Bay State Beverage Guide – Decade in Review!

Beverage 2.0

The Bay State Beverage Guide reviews the events and trends of the past decade siting the period as an extraordinary period transforming the industry into one of the worlds greatest!

Agree of not here is the article for you to review.

DECADE IN REVIEW 2000-2009

A TRANSFORMATION OF THE INDUSTRY Recapping ten extraordinary years

In 2000, when Edgar Bronfman Jr. decided to sell Seagram in order to fund his media conglomerate, Vivendi Universal, in partnership with French business tycoon Jean-Marie Messier, he set into motion a series of events that would literally transform the beverage alcohol business. In retrospect, the Seagram sale was the catalyst for every major industry change that occurred in the subsequent decade. After battling it out with Diageo and Allied Domecq among others in the brand sell-off, Pernod Ricard went overnight from a small French player to a global drinks behemoth twice its former size. For Pernod Ricard, this was just the beginning: The company doubled again four years later with the acquisition of Allied Domecq and ballooned once more last year with the Absolut purchase. Diageo didn’t fare so badly in the bidding war either, acquiring enough brands to maintain its position as the world’s largest drinks supplier.

Consolidation didn’t stop at the supplier tier, as the decade also saw the creation of multi-state, national wholesalers who set about perfecting the science of route-to-market, and now represent the lion’s share of distribution across the country. Then there are the grocery, big-box and chain retailers who got into the booze business. And in the midst of this vastly changed landscape, is the evolving American consumer who has embraced wine as a daily beverage—which has the U.S. poised to become the leading consumer of wine worldwide this year—and developed a taste for higher-quality spirits, a behavior which has led to the dramatic premiumization of the spirits business, as well as the cocktail revolution.

We find it hard to imagine a more dynamic, eventful decade in our industry—but ask us again in 2019.

EVENTS OF THE DECADE

2001

DIAGEO, PERNOD RICARD ACQUIRE SEAGRAM’S LIQUOR AND WINE EMPIRE

After the announcement of Vivendi’s $41 billion deal to acquire the Seagram Company in June 2000, the big question remained: What would happen to Seagram’s thriving drinks business? The answer didn’t take long to find out. By the end of 2000, Diageo (recognized then in the U.S. as Guinness UDV) would pay approximately $5 billion for its share of the Seagram assets and Pernod Ricard (recognized then as Austin, Nichols & Company) would pay $3.15 billion. The Diageo-Pernod Ricard bid beat out a consortium of Bacardi, Brown-Forman and Vin & Sprit (owners of Absolut), after Allied Domecq had already dropped out of the running. For Diageo’s purchase, they acquired Crown Royal and VO Canadian whiskies, Captain Morgan Original Spiced Rum and Captain Morgan’s Parrot Bay Rum and 7 Crown American whiskey. They also acquired a number of wine businesses, including Sterling Vineyards. Brands acquired by Pernod included Chivas Regal, The Glenlivet, Martell Cognac and Seagram’s gin.

For UK-based Diageo, the Seagram brand acquisitions reinforced its dominant position in many of the drinks categories, and deprived its rival Allied Domecq of a chance to collect some extremely coveted brands. The timing was also especially poignant for Pernod Ricard, as the transaction immediately transformed the company at the turn of the century into one of the industry’s major suppliers. In 2002, they changed their name in the U.S. to Pernod Ricard USA, garnering the same cachet and brand identity as its French parent company.

2003

Constellation brands Grows its universe

In 2003, Constellation Brands acquired Australia’s BRL Hardy and New Zealand’s Nobilo, setting the stage for other major takeovers later in the decade including: Canada’s Vincor International, Spirits Marque One—owner of Svedka Vodka—and Beam Wines Estates, the wine operation of Fortune Brands. The most newsworthy of the bunch, however, was the $1 billion purchase of the entire Mondavi Corporation, from luxury brands like Opus One to high-volume Woodbridge. With those prime Napa vineyards under its domain, Constellation sealed its fate by becoming the world’s leading wine company. In 2008, Robert Mondavi, perhaps the country’s foremost wine icon and the leader of the California wine movement, passed away. Constellation continues to run the portfolio.

