Cracking the US - how to go about gaining a foothold

Christian Davis asks US marketing experts for an insight into consumer trends and how to break into the American market

27 August, 2008

Page 20

There are 303 million people in the U S and each year four million will turn 21, enabling them to legally consume alcoholic drinks. Thirty per cent of 25 year olds will gain a bachelor of arts degree and, despite the weak dollar at the moment, real income is 50 per cent higher than it was in 1970. This is the mother of all consumer markets.

The US alcohol beverage industry is a 3.2 billion 9-litre case market worth US$176 billion in retail sales (source: Adams 2006). Beer dominates US drinking, accounting for 85 per cent of the total case volume. But on dollar retail sales alone, wine and spirits fare better with 33 and 15 per cent shares, respectively. Over the last five years, consumption of wine has grown by 21.5 per cent and spirits by 17.5 per cent, but beer consumption has been fairly flat with 2.7 per cent growth.

John Beaudette, president of importer/distributor MHW, Mike Ginley, president of Next Level Marketing, and Steve Raye and Jeff Grindrod, managing partners of Brand Action Team, are experienced executives, all of whom have worked for major drinks companies in the US. They are now consultants advising on and assisting in placing new products into the US market with its complicated three-tier system of importer/ shipper, wholesaler and retailer. Last autumn they staged a conference in London regarding the drinks sector in the US (usdrinks conference.com.).

Ginley says the total alcoholic beverages market grew in 2006 by 1.6 per cent volume with spirits growing at 3.7 per cent, wine at 3.4 per cent and beer at 1.3 per cent - with dollar sales growing faster than volume, indicating a move to premium products.

While consumption is overwhelmingly at home (off-premise/trade) at around 75 per cent, the drinking of premium brands is more skewed to restaurants, bars and clubs (on-premise) and the growth in wine and spirits drinking in restaurants and bars is higher at 5.1 and 6.7 per cent, against beer at 2.3 per cent.

The top 10 states (see panel) account for 60 per cent of wine volume, 54 per cent of total beer and 52 per cent of spirits.

== Mexican beers lead ==

In the beer category, domestic beers dominate but they are declining, while sales of imported beers are showing 12 per cent growth. The light beer category is the most important domestic beer sector and is the only style that is growing. Corona and Heineken account for more than 50 per cent of imported beer sales with growth being driven by Mexican brands.

For wine, growth has been steady with domestically-produced wines dominating, but imported wine is growing twice as fast. Italy and Australia dominate with 30 and 27 per cent market shares respectively - Spain is growing fastest.

Ginley says that over the past five years, the restaurants and bars fuelled the growth of spirits. Vodka rules with nearly 28 per cent share, followed by whiskey with 25.5 per cent, rum 12.9, and cordials and liqueurs with 12.2. Tequila is growing fastest at 10.2 per cent, followed by vodka at 6.7 and cordials and liqueurs at 3.7 per cent.

The top 10 spirits suppliers account for 75 per cent of all spirits sales (see panel) and premium spirits brands are growing fastest. While Smirnoff and Absolut are the largest volume vodka brands, the fastest-growing are Grey Goose, Ketel One and Skyy. More than 60 per cent of tequila sales are accounted for by Cuervo, Sauza and Patrón, the latter posting nearly 75 per cent volume growth. In straight whiskey, Jack Daniel's and Jim Beam have more than 50 per cent of sales with Maker's Mark spearheading category growth. In Scotch whisky, it is Bacardi's Dewar's and Diageo's Johnnie Walker Black leading the category but The Glenlivet and Johnnie Walker Red and Black driving growth. Cordials and liqueurs have De Kuyper and Jägermeister to thank for volume and growth.

Ginley says: "Spirits and wine are growing faster than beer and the emphasis is premium and imported."

John Beaudette provides a breakdown of what the various parties take out of a 12 bottle case of wine at US$120 which has a shelf price of US$9.99:

The supplier FOB (free on board) - US$29
Importer's margin - US$14.80
Import/other costs - US$9.75
Distributor margin - US$26.37
Retailer's margin - US$39.96.

