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The Category Unaffected by Covid-19


Throughout the COVID-19 epidemic, it is pretty clear that on-premise business plummeted and customers have become more frugal with their purchases, however, the interesting take-away is that spirit brands retailing at $100+ have grown at double digits and continue to grow faster than the total spirits market. The current estimated value of the Ultra Luxury/Status spirits market is $8.3 billion, with a compound annual growth rate of 7% (2014-2018), far outpacing the total global spirits market growth at 2% CAGR.

For example, data shows that between 2008 and 2012 (post-recession), global prestige-plus spirits (generally $100+) grew 82% in volume, and almost 230% in value, which reinforces the resilience of high-end spirits after economic challenges. The 230% increase in value in a category that is thought to already have the highest value to customers, pre- and post-recession should really give a glance into how isolated and bullet-proof this category really is.

However, there is a different side to the story in how suppliers keep these brands intact. In 2008, after the market crash, the global luxury market lost 9 percent of its value according to Bain & Co., but inevitably it bounced back. The brands that did not survive attempted to re-brand and lower price segments or just sold off.

Lowering your price segment exposes your true market price, while permanently jettisoning established clientele from ever trusting or buying your brands again.

Additionally, if you do not have a firm grasp and understanding with your partner wholesalers, they are likely to adopt an aggressive commercial and discount policy, that could be detrimental to the brand equity you have established. Moving brands out of the exclusivity range, takes them out of the luxury tier, however, staying concurrent with price strategy equals stagnant sales; creating a catch 22 between the wholesaler and the supplier. This, at least in the mid-term, could hurt the positioning of brands that do not have contingency model or funds in place to float through turbulent times.

There is a significant distinction between affordable luxury, super luxury, and status brands. Luxury and Super-Luxury brands have thrived pre-covid in waves under the premiumization trend. However, the Status branded customer base is rarely affected to the point of diminished sales during a recession.

The reason is wrapped around the simple distinction between being rich and being wealthy.

Building a status level brand comes in phases. You cannot simply price the brand into a category, or even pay for sponsorship's/branding to gain entrance into this category. You must pass through the Luxury tier, then into the Super-Luxury and finally break into Status tier.

These tiers act as a gateway from one to another, in order to help establish your brand and weed out the brands that do not belong. Customers who are purchasing $100 to $200 brands three years ago will have progressed into purchasing $500 brands today, and ultimately entering the status brand criteria for the latter half of their financial phase. Smart and tactical suppliers such as Pernod-Ricard, Diageo and LVMH have mastered how to capture the entire life cycle of a customer and walk them through the process, as they progress through financial capabilities and have learned how to balance their books to stay the course in turbulent times.




Categories can be broken into the following classifications: “affordable luxury,” encompassing spirits in the $100 to $1,000 range, and “ultra-prestige/Status,” counting bottles that price upwards of $1,000. The most value sits in the $100-$250 bracket, the IWSR reports, though the $250 to $1,000 segment is expected to see quick growth on the horizon. Brands such as The Macallan, Glenfarclas, The Balvenie, Laphroaig, Dalmore, Glenlivet, and others have generated several hundred million dollars in revenue for their limited-edition collections and annual releases.




Nevertheless, can status brands flourish in the changing e-commerce environment? Yes, here are just a couple sites that are growing by leaps and bounds in the Super Luxury/Status brand segment: La Maison du Whisky, Whisky auctioneer, Number One Drinks, Le Close, Whisky Exchange and Bounty Hunter. These sites, including Master of Malt, an online spirits retailer with broad selection of high-end whiskeys, saw sales soar 200% over the last week of March and continue through the Covid-19 epidemic.

Top tier companies, such as Beam Suntory and Bacardi that are not 100% luxury houses, generally have branches of their respective books being nurtured towards the status sprit category. These brands are on the cusp of breaking through to the elite category but could easily find themselves ill equipped with the core competencies and patience to nurture these high-potential brands through such turbulent times. Adversely, they might be willing to take reduction of the brand status or put them back in the market for acquisition. Brands that were once forbiddingly expensive to some, could become viable in the post-crisis period; or the right company that is a true Lux house could snap them up and add to their extensive portfolio, shaping a new mega luxury conglomerate with the right company and patience

Suggested Plan of Action: Analyze current trends and create predictive modeling with real time indicators to be bench-marked in phases throughout fall and winter of 2020, rolling into 21’.

1. Allocate a greater portion of investment to the online channel. Explore new ways of partnering with recognized and established e-retailers. Step up your personalization efforts in digital marketing. Luxury consumers are accustomed to a high standard of service in stores; the emphasis, then, should be on creating a personalized digital experience of the same quality.

2. Develop a plan for dealing with unprecedented levels of unsold 2020 inventory, without resorting to steep discounts, which again jeopardize brand equity, and puts your established current clients on an island.

3. Tailor local experiences with targeted marketing, strengthening digital offerings, and engaging more deeply with consumers, as client base is not as wide a casted net as the regular wine and spirits customer base.

4. Use the crisis time to act as a catalyst for developing and executing an online and omnichannel strategy. Compared with this time a year ago, (during the seven-week COVID-impacted period ending at April 18th), brick-and-mortar alcohol dollar sales were up 21%, while online sales of alcohol have skyrocketed to over 2X that of a year ago, up 234%. The alcohol industry has been the fastest growing e-commerce department among all consumer-packaged goods (CPG), and weekly growth has continued, with status spirit buyers keeping concurrent with prior sales, if not increasing.

5. Finally, stay the course and do not deviate from category. Spending and consumer habits reflect well for the status spirit category, as projections in the next decade expect the gap between the canned wines of the world and the $200+ bottles to get wider and wider; resulting in the status spirit category growing, while avoiding saturation or incremental competitors. For more information, please feel free to email me at: snagra1@gmail.com Site: TheBackOfTheHouse.com/Blog

Sources: Rebalancing the ‘COVID-19 Effect’ on Alcohol Sales. (2020)., from https://www.nielsen.com/us/en/insights/article/2020/rebalancing-the-covid-19-effect-on-alcohol-sales/ Global beverage alcohol is not expected to rebound until 2024 – IWSR. (2020)., from https://www.theiwsr.com/global-beverage-alcohol-is-not-expected-to-rebound-until-2024/

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