2004

Bacardi Fills the Vodka Gap with Grey Goose

When Sidney Frank began importing Jägermeister in the 1980s and transformed the German liqueur popular with a blue-collar crowd into a college marvel, it became pretty clear the guy was a marketing genius. Similarly, in 1997, when he unveiled super-premium Grey Goose, the vodka distilled and bottled in Cognac, France, another liquor phenomenon was born. Frank gave sophisticated twenty and thirtysomethings a reason to drop $30 on a bottle of vodka. The sexy smoked glass bottle became an icon, popularizing bottle service at nightclubs, making appearances on Sex and the City, giving flavored vodkas allure and spearheading a widespread trend of trading up that would come to dominate the 2000s. When Bacardi bought Grey Goose for a whopping $2 billion cash, the supplier, known for its hold on the rum market, secured one of the world’s most popular brands.

2005

Allied Domecq Divests Portfolio to Pernod and Beam

Over the years, Allied Domecq had strategically curated a wine and spirits portfolio of powerhouse brands. So it was no surprise in early 2005 that a number of industry players came forward to express interest in acquiring their company. Ultimately though, it was Pernod Ricard’s $14 billion bid—in combination with Fortune Brands (parent company of Jim Beam Brands)—that prevailed. For Pernod Ricard, the deal elevated them to the number two wine and spirits company in the world, adding brands like Perrier Jouët, Beefeater, Kahlúa, Malibu and Ballantine’s whisky to their portfolio. Pernod also picked up the U.S. distribution rights for Stolichnaya vodka. For its part, Jim Beam Brands (now Beam Global Spirits & Wine) more than doubled its spirits and wine revenues, making them one of the top four spirits companies in the world. Among the brands they added were: Canadian Club, Courvoisier, Sauza and Maker’s Mark.

2005

Direct Wine Shipping Becomes Controversial

The complexity of individual state liquor laws reached a head in New York and Michigan, states that banned direct shipment of out-of-state wine to in-state consumers. In the landmark case Granholm v. Heald, the U.S Supreme Court struck down the laws in both states that prevented out-of-state wineries to sell and ship directly to consumers, declaring it was unconstitutional under the 21st Amendment for these regulatory schemes to remain in effect. Given the vast, growing amount of small, independent wineries across the country who rely on advertising and the Internet to build their businesses—and the overall trend of Internet wine purchases in general, which also developed this decade—direct-to-consumer shipping is growing. Today, 37 states have opened up their borders.

Despite the loosening of these rules, 2009 was key for another reason: After rumors that Amazon was planning to sell wine, it fizzled, revealing that the three-tier system remains the backbone of our industry.

2008

Foreign Investors acquire Anheuser-Busch

It doesn’t get more American than Anheuser-Busch, the St. Louis-based company known for legendary brews like Budweiser and Michelob. So, the industry was shocked when Anheuser-Busch Companies announced the creation of a new company, Anheuser-Busch InBev. InBev, the Brazilian-Belgian brewing company behind popular beers such as Stella Artois and Hoegaarden, purchased the American brewer for nearly $52 billion in equity, creating the world’s largest beer company.

2008

The Quest for Absolut

The heat was on when Sweden’s Vin & Sprits Group put its top-selling premium spirits brand, Absolut Vodka, on the auction block. For a while, the general consensus was that Fortune Brands, parent company of Beam Global Spirits & Wine, would emerge the victor, but in the end, it was Pernod Ricard who triumphed, shelling out a whopping $8.9 billion for the United States’ leading imported vodka. What did this mean for the industry? Well for one thing, it meant the eventual end of Future Brands LLC, the joint venture between Beam Global and The Absolut Spirits Company, which was established in 2001 (following the sale of Seagram) for the distribution of these two companies’ respective brands. So strangely enough, this decade saw the beginning and end of Future Brands, a formidable competitor to the other industry giants while it remained in existence.

Pernod’s purchase of Absolut also meant the eventual end of its U.S. distribution agreement with SPI Group, owners of Stolichnaya. (The rights to Stolichnaya were picked up at the end of 2008 by William Grant & Sons). Also, as part of the early termination agreement of Future Brands, Pernod Ricard paid Fortune Brands $230 million in compensation, and sent over Cruzan rum to Beam Global. But the results for Pernod Ricard were indisputable: with the acquisition of Absolut in 2008, the purchase of Allied Domecq in 2005 and the purchase of Seagram in 2001, they were an industry powerhouse, built over the course of this decade.

