less often.

“If you are a premium spirits supplier, this is tough sledding,” Lake said.

Sales of distilled spirits, both in dollars and by volume, fell in the first half of November compared with a year earlier, according to Nielsen. Sales dropped 1.4% at food, drug and convenience stores to $601 million for the four weeks ended Nov. 14, the latest period for which Nielsen has data.

And that has happened at a time when liquor makers are slashing prices.

Liquor giant Diageo has flooded the market with rebates and coupons. In a recent full-page newspaper advertisement, the company offered $15 off purchases of three bottles of some of its premium products. That represented some of the biggest discounts experts who follow the liquor industry can remember.

Pavilions, which along with Vons is a division of Safeway Inc., has already marked down the price of a 750-milliliter bottle of Smirnoff to $11.99 from $15.49 for its club card customers. The Diageo coupon knocks off another $5 a bottle, for a final price that’s 55% off the regular price.

“Most spirit suppliers have been promoting heavily and prices have come down this past October, November and December,” said Annette Alvarez-Peters, a liquor buyer for Costco Wholesale Corp.

Costco has been running its own coupon program, offering $10 off some of the more expensive Johnnie Walker scotches and $6 off a bottle of Jack Daniels Single Barrel Tennessee Whiskey.


“The liquor category is down for the year and they are selling more goods on promotion. That’s why the spirits companies are not so thrilled this holiday season,” Lake said.

One spirit that is bucking the trend is Sobieski vodka from Poland, which has grown rapidly since its introduction two years ago into a 600,000-case-a-year brand in the U.S.

Though that’s still small potatoes compared with the 9 million cases of Smirnoff sold domestically each year, Sobieski looks to have hit the sweet spot created by the current economic environment.

At about $10.99 for a 750-milliliter bottle, Sobieski, along with the Swedish vodka brand Svedka, has become a popular substitute for people who are trading down from more expensive labels but still want an import, Lake said.

“Nobody is happy about the poor economy, but it played into our hands,” said Chester Brandes, CEO of Imperial Brands Co., which distributes Sobieski. “Pricing is contracting, not expanding, in this industry and we can show that you don’t have to spend a king’s ransom to get a good bottle of vodka.”

Sobieski has used its Polish origins in its marketing to give the vodka an “authentic” feel, Brandes said. People are spending less but they still get a product from one of the cradles of vodka production.


But there is only so far that consumers such as West, the Seal Beach retiree, will trade down. Looking at vodka at CVS recently, he noticed the Gran Legacy brand on the bottom shelf at two bottles for $11.

“That’s where you can start to tell the difference,” he said. “I can’t drink that.”