The Top 10 Spirits Companies

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Published on April 26, 2014

Author: cteahan

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© Datamonitor This report is a licensed product and is not to be reproduced without prior permission Page 1 The Top 10 Spirits Companies A study of how the leading players are driving growth and innovation © Datamonitor This report is a licensed product and is not to be reproduced without prior permission The information in this document has been extracted from published Datamonitor research by a registered user of Datamonitor’s Knowledge Centers. Datamonitor holds no responsibility for the loss of original context and for any changes made to information following its extraction. All information was current at the time of extraction although the original content may have been subsequently updated. Please refer back to the website to view the most recent content and the original source of the information.

© Datamonitor This report is a licensed product and is not to be reproduced without prior permission Page 2 Disclaimer Copyright © 2013 Datamonitor This report is published by Datamonitor (the Publisher). This report contains information from reputable sources and although reasonable efforts have been made to publish accurate information, you assume sole responsibility for the selection, suitability and use of this report and acknowledge that the Publisher makes no warranties (either express or implied) as to, nor accepts liability for, the accuracy or fitness for a particular purpose of the information or advice contained herein. The Publisher wishes to make it clear that any views or opinions expressed in this report by individual authors or contributors are their personal views and opinions and do not necessarily reflect the views/opinions of the Publisher.

© Datamonitor This report is a licensed product and is not to be reproduced without prior permission Page 3 DIAGEO Summary  Diageo is the world's leading premium drinks business with a wide portfolio of alcoholic beverages across spirits, beer, and wine, including a global leadership position in whiskey.  2011/12 was an exceptionally good year for the company, with net sales up an impressive 8% to £14,524m. This more than compensated for a somewhat modest increase the previous year, but was an achievement that appears will not be repeated in the latest financial period. Preliminary results for the year ended June 30, 2013 revealed net sales growth of just 5%.  After the financial crisis Diageo realized that its portfolio of brands was too heavily weighted in mature Western markets, and so it set an ambitious target of having half of the revenues derived from emerging markets by 2015. As a result, Diageo's strategy revolves around making acquisitions of companies in emerging markets with both strong local routes to market, and with brands that can be 'premiumized' to appeal to the growing number of middle class consumers.  Innovation forms a crucial part of Diageo's growth strategy, playing a key role in ensuring that the company's brands are well positioned for continued growth. Recent launches have focused on consumers' desire for luxury, driven by the tastes and increasing affluence of the emerging middle class consumer, and on increasing the accessibility of spirits through flavor extensions and new packaging and drink formats.  Diageo's one weak spot in the North American market is its presence in the bourbon category. A rumored bid for Jim Beam therefore makes sense, although it is contrary to the current focus on emerging markets. Company overview Diageo is still a relatively young company, having only existed in its current form since 1997 when it was created through the merger of Guinness PLC with Grand Metropolitan PLC. In 2001 it acquired additional spirits and wine brands from Seagram, and has subsequently expanded its range through selective acquisitions, strategic partnerships, and innovation. In 2013 it took a 25% share in United Spirits of India. Table 12: Diageo key stats Headquartered London, UK Turnover ($m), 2012 14,524 Employees, global 9,600 Income ($m), 2012 10,692 Sales volume (9L cases), 2012 156 million Source: Company reports © Datamonitor It is also, indisputably, the world's leading premium drinks business with an outstanding (some might say a surfeit), collection of alcoholic beverages across spirits, beer, and wine, including a global leadership position in whiskey. The company's portfolio includes:

© Datamonitor This report is a licensed product and is not to be reproduced without prior permission Page 4 Fig 20: Pernod Ricard innovation: opportunities and challenges Source: Datamonitor © Datamonitor Absolut facing challenge of maturity through variations Innovation is seen as a key focus for Pernod Ricard, and consequently there have been a rapid succession of product launches over the years. These can take the form of flavor and brand extensions, limited editions, image revitalization, innovative packing ideas, consumer audience and sales channel extensions and, of course, new product launches. Absolut vodka, which is reportedly the second biggest vodka brand in the world has focused on releasing numerous flavor extensions, with an Absolut Peppar launch in 1986, followed by a succession of further introductions. Since the start of 2012, Absolut Cherrykran (a blend of cherry, cranberry, and sweet plums), Absolut Hibiskus (a blend of hibiscus flower and pomegranate) and Absolut Cilantro (flavored with lime and coriander) have joined a dozen or more other flavors. These are in addition to the launch of numerous specialized bