Local heroes call the shots

Though hugely popular the world over as an everyday tipple, the brandy sector remains a regional entity, dominated by loyalty to locally produced brands. Andrew Catchpole reports
27 August, 2008
Page 32 
Brandy is nothing if not a global drink. From Tierra del Fuego to Yukutsk by way of Athens, India and Azerbaijan, this soul-warming grape distillate is on target to surpass the 120 million

9-litre case mark in 2007 (excluding Cognac), with close on 2.5 per cent year-on-year growth (see table). Its worldwide popularity may not quite match the runaway 600 million case vodka market, but consumption of brandy appears in rude health.

The difficulty, though, for international brand-builders dreaming of world domination is that the category is highly fragmented, with regional markets typically either showing loyalty to home-grown brands or, especially in the case of non-producers, a similar tie to the brandies of countries where historically trade, language or regional proximity have linked the nations. There are exceptions, but this generally means that outside the rarefied world of Cognac, global brandy brands are thin on the ground.

Take the brandy in Diageo's portfolio. This global giant's Cognac offering, Hennessy , boasts the US, Ireland, China and Japan as its leading markets, with penetration via duty-free, on-trade and upscale off-trade outlets ensuring its prominence around much of the globe. Switch to brandy, and the somewhat less well-known Bertrams VO fills the spot in the Diageo portfolio. Launched in 1980 into South Africa 's premium category, Bertrams VO has becom e number one in its premium niche in South Africa, Namibia, Swaziland and Botswana. But it clearly remains a regional player.

A glance at the Drinks International Millionaires Club 2007 report confirms this regional bias, with the runaway success of Emperador (7.2 million 9-litre cases - all figures, 2006) in the Philippines followed by United Spirit's McDowell's No 1 in India (5.99 million cases), Gruppo Campari's Dreher brandy offshoot in Brazil (3.5 million cases), India's Monitor brandy from Shiva Distilleries (2.21 million cases) and Germany's Wilthener Goldkrone (2.19 million cases) as the leading players in terms of volume.

Controversy over the classification as brandy is never far away, as some products, particularly in India and the Philippines, are produced using neutral molasses spirit and brandy concentrate - much to the chagrin of traditional grape brandy producers.
== Market contradictions ==

Furthermore, it's a disparate collection of markets in terms of consumer profile, patterns of consumption, rival categories and pricing. Brandy is the most popular spirit in both Mexico (but in decline) and Brazil (on the increase). Compare South Africa ( increasing) with Spain (decreasing). Or look to mature markets such as the US, Germany and UK where growth is slow and compare these with China and Japan, where consumption is respectively static and down.

If there is an overall trend, or set of trends, it is that low-cost, big-volume products continue to drive growth in the big markets such as Mexico, the Philippines, Brazil, India, the Russian Federation and the Ukraine. Elsewhere, in western markets for example, growth is centered on premium products. But this premiumisation is a trend where emerging wealthier classes of consumers - whether Afr ican-American or from India's new middle classes - are trading up .

Jon Guggino, marketing director of Constellation Brands in the US, agrees it is hard to create a global brandy brand. "There are a lot of contradictions in the markets," he says , " so we focus primarily on the US." Constellation's Paul Masson Grand Amber brand (1.3 million cases) is positioned between market leader Gallo and Heaven Hill's Christian Brothers brand, with a 22 per cent market share at around 1.5 million cases. "It is a very mature market, though the category grew by about 1.5 per cent in 2006," says Guggino. "But the potential for further growth is largely in the premium end of the market as people trade up."

Many of these are African-American , a consumer group with a fast-growing middle class and one that also enjoys Cognac. The point Guggino makes about brandy in relation to Cognac is that its image is very much one of everyday, home-based consumption rather than restaurant, bar and special occasion drink, even when the drinkers trade up from VS to VSOP brandy.

The market dynamics may be somewhat different, with movement of new consumers to the category still being driven by rising wealth, but both India and Brazil are also showing fast growth (admittedly from a small base) at the premium end of the market. Shefali Kotnali, brand manager at United Spirits, supplier of India's leading brandy McDowell's No 1, reports: "The market continues to grow as new consumers come in, but there are also signs that existing consumers are increasingly trading up within the category."== Everyday favourite ==

In terms of exports, many brandy producers do have a presence and the fashion for drinking "foreign " brands as a sophisticated alternative to local brandies does seem to be increasingly global. Emperador Distillers president Winston Co is driving a push into Thailand and China, while Guggino says gaining a larger slice of the Mexican market may be possible, but neither is bullish about the prospects of re creating their home-grown successes.

Major global spirits players with brand portfolios to match, such as Diageo, Pernod Ricard, Rémy Cointreau and Gruppo Campari, have taken the route of launching or buying into regional brandies. Pernod Ricard owns the market-leading Presidente brand in Mexico, Rémy Cointreau owns Metaxa in Greece, while Gruppo Campari similarly has leading Brazilian brand Dreher in its portfolio. None of the three, though, has plans to significantly expand these brands beyond their respective markets.

