By Saabira Chaudhuri
At a beverage-industry conference in Phoenix in May, presenters
were advised to avoid a buzzy but divisive term.
"An edict went out to speakers saying, 'Don't mention the C
word,' " said Nomura analyst Ian Shackleton, who spoke at the
gathering.
And that C word?: "craft."
Craft-spirits distilleries have mushroomed in the U.S. to 588
from 51 over the past decade, according to data from the American
Distilling Institute. The trade group predicts craft-spirits
makers' share of the U.S. spirits market could rise to as much as
8% by 2020 from the current 1%, posing a threat to liquor
conglomerates such as Diageo PLC and Pernod Ricard SA.
"There's a renaissance in America now with a craft movement
happening in coffee, bread, beer and now spirits," said Bill Owens,
president of the institute. Behind small brands--many of which
blend and bottle their products by hand--is "a story that the big
boys can't tell," he said.
The big boys beg to differ. And they haven't let definitions
stop them from climbing on the bandwagon with what they describe as
craft bourbons, whiskeys and vodkas.
According to the American Distilling Institute's circuitous
interpretation of the term, a craft distillery must be no more than
25% owned by an alcoholic beverage company that isn't a craft
distiller. It also says the production process needs to be
"hands-on" and that maximum annual sales must be less than 100,000
proof gallons, an alcohol-industry volume measure.
Large spirits makers say craft isn't about the size of a brand
but rather about delivering quality. "Craft is just a label," said
Ivan Menezes, chief executive officer of Diageo, the world's
largest spirits maker, in an interview. "The real question is, how
do you engage with consumers around authenticity, craftsmanship and
stories that resonate?"
It is clear that "craft" comes with a certain cachet, said Tom
Mooney, president of the American Craft Spirits Association, a
nonprofit. "The brand equity of the word craft is spectacular," he
said. "It implies more care, greater quality, that you're
supporting something from within your community."
Kings County Distillery in Brooklyn, N.Y., sells bourbon made
with New York state corn and a whiskey flavored with cacao-bean
husks from a nearby chocolate factory. The company, which sold
about 1,000 cases last year, is small enough to let drinkers enjoy
tours and cocktail-evening chats with its young co-founders.
"The advantage of being a craft distillery is you can
communicate with your customers directly," said one owner,
36-year-old Colin Spoelman.
Not to be outdone by such upstarts, Diageo--whose mass-market
brands include Smirnoff, Crown Royal and Captain Morgan--last year
began selling Barterhouse Whiskey, which it describes as having
notes of roasted grain and charred oak with a brown-sugar finish,
for about $75. And its $150 a bottle Old Blowhard Whiskey, which
Diageo markets as having undertones of smoke and honey, is
"hand-bottled" in Tullahoma, Tenn. This year Diageo also launched a
bourbon called Blade & Bow, marketed as a tribute to the
craftsmanship of a former Louisville distillery.
Diageo wouldn't disclose exactly how much Barterhouse and Old
Blowhard it produces, but said it is way less than 100,000 proof
gallons annually.
In November 2013, Diageo's North America head, Larry Schwartz
said the company wanted to become the No. 1 craft distiller in
North American whiskeys in the U.S. That same year, Diageo launched
a project called Distill Ventures, through which it mentors and
invests in small spirits brands.
Diageo is particularly vulnerable to the rise of smaller
distillers, said Eamonn Ferry, beverage analyst at Exane BNP
Paribas. Diageo's U.S. market share has declined every year between
2011 and 2014 as its mass-market brands have struggled, and Mr.
Ferry estimates that 72% of the company's U.S. business--everything
except its tequila and Scotch whisky brands--is exposed to craft
distillers.
The beer industry knows craft newcomers can be formidable
rivals. Craft's share of the U.S. beer market rose to 9% last year
from 3% in 2003, while share for mainstream beers like Budweiser
and Miller Lite collectively fell to 77% from 86% over the same
period, according to industry tracker Beer Marketer's Insights.
The big distillers vow not to be caught similarly
flat-footed.
Sales of Diageo's craft-style Bulleit bourbon--inherited in 2001
when it bought Seagram Co.'s wine-and-spirits portfolio--rose 35%,
stripping out currency fluctuations, in the year ended June 30,
making it the company's fastest-growing unflavored North American
whiskey. Mr. Menezes has said Diageo aimed to build Bulleit through
word-of-mouth, creating "a lot of experiential stuff" and working
with bartenders rather than doing large-scale TV advertising.
"I want to make sure Bulleit stays with the hipsters in
Williamsburg and does not become a mass brand," Mr. Menezes said on
a January conference call.
Pernod, maker of Absolut vodka, is scrambling to get with the
trend. The world's second-largest liquor maker on Thursday said it
had written down its Absolut vodka brand on weakness in the U.S.
The company, which lost 1.4 percentage points of market share in
the U.S. between 2008 and 2014, according to Exane, has launched a
premium Canadian whisky called Pike Creek and has also joined with
entrepreneurs in Detroit and Seattle to open small distilleries to
make city-branded vodka. The vodka is made with a uniform recipe
but as many local ingredients as possible.
Another approach involves line extensions. Brown-Forman Corp.
has launched variants of Woodford Reserve bourbon, which costs
about $80, and Jack Daniel's Single Barrel, which costs about $50,
to compete. Beam Suntory Inc. in 2013 launched "signature craft"
editions of its Jim Beam bourbon brand.
Some analysts said the distillery trade group's growth estimate
for craft is overly optimistic. For one thing, the spirits industry
has a bigger range of flavors and offerings than the lager-heavy
beer industry did when craft brewers got ahead. For another, small
distillers have flourished through a prolonged period of low
interest rates, and when financing costs rise, their growth could
slow.
:The small distillers in turn say large distillers currently
have an important edge: Whiskey requires an aging process. That
keeps a natural lid on growth rates for craft distilleries, the
average age of which is just three years in the U.S., according to
Exane. But as these small distilleries age and new distilleries
open, the firm predicts increased competition.
Kings County's Mr. Spoelman thinks the real battle between the
newer distilleries and the big guys in whiskey is yet to take
shape. "The advantage that the Diageos and Brown-Formans have right
now is inventories of well-aged whiskeys," he said. "It'll be
interesting to see in five or 10 years where things stand."
Tripp Mickle contributed to this article.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
August 28, 2015 05:44 ET (09:44 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
Grafico Azioni Diageo (LSE:DGE)
Storico
Da Giu 2024 a Lug 2024
Grafico Azioni Diageo (LSE:DGE)
Storico
Da Lug 2023 a Lug 2024