Key Developments

Distributor Consolidation

Since each state abides by its own wine and spirits rules, the distribution side of the liquor business was always quite fragmented—until consolidation—a hallmark of the decade—helped to unify operations. Southern Wine & Spirits of America, the nation’s largest distributor, primarily in eight states at start of the decade, is now operating in 29 states, and continues to grow. According to Impact, Southern’s top line grew from $3.4 billion in 2000 to an estimated $8.5 billion in 2009 (excluding Control State operations). Highlights included their purchases of Pacific Wine & Spirits and Romano Bros. Beverage Company in 2002, giving them entrance into the Illinois marketplace; Premier Wine & Spirits in 2004, which launched them in New York; and then in 2008, they formed a joint venture with The Odom Corporation to distribute product in the Northwestern U.S. Other major wholesaler transactions included the 2007 merger of Republic Beverage Company and National Distributing Company to form Republic National Distributing Company, LLC, now the country’s 2nd largest distributor; and in 2008, Glazer’s sold its Illinois business to Wirtz Beverage Group, subsequent to the announcement of a Southern-Glazer’s merger, which ultimately never panned out. What these consolidations have meant is that nearly half of the total wholesale business is being done by the top five wholesalers: Southern Wine & Spirits, RNDC, The Charmer Sunbelt Group, Glazer’s and Young’s Market Co. Comparatively in 2000, according to Impact, the top five wholesalers represented a little more than one-third of the business.

Liquor Commercials on Television

Advertising of alcohol in the U.S. has always been unique, controlled by self-regulatory bodies that have created standards for ethical advertising. From 1948 to 1996, based on a voluntary ban implemented by DISCUS, no TV station or network even accepted liquor ads. That changed in 1996 when DISCUS dropped its ban and Crown Royal Canadian whisky debuted a TV ad in Texas, paving the way for more. In 2001, NBC attempted to slowly feature ads for Smirnoff, but so many viewers complained, the practice was stopped the next year.

This, of course, all changed dramatically by the late 2000’s: the industry determined that liquor ads could be shown after 10pm, and placed in media where 70% of the audience is over the legal drinking age. Flip on a cable station today and it’s hard to miss one of the clever TV commercials for liquor brands—all with the “Drink Responsibly” slogan woven in. A few highlights include the first-ever for Jameson. The Irish whiskey has experienced double-digit growth over the past decade, and its new commercial revolves around a lost barrel of whiskey during a bitter storm in 1781 Ireland. Another standout is Johnnie Walker’s “Keep Walking” commercial, a black and white journey through historic milestones. And at the Grammy Awards last year, Absolut made inroads in the broadcast tier when CBS showed its TV spot.

Emphasis on social responsibility

Social responsibility has always been the industry’s priority, but this decade it was taken to new heights with innovative programming. Among the highlights: The Charmer Sunbelt Group was one of the first distributors to dedicate a formal role to spreading the industry’s message of fighting underage drinking and driving. Other impressive examples included: Pernod Ricard’s “Accept Responsibility” campaign; WSWA’s TIPS; Diageo’s DRINKiQ.com, a social responsibility website; Brown-Forman’s City Scoot program, offering rides home with designated drivers; ABL’s “Effective Traffic Safety Solutions to Stop Drunk Driving” toolbox; and Beam Global Spirits & Wine’s support for the National Association of Drug Court Professionals. Of course, The Century Council, which debuted in 1991, continued to invest millions of dollars toward responsible drinking campaigns.

Trends

Vodka is Still King

Mixologists may sneer when customers saddle up to the bar and ask for a vodka-based libation, but the truth is, the white spirit, often ridiculed by the cocktail elite for lacking aromatics and taste, remains the most consumed in America, with 28 % of total spirits sales by volume in 2008 according to the DISCUS. Vodka, quick and easy to produce since it doesn’t require aging, is undoubtedly the most cluttered spirits category. Yet demand is so high among consumers, suppliers remain optimistic about forging their niche. During this decade, consumers didn’t simply ask for a generic vodka to mix with their tonic, but sought out popular brands like Grey Goose, Belvedere, Stolichnaya, Smirnoff, Absolut and Ketel One, all of which have created powerful brand identities. The decade also saw the explosive growth of Svedka vodka, purchased by Constellation Brands in 2007, and now a 2 million case brand.