In many ways this is understandable. As Gruppo Campari's Chiara Bresanni points out: "The Brazilian brandy market is approximately 60 million litres a year and is growing around

4 per cent a year due to a strong category image and also migration of consumers from cachaça to brandy." With Dreher growing at around 11 per cent a year, outperforming the market, why would the company want to potentially waste resources trying to export elsewhere?

British distiller William Grant, best known for its Scotch whisky business, recently acquired Cognac-based French brandy producer Raynal, which produces the Three Barrels brand - the leading non-Cognac brandy overall in the UK and its number one by volume for brandy of all kinds in the off-trade.

Significantly, Raynal's global brands director Gregoire Vincent is, if anything, looking to strengthen the position of his charges in their existing markets rather than chase regional sales. "There is little market for Raynal in France to the point where 99 per cent of ou r production is exported, with Three Barrels primarily in the UK and Raynal in the US." Both have out performed their respective markets, with Three Barrels growing at 6 per cent against 3 per cent UK market growth, while Raynal (the number one French brandy by volume) holds 2 per cent of a 10 million case US market dominated by more than 50 per cent home-grown brands.

"We are keeping an eye on China and Russia, where brandy is already well established as a category in consumers' minds," says Vincent. "As opposed to Cognac, brandy is seen as an everyday, regular drink, but also with the possibility that you can move up in quality within the category - this is its strength."== Heritage and fashion ==

Spanish company Osborne has increasingly focused on both established and new export markets, faced with a declining home market for its brandies. "Domestic consumption of brandy is decreasing because Spanish consumers, as with those in many countries with a long tradition of producing brandy, are not so interested in drinking their own spirits," says Jörg Herlyn, Osborne's director for the German market, where the company dominates with 85 per cent of the Spanish brandy sector.

For the established northern European markets, Osborne has tweaked its range with the launch of Reserva del Toro, a premium product that commemorates the 50th anniversary of the iconic Osborne bull, which dots the Spanish landscape in 14m-high, silhouetted form. Reserva del Toro sits with Veterano, for drinking neat, and the 103 brand is aimed at mixing and easy consumption. Looking to the Spanish-speaking markets of Latin America, Herlyn points to a new joint venture with leading Brazilian wine producer Miolo for a n Osborne brandy produced and sold there, and to the Magno brand sold in Mexico.

In many ways, Spain, France and South Africa are the producing countries best placed to exploit non-domestic markets because of their heritage and history of brandy production, coupled with a clear premium on the quality of the products.

"The western markets have seen growth over the past five years because fast-growing economies have allowed male and female consumers to enjoy high levels of disposable income," says Miguel Torres J r at Torres in Spain.

"The Spanish market has become a little old fashioned, but we are working hard to change this. Beyond that, Mexico is by far our most important market, followed by western Europe." Torres points to the mixing of brandy with soft drinks, such as cola in Mexico, as driving the rise in consumption and suggests that, despite mixed economic conditions across Asia, similar trends potentially make these markets, especially China and India, "a huge opportunity because of their size and changing demographics".== South Africa tastes growth ==

Looking at the quality end of the brandy market, South Africa is also an interesting producer to watch, not least as its major distillers - such as Distell and KWV - continue to gather award s from the International Spirits Challenge and elsewhere. Piet Momberg, international business executive with responsibility for KWV brandies, is clear on where he believes the growth will be, both in the domestic and international arena. "The South African market of about 4.5 million cases a year is pretty static, apart from at the premium end where it is growing quite strongly," he says. "This growth is largely being driven by the aspirational black consumers - up-and-coming middle class people who are familiar with brandy but are now moving up the ladder."

With its Imoya brand established on the eastern seaboard of the US and high hopes pinned on African Spear, a brandy aimed at the British market, KWV is clearly open to the potential for overseas markets. "For us, Africa is tough because there are so many cheap spirits to compete with and the legislation in many places is not particularly strict in terms of what can be sold as brandy," says Momberg. "On the international market we are competing with Spain and France and given the quality of South African brandies there are possibilities, especially in places like the Far East, as the market for premium products grows." Again, though, Momberg echoes others when he foresees a tough and expensive path into such markets.

Jean-Myrtil Laurent, international marketing director for Metaxa at Rémy Cointreau, sums up the difficulties in addressing the brandy market as a global entity. "This category often includes products which have somewhat different elaboration methods . Generally speaking though, the category is not very dynamic in terms of volume growth, but from a value standpoint there seems to be an evolution and consumption shift from entry-level, locally produced brandies to imported premium brandies."

Laurent suggests brandy consumption patterns are still very much traditional - neat, in a balloon glass, or on ice - but agrees that, as the cocktail culture spreads people are beginning to open up to the idea that some brandies can be enjoyed in a non-traditional way. He cites as a sign of things to come the Metaxitos, a Metaxa-based mojito-style cocktail popular in Greece and, apparently, New York. For the moment, though, it's home-grown brandies that rule the roost and this looks set to remain the status quo for some time . Whatever the future holds, I'll take a sidecar made with VSOP. ?---- === Total non-Cognac brandy global market (Volume in 000s 9-litre cases) ===2002 - 108,933

2006 - 118,428

Volume increase 2002-2006 = 9,495

Volume increase in global brandy market 2002-2006 = 8.7%

Source: IWSR

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