Distillers Industry Trends

Growth in Super-Premium Category

Consumers are increasingly "trading up," choosing high-end, expensive liquors over value and premium brands. The super-premium category has enjoyed double-digit gains over the past five years, largely due to increased interest in expensive vodkas, single malt whiskeys, and small batch bourbons. While a significant portion of this growth benefits global distilleries and the import market, a number of US distillers have benefited from growth in their super-premium and high-end products.

Mixed Drinks Increasingly Popular

Increased interest in fruity mixed drinks has helped boost industry profits. Restaurants and bars have found success with colorful, sweet, mixed cocktails such as apple martinis and cosmopolitans. Since these drinks are more popular among women, distilleries depend less on traditional male spirits such as bourbon, rye, and whiskey.

Flavored Malt Beverages Falter

Flavored malt beverages (FMBs), also known as "alcopops," exploded on the scene in the late 1990s. FMBs are unhopped beers with added sugar, coloring, and flavoring marketed and branded as spirits drinks. These ready-to-drink beverages have allowed distilleries to access new markets and new consumers; however, the category is falling almost as quickly as it ascended. Sales of domestic brands, like Jack Daniel's Country Cocktail and Jim Beam and Cola, have faltered in recent years. States are enacting laws to tax and categorize FMBs as distilled spirits, which could increase prices, limit customer access, and lead to further declines.

Grain Prices Rise

The cost of corn, barley, wheat, and rye has risen considerably over the past two years. Corn prices have nearly doubled, in large part because of huge demand from the booming ethanol fuel industry. To meet demand for ethanol, farmers have switched from growing other grains to growing corn, causing barley, wheat, and rye supplies to fall and prices to rise. Grains are a distillery's largest input and biggest expense.

Oversupply of Distillers Grains

Around 5 percent of the liquor industry's total revenue comes from distillers dried grains with solubles (DDGS), a byproduct of the alcohol production process. The fuel ethanol industry produces around 20 times the amount of alcohol as whiskey, rum, gin, and vodka manufacturers, creating an oversupply of DDGS. Spirits manufacturers may face lower prices and demand for their DDGS, or worse, no takers for the grains.