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Big changes in the demographic makeup of the nation are transforming the alcoholic beverage category as consumer preferences and purchasing patterns are shifting the balance of power among the major segments of beer, liquor, and wine.
Alcoholic beverage consumers are trading up in their selections across all categories, buying in multiple retail channels, and shifting some of their purchasing from beer to spirits.
"Growth in the spirits category has been strong, especially with the resurgence of the cocktail culture in recent years," says Jim Green, v.p. of trade marketing for Diageo national accounts.
Spirits are benefiting from greater cultural acceptance and flavoring innovations, while wine sales are being lifted by publicity about the product's health benefits and popularity among the growing number of aging consumers, as well as new packaging and hip marketing that appeals to younger consumers.
As a category, wine ranks in the top 10 food categories in total sales in grocery, according to statistics compiled by Constellation Wines, the largest premium wine supplier in the United States. "Wine growth has been in the double digits in the food industry," says Abbott Wolfe, senior v.p. of channel management for northern California-based Constellation.
Wolfe adds, however, that wine sales have also experienced strong gains in drug stores and mass retailers, along with alternative channels such as dollar stores. Even specialty stores that would rarely have merchandised wine before, if at all, are giving it a taste. One example is Clifton, N.J.-based housewares chain Linens 'n Things, which is testing wine in its Michigan and Florida home goods stores.
While the overall beer category has been flat, imported beer continues to perform well, according to Green, who also touted continued growth in flavored malt beverages, with products like Smirnoff Twisted V.
In terms of share, grocery stores generate about 35 percent of total beer sales, second to convenience stores, which command a 45 percent share of sales, according to ACNielsen. Last year total beer sales at grocery stores were down 1 percent at grocery stores and down 2 percent at convenience stores. For imported beer, however, grocery stores have the top market share, with 42 percent of imported beer sales, compared with 30 percent for liquor stores and 22 percent for C-stores.
Looking across sales at food, drug, and mass retail outlets (excluding Wal-Mart), ACNielsen data shows that a quarter of all consumer beverage spending is on alcoholic beverages (14 percent for beer, 7 percent for wine, and 5 percent for liquor).
Among 120 categories ranked nationally by retail sales at food, drug, and mass retail outlets, beer, wine, and spirits ranked within the top third, despite legal restrictions on where they can be sold. In areas with fewer legal restrictions, they rank even higher. In California, for instance, beer ranks fourth in total category sales, wine ranks ninth, and liquor is 12th.
Additionally, retail spending per occasion for alcoholic beverages is much higher than for other heavily purchased categories in the store. For example, consumers on average spend $21.34 on spirits per occasion, which they typically purchase every 30 days. For wine they spend $13.44 on average and restock within 27 days, while the average spend per occasion on beer is $11.94. "From a grocer's perspective, when wine is added to a shopping basket, the total ring is higher than it would have been without the wine," says Wolfe.
As a general rule, wine purchasers also often buy better cuts of meat and other food items for entertaining or their own use, he adds.
A close look at ACNielsen Homescan data reveals which demographics are most highly developed for various types of alcoholic beverages. In general, affluent, older households appear to consume wine and spirits, while less affluent households skew higher for beer.
For spirits the most developed consumers are households with no female head, affluent empty nesters, households with annual income over $70,000, and middle-aged childless couples.
For wine the top consumer categories are households with annual income over $70,000, affluent empty nesters, household heads with professional or manager jobs, empty nesters, and two-income households.
The most developed households for beer are those with no female head, middle-aged childless couples, households headed by a blue-collar worker, and middle-aged singles.
By ethnic group, Hispanics index higher for malt beverages, sangria, tequila, and dessert wines than the general population does. African-Americans skew highest for malt liquor, brandy/cognac, flavored wine, rum, gin, and sparkling wine.
"In the long-term we look at demographic shifts such as the growing number of 21-plus age consumers, as well as the rich diversity of cultures that make up the North American market, especially the growing importance and influence of Hispanics in our society," says Green of Diageo.
Napa Valley grape growers are expecting their biggest harvest in four years. Farmers in Napa Valley, the site of wineries including Robert Mondavi Winery and Beringer Vineyards, say their Cabernet and Chardonnay crops are larger than last year, but prices are likely to exceed last year's because of improved quality. Growers sold $1.58 billion in fruit in 2004. Farmers expect to harvest 2.95 million tons of grapes this year, 6.5 percent more than last year. Statewide, grape prices rose 7.7 percent last year compared with 2003, according to reports.
Notes Danny Brager, who heads up ACNielsen's beverage alcohol team, extreme-value wines "appear to be running out of juice" as the premium segment surges. Brager notes that alternative packaging has injected some innovation and excitement into the wine category, with the introduction of three-liter premium boxes and screw-top caps.