A Flavor Revolution In particular, the popularity of flavored vodka soared. They represented just a 6.9% share of the vodka category in 2000, but that number rose to 12.4% by 2005. Whether by adding flavors to or infusing vodka, producers have benefited by consumer cravings (especially those of ladies looking for a fun, light alternative to the standard vodka martini) for the spirit in the likes of lemon, orange, raspberry and blueberry versions.

Wines for Everyday Drinking

When wine becomes a grocery staple rather than a special occasion pour, consumers require ultra-affordable options. Inexpensive, accessible brands like Australia’s [yellow tail] and California’s Charles Shaw (aka: Two Buck Chuck) have immensely helped increase our national consumption by making wine an everyday beverage. In 2000, the year W.J. Deutsch & Sons brought [yellow tail] to the U.S., the average per capita consumption was 2.01 gallons; by 2008 it was 2.48 gallons which amounts to a national increase of 151 million more gallons per year. As the number one imported wine in America selling more in the U.S. than all French producers combined, [yellow tail] is the fastest growing brand in the history of the industry, and represents a big chunk of all those extra gallons we are drinking. Self-described as “easy-going and non-threatening” [yellow tail] debuted at far less than $10 a bottle and inspired an explosion of copycat critter labels (another decade trend worth mention).

Taking advantage of the California wine glut in 2000, Bronco Wine Estates’ Fred Franzia—who fervently believes that all wine should cost less than $10—created the Charles Shaw brand for sale at Trader Joe’s for $1.99 a bottle—a price many in the industry thought impossible and certainly unsustainable. Considering he just celebrated the sale of Two Buck Chuck’s 400 millionth bottle, it appears he has the last laugh.

Trading Up… And Up

While the last year has been dominated by talk of value-hunting and trading down, the overriding trend of the decade has been the trade up. “Drinking less and drinking better” was the consumer behavior credo which suppliers, distributors and retailers lived by, as value soared up much faster than volume in the spirits category. Countless categories rode the wave: Liqueurs had their renaissance, led by high-end brands like Navan and St-Germain, and even light rum took a big step up—with brands like 10 Cane and Tommy Bahama. Rums were now meant for sipping rather than daiquiri-chugging. Patrón almost single-handedly upgraded the Tequila category and bourbon shed its moonshine image with super-premium offerings like Knob Creek becoming back-bar staples. While not recession-proof, the trading up trend remained stronger in the spirits category than the vast majority of other consumer goods categories, which bodes well for the future.

Tequila Goes Premium

Perhaps the most dramatic category makeover of the decade was Tequila. Once the stuff of frat house shots and spring break hangovers, Tequila is now understood as a sipping spirit, and the transformation is due primarily to the powerhouse brand, Patrón. Patrón has grown at 35% per year for the past 10 years and was the first brand above $40 to hit the million case mark (none other even comes close). Patrón continues to grow at nearly 10% even during the recession. Tequila won’t go back to its commodity status and trading up will continue, believes John McDonnell, chief operating officer at Patrón Spirits International. “Even in challenging economic times, consumers still seek spirits that are better, different and special. It may not be so easy to trade up your car or your home, but for an extra dollar or two, trading up your cocktail is much more achievable.” Hot on Tequila’s tail is mezcal, the other Mexican spirit just beginning to undergo a super-premium, artisanal renaissance.

Spirits Go Green

For years, organic and biodynamic wines have held their own on retail shelves. Now that U.S. consumers have an insatiable thirst for all things green, environmentally-friendly wines are even more in the spotlight, from the lightweight, post-consumer recycled glass bottles used by Fetzer, to the Tetra-Paks rolled out by Trinchero’s Three Thieves. Capitalizing upon this trend, many spirits producers have now followed suit. Perhaps the most prominent launch was 360 Vodka, with its 85% recycled glass bottles, water-based inks and recyclable shipping boxes. Parent company McCormick Distilling also purchases green supplies and buys renewable energy certificates.

