THAT'S THE SPIRIT

CAROL ANGRISANI

Not everyone can afford a trip to France, but most can get a taste of the culture's epicurean tradition by buying a martini made with Grey Goose, a French vodka.

Such scenarios are being played out more and more in bars and at home as people seek out so-called attainable luxuries, or affordable status symbols, through the purchase of high-end spirits.

"It's all about image," said Rob Steider, spirits director of B&R Stores, Lincoln, Neb. "Many people don't want to be seen holding a beer. They want something that's more romantic."

Indeed, people are rethinking their beverage of choice for appearance reasons, concurred Keith Johnson, store manager at a ShopRite liquor store in Lincoln Park, N.J.

"If people see you drinking Grey Goose they have a different take on the person you are," he said.

The trend is creating strong growth opportunities for higher-priced brands and the overall spirits category, whose dollar sales grew 6.8% to $2.4 billion in food stores for the 52 weeks ending July 16, according to Information Resources Inc., Chicago. Pricing varies on the type of spirit, but is typically segmented in four groups: value (under $10), premium ($10 to $15-$20), super premium ($15-$25) and ultra premium (over $25).

It's the upper tiers that are shaking things up. Super-premium rum grew 22% in volume to 130,000 cases between 2004 and 2005, according to the Distilled Spirits Council, Washington, a trade association. Super-premium tequila climbed 25% to 640,000 cases; and super-premium vodka was up 12% to 2.9 million cases.

Dollar sales follow the trend. The super-premium tequila segment generated $42.7 million in sales in food and drug stores for the 52 weeks ending Aug. 13, an impressive 12.5% increase, according to IRI. Value tequila, in contrast, had $2.4 million in sales, a 2.8% decline.

Likewise, ultra premium is the fastest-growing overall spirit segment and accounts for the largest increase in distribution in major food retailers, according to IRI. For instance, ultra-premium gin sales stood at $1.9 million for the 52 weeks ending Aug. 13, an 11.9% rise. While value gin sales were much larger at $74.8 million, they represented a 4.2% drop.

In fact, most of the value-price segments, except vodka, are all posting negative dollar sales growth, according to Dan Wandel, vice president of beverage alcohol client solutions, IRI. This follows similar trends taking place in other types of alcoholic beverages.

"You also see consumers trading up in beer and wine," Wandel told SN.

RETAIL BENEFITS

That's certainly true at Giant Eagle, Pittsburgh, where high-end wine is one of the fastest-growing segments in that category, according to Olivier Kielwasser, the retailer's beer, wine and liquor director. The leading brands at the moment are St. Francis, Franciscan, Robert Mondavi and Clos du Bois.

Sales are also up in premium spirits, including Grey Goose and Belvedere vodkas, and Patr=n tequila, according to Kielwasser, noting that "consumers are becoming more willing to experiment with their food and drink options."

Much of the increases can be traced to how these high-end products are marketed. Many consumers are switching to upper-tier brands because they want exclusivity in the types of beverages they drink, said Shawn Kelley, spokeswoman for Distilled Spirits Council.

"People may not be able to get a Porsche, but they can certainly buy a bottle of expensive vodka," Kelley said.

The market is also profiting from greater product availability. More mixed drinks can now be found on menus at chain restaurants. Likewise, new laws make it legal for liquor stores in many states to operate on Sundays.

"Liquor can now be purchased seven days a week in 21 states," Kelley said.

While the category is still under development in some chains, the time is right for retailers to pay more attention to it, Wandel of IRI noted.

"Retailers have to get involved in order to get the margins and appeal to the right consumer mix," he said, adding that retailers should market more expensive spirits not only because they generate higher margins, but also attract new shoppers.

"This helps retailers draw in consumers who may have been going to a liquor chain to get these products," Wandel said.

MAKING ROOM

Increased demand is prompting retailers to revamp their spirits departments. B&R Stores carries about 100 stockkeeping units of high-end liquor, up from just 20 SKUs one year ago, Steider said. Vodka and tequila are particularly strong sellers. B&R added the items to give its high-end shoppers more variety, and has found buyers are important because they produce higher basket rings, he said.

"These shoppers aren't just buying Grey Goose. They're getting martini olives, hummus and other fine foods," Steider said.

B&R even changed its store ads, focusing more on high-end and super premium, and less on mid- and low-end spirits.

The ShopRite liquor store has restructured its ad program, too. It hardly advertises beer at all anymore, instead plugging expensive spirits like Grey Goose vodka, Patr=n tequila and Johnnie Walker Blue Label whiskey. Expensive tequila, brandy, single-malt scotch and vodka are all performing well at the ShopRite unit. In response, the store is carrying about 50 additional high-end SKUs now than it did this time last year. Johnson attributes the increased demand to the fact that people are more knowledgeable about costly spirits, thanks to information disseminated on the Internet and in beverage magazines.

"People read about a 1972 Balvenie [Scotch whisky], and they go out and try to find it," he said.

Spirits are also becoming more popular gift options. ShopRite once sold liquor gift baskets only during the holidays, but now offers them year-round.

"People will come in and buy a basket containing three or four different vodkas," he said.

Increased demand prompted Save-Mart Supermarkets, Modesto, Calif., to bring in new higher-priced liquor. Whereas it kept retails to $30 about one year ago, it now sells $40 and even $50 bottles. About 20 additional high-end SKUs now adorn its shelves. The effort is producing favorable results, as sales of upscale spirits are up 15% over this time last year, according to Mark Endres, the retailer's liquor buyer. Overall spirit sales have grown 10%.

High-end tequila is especially popular, so much so that Save-Mart just expanded distribution of Patr=n to all its stores. The brand previously was sold in just a few units. Save Mart is eager to cater to the assortment because high-end spirits generate margins of 25% to 30%, and attract more upscale shoppers.

"These consumers purchase more high-end steaks and other gourmet foods," Endres said.

At a time when retailers are paying more attention to the segment, distributors, too, are working to build sales in the food channel. The Patr=n Spirits Co., Las Vegas, is targeting and enhancing its supermarket distribution, said Matt Carroll, vice president of marketing.

Since its Patr=n Silver tequila can sell for upward of $50, many retailers opt to use some type of theft-deterrent system. While doing so is new to food retailers in the area of spirits, Carroll said it's not a big challenge.

"Many retailers will put it in a lock-box," Carroll said.

Security issues aren't the only merchandising challenges posed by the high-end segment.

"We've had to shift things around a lot to make room for the crazy-shaped tequila bottles," said Johnson of ShopRite, referring to the triangular form of some brands.

Drink Up

Super-premium segments are all posting double-digit volume growth

Segment: 2005 Case Volume; % Change from 2004

Super-Premium Rum: 130,000; 22%

Super-Premium Tequila: 640,000; 25%

Super-Premium Vodka: 2.9 million; 12%

Source: Distilled Spirits Council

Trading Up

Sales of higher-priced spirits are up, while those for economy brands are down. Even coming off a very small base, ultra-premium rum is a good example of this movement.

Segment: Dollar Sales; % Change

Economy ($5.95 and below): $27.6M; -3.8

Value ($6.99 to $9.99): $31.1M; 9.0

Premium ($10 to $15.99): $322.7M; 7.8

Super Premium ($16 to $24.99): $12.5M; 4.9

Ultra Premium (over $30): $679,783; 71.5

Source: IRI, based on food and drug store sales for the 52 weeks ending Aug. 13.