Australian wines had a big year last year and continue to grow, albeit at a slower pace, he adds.
Wolfe of Constellation Wines says that the popularity of Australian wines coincides with the whole "demystifying" of wine purchasing for the American consumer. The success of Yellow Tail, an Australian wine whose label contains a wallaby, illustrates how clever marketing can attract new, younger customers. Expect other companies to put animals and other eye-catching images on wine labels.
Of the more than 700 new table wines introduced since 2003, nearly 12 percent have some kind of "critter" on the label, according to ACNielsen. Within the top 100 table wine brands, 14 have labels portraying an animal in either a realistic, abstract, or cartoon-like manner.
Nielsen reports that other imports are also hot. Wines from Germany, Spain, South Africa, and New Zealand are up from 5 percent to 88 percent over a year ago -- although on a much smaller base than Australian wines. Multiple varietals are popular, as well, from Shiraz to Sauvignon Blanc, and pinot is "on fire," observes Brager.
According to consumer research conducted by Constellation, the three biggest factors driving wine sales are the large number of aging baby boomers who perceive health benefits in increasing their wine consumption, the growing number of wine enthusiasts, and a group of younger consumers that Wolfe calls "image-seekers," who see wine as a status symbol. The study also identified a group of consumers it labeled "overwhelmed" by the choices and their lack of knowledge. These "head-scratching" consumers, notes Wolfe, represent a huge opportunity for retailers that provide educational materials such as brochures, signage, and TV monitors in their stores.
It's not just grocery retailers who are benefiting from this increased popularity of wine. Oakland, Calif.-based Cost Plus World Market, a specialty retailer that sells an eclectic mix of internationally produced furnishings, food, and wine, sells a broad selection of domestic and imported wines, as well as its own private label, Atacam, made by Montes Winery in Chile.
Linens 'n Things, the specialty home goods retailer, views wine as an attractive item to sell because, with appropriate imagery, it appeals to an upscale consumer. Wine also increases the average ring and profits.
And Goodlettsville, Tenn.-based Dollar General, which is greatly expanding its grocery assortment as it rolls out its food-oriented DG Market concept, is quite interested in the wine business, according to Wolfe. DG Market is selling wines in the $5- to $8-per-bottle range.
In the mass retail arena, Minneapolis-based Target Stores, with customer demographics already more upscale than the typical mass merchant, is actively adding more wine licenses wherever possible.
Although Constellation bills itself as a premium wine supplier, it has varieties for all price points. Wolfe notes some of the best-performing labels this year are Woodbridge by Robert Mondavi, Robert Mondavi Private Selection, Alice White, Blackstone, and Arbor Mist, a value wine.
Green adds that Beaulieu Vineyard and Sterling Vineyards reported growth of 35 percent and 22 percent, respectively, making Diageo Chateau & Estates one of the best performing U.S. wine companies. Diageo continues to innovate through such recent introductions as BV Century Cellars, a midpriced quality wine.
"Consumers are upscaling across all three alcoholic beverage categories," says ACNielsen's Brager. While the beer category is declining, imports and craft beers are pockets of growth, he adds. Diageo Guinness-USA finished up almost 6 percent and Red Stripe volume is up 20 percent on the year, according to Green.
Flavored distilled spirits were responsible for 60 percent of the liquor category's growth last year, and are still hot in 2005, according to ACNielsen. Raspberry, vanilla, lemon, and lime flavors were among the most popular. "It seems like vodka now comes in every flavor imaginable, but it's worth mentioning that flavors in spirits are not even near the levels we see in soft drinks, yogurts, and other categories," says Green.
While Wal-Mart's market share continues to grow strongly across most food departments because of its supercenter division, it still trails its competitors in alcoholic beverage sales. According to a recent analysis on Smart Supplier, an online VNU Web service that covers Wal-Mart (www.vnusmartsupplier.com), the world's largest retailer has its lowest market share in alcoholic beverages, just 6.2 percent, up 0.9 points from a year ago. Thus, it's not surprising that the company recently announced it was accelerating its efforts to open more liquor departments in its stores, wherever it legally can do so.
In fact, The Wall Street Journal recently reported that Wal-Mart is in a partnership with Diageo to develop new products and merchandising to increase the retailer's liquor sales. The first product in the collaboration is a cream-based, caramel-flavored liqueur called Dulseda, created by Diageo at Wal-Mart's request. Targeting Hispanic consumers especially, Dulseda is scheduled to debut nationally now that the product has been successfully tested in Arizona. Reportedly Wal-Mart will triple liquor shelf space in some stores to present the liqueur.