Retailers vs. Big Box Stores

It used to be simple: You wanted a bottle of wine, you walked into a fine wine shop where you were guaranteed product diversity and personalized customer service. It’s not that straightforward anymore. This decade saw the boom of big box retailers in the 35 states or so that permit distribution through warehouse club stores like Costco and Sam’s Club and mass chain outlets such as Target and Wal-Mart, adding wine to their shelves and treating it as nonchalantly as bottles of shampoo. Because of distinct state regulations, liquor licenses aren’t a breeze to obtain in all cases. However, the overall prevalence of value brands pushed by these types of venues, and the creation of convenient one-stop shopping centers for customers, definitely raised some challenges among independent retailers.

Handcrafted Cocktails and the Rise of the Mixologist

It’s hard to believe there was a time when a customer would order a basic drink and a nonchalant bartender would quickly mix it and slide it their way. Today, we don’t even have bartenders anymore—we have “mixologists”, who are busy resurrecting cocktails from yesteryear, shaking up their menus every few months with what’s in season, making the likes of cranberry juice and ginger beer from scratch and even experimenting with ingredients like bacon. Even wholesalers have tapped into the trend: Southern Wine & Spirits of America’s Francesco Lafranconi, for instance, is national director of mixology. He helped launch Southern’s Academy of Spirits and Fine Service, a 12-week educational program for bartenders designed to stay atuned to mixology’s latest trends.

Brand Ambassadors Offer Guidance

Twenty years ago, unless you had the good fortune of picking up a bottle at a retailer big on knowledgeable customer service, you were in the dark about the product’s origins, flavor profile and mixability. Enter the brand ambassador, whose sole job was to enlighten the masses. For the first time, suppliers hired individuals passionate about their brand to educate the trade and consumers about the unique aspects of the liquid inside the bottle. Whether they’re leading Q&A sessions or shaking up cocktails, these brand ambassadors—energetic, articulate folks like William Grant & Sons’ Charlotte Voisey and Pernod Ricard’s Simon Ford—have become the faces behind brands like Hendrick’s and Plymouth gins, essentially becoming human marketing tools.

New World Overtakes Old

Most wine drinkers still consider Europe the epicenter of quality and prestige—after all, the French produce more fine wine than any other nation. But the weakened U.S. dollar combined with an American preference for full-bodied, fruit-forward wines, familiar brands and easy-to-read labels has resulted in a massive shift from Old World to New when it comes to where we source our wine. New World wine producing giants took the industry by storm over the last decade, and while Italy remains the number one imported wine supplier to the U.S., France was kicked out of the number two spot by Australia (currently the sixth largest producer in the world), and Chile and Argentina are not far behind. These countries produce massive quantities of wines that are full-bodied, lush, consistent and well-priced. Of course, Australian vintners are struggling at the decade’s close, burdened by massive over planting and exchange rate swings, but South America surges ahead rapidly eating up market share. In a nutshell: Malbec may just be the new Shiraz.

Bourbon’s Comeback and Innovations

Years ago, throngs of men sipped their Manhattans and Old Fashioneds at the bar, and then bourbon fell out of vogue, equated with these men who were considered stuffy and unhip to current drinking trends. This decade, however, Americans have been enjoying a renaissance with brown spirits, and bourbon is firmly entrenched in today’s drinking culture, now that more and more younger drinkers are seeking out the likes of Manhattans thanks to a newfound love of classic cocktails—and new creations calling for America’s true spirit. Beam Global Spirits & Wine is at the forefront of this bourbon revolution, with products like Maker’s Mark and Knob Creek (which even experienced a brief shortage in 2009 because demand was so high). Bourbons made with rye in particular have also enjoyed widespread popularity over the last few years.

The Dawn of Social Media

What’s the fastest way to build a brand? Witty advertising campaigns? Word of mouth? This decade it turns out social media had the power to catapult a brand from relative obscurity to finding a place on every good bartender’s back bar. Especially attractive to that choice Generation Y demographic, interactive websites, Facebook fan pages and regular Tweets on wine and spirits tastings are now de rigueur for any liquor brand serious about attracting new customers.

Liquor Gets Style

Yes, Cîroc stood apart from other vodkas on the shelf when it debuted in 2003 because it was distilled from French grapes, but it also made an impact for another reason: its association with a stylish urban clientele, reinforced by Sean “Diddy” Combs as its spokesperson. Ultimately, a good product comes down to taste, but in order to generate buzz, brands like Cîroc realized this decade that it could differentiate itself from others by its association with luxury. When people drank Cîroc, they weren’t just sipping vodka, but they were drinking in a lifestyle redolent of posh hip-hop nightclubs in Miami and Atlanta. Alizé and Hpnotiq also took this approach, as well as Cognac. The French after-dinner tipple took on a new identity once hip-hop celebs started ordering Hennessy and Courvoisier when they were out on the town— and Hennessy appeared on the pages of Vibe magazine and Courvoisier partnered with Russell Simmons. Liquor as a style icon wasn’t just limited to the urban demographic: the Cosmopolitan is one of the decade’s most popular cocktails thanks to Carrie Bradshaw and her brood slurping them up on Sex and the City. Also: Moët sold four-packs of Champagne like a fashion accessory; Bombay Sapphire created a unisex scent.

Return of Absinthe

Some thought absinthe was just a novelty when it was reintroduced to the U.S. in 2007 after being banned for its supposed hallucinogenic properties. After all, how could a drink traditionally prepared by pouring water over a sugar cube-topped slotted spoon into a shot of absinthe be recognized as anything but a gimmick? Yet the “Green Fairy”, the anise-flavored spirit popular with late 19th century French artists, is gradually finding its niche at the bar in cocktails and served via its elaborate, traditional fountain ritual. Lucid was the first absinthe to shatter the U.S. ban since 1912 with its authentic French recipe. Other popular brands include Pernod and California-made St. George’s.

Legalize Cachaça

For years, cachaça was lumped in with rum. But now this liquor made from fermented sugarcane is in a league of its own. To show how far the Brazilian spirit has come in the past decade, the current “Legalize Cachaça” movement is going strong, hoping to distance its name from “Brazilian Rum” and recognize that cachaça is made from only fresh-pressed cane juice, not molasses. Brands like Cabana, Leblon and Agua Luca have been educating American consumers and the trade by tapping into Brazil’s rich (and sexy) culture in media campaigns, and by promoting the caipirinha, Brazil’s national cocktail, as well as the versatility of other cachaça-made libations.

Smoking Bans and Sunday Sales

With widespread health concerns over secondhand smoke, the government got a bit fiercer this decade: almost half the states in the U.S. implemented smoking bans in public places, including bars and restaurants. Worries were high among bar owners. Would bars still attract droves of cigarette-smoking customers if they knew they couldn’t freely light up indoors with a glass of wine in hand?

The no-smoking concept was just as poignant as the decision to allow spirits sales on Sundays. Outdated Blue Laws typically prevented retailers from selling spirits on Sunday, but now 36 have modernized their law, with 14 states coming on board since 2002. According to DISCUS, Sunday sales not only translate to convenience for customers, but also significantly increase state revenues. Many associations have argued the other way, saying Sunday sales have only cannibalized sales during the week.

The Rise of the Craft Distiller

The U.S. is currently home to 150 micro-distilleries—boutique, artisanal producers who make small amounts of hand-crafted spirits. The last time we had so many was during the bootlegging days of Prohibition. A decade ago there were only a few, and according to Bill Owens at the American Distilling Institute, the reason for the boom is partly an extension of the artisanal food movement which places value on handmade products produced in small batches. Also fueling their growth are changing state laws, which aim to keep farms viable and raise tax revenue.

Craft Beers The big guys never worried.

For years, beer drinkers slugged back bottles of Budweiser, Heineken and Coors, and that was that. But then, something happened. The trend of drinking craft beers, started in 1985 by Sam Adams from the Boston Beer Company (now America’s largest brewery after the In Bev-Anheuser Busch restructuring) took hold, adding a healthy dose of competition to the mass beer market. Microbreweries abound throughout the country today, attesting to consumer demand for craft brews.

Written by Alia Akkam & Kristen wolfe bieler