He says seven states account for 51 per cent of the US wine market and six cities - New York, Chicago, Los Angeles, Boston, Miami and Washington DC - cover 23 per cent of imported wine. Chardonnay, Merlot, Cabernet Sauvignon and White Zinfandel are the most popular grape varieties.

Grindrod says that spirits cocktails are now the favourite alcoholic drink for 21 to 27 -year -olds. He says: "Today's younger consumers have a 'cocktail mindset' and consumers are demanding better drinks made with premium brands."

Quoting research by Next Level and NOVA Marketing Services into on-premise drinking patterns, Grindrod says of 728 respondents, 22 per cent say they were primarily spirits drinkers, 19 per cent beer and 11 per cent wine. He says almost two-thirds of consumers do not know what they will order in advance and 75 per cent read drinks menus and believe descriptions, pictures and brands are the most important items. More than 60 per cent of those polled said they experiment with a new drink at least every 90 days when they are out. The most popular spirit/cocktail flavour is strawberry, followed by raspberry, peach, and lime. A margarita is the most popular drink followed by rum and cola.

== How to go about it ==

Ron Lepow, vice president, business development of Glazer's, the fourth-largest spirits and wine wholesaler in the US, gives an insight into how to go about approaching a US wholesaler with a new product. He warns that he accepts fewer tha n 10 per cent of presentations. He says a new entrant will have to address a wholesaler's key criteria, which would include:

Quality of the liquid - is it high/good enough?
Packaging - does it stand out, is it unique and/or attractive?
The price - is it realistic and is there sufficient margin?
Projected volume - are targets realistic?
Point of difference - is it going to generate incremental business?
Accolades - does it attract references from respected people, buyers, journalists?
Marketing/advertising - what is budgeted?
Consumer pull - will clients be able to sell it to their customers?

He says that 30 years ago there were more wholesalers and more companies so they fought for brands and suppliers, and threatened to move wholesalers if targets were not met. Now the remaining businesses dedicate their time to large companies such as Diageo, Bacardi and Pernod, "leaving little or no time to devote to new vendors".

On gaining a meeting, Lepow stresses the importance of first impressions and says the presentation should be professional, answering all the above questions. He suggests gaining retailer listings, thus forcing the wholesaler to seriously consider the product.

He says: "Avoid 'paint-the-states' mentality. Pick a few markets and make success a certainty. Pace your expansion with your sales growth and consider the cost of ensured success before expanding to new markets."

Bill Earle, president of the National Association of Beverage Importers, knows intimately the three-tier system of supplier, wholesaler/distributor and retailer. He says the system is changing but is not "going away" in the near future. Echoing Lepow, he says current challenges include "the middle tier often uninterested in unproven, small scale, entry products". He adds: "For big box retailers the three-tier system adds costs without value. As for

e-commerce, a relatively new model, it is at odds with the existing systems."

He predicts more legislation and court action to define the parameters of state authority and technology solutions that meet the state goals of regulation.

Steve Raye at Brand Action Team predicts that e-commerce has the potential to take 10 per cent of total sales. He says 3,717 new drinks products were introduced into the US in the 52 weeks to April 2007, according to Nielsen.

Of th ose, 1,658 were wine (898 imported), 645 spirits and 683 were beer. Regarding the internet, he says: "Position yourself now for where the consumer will be in three years."

----=== Top 10 spirits suppliers === For 75 per cent of all spirits sales

Diageo 22.8 per cent

Bacardi 10

Pernod Ricard 8.2

Beam Global 7.6

Brown Forman 7.2

Absolut Spirits 4.8

Constellation Brands 4.6

Moet Hennessy 3.9

Heaven Hill 2.9

Skyy Spirits 2.2----=== Top states for alcohol ===California

Florida

Georgia (beer only)

Illinois

Maine (wine only)

Michigan

New York

New Jersey (wine and spirits only)

North Carolina (beer only)

Ohio (beer and spirits only)

Pennsylvania

Washington state (wine only)

Wisconsin (spirits only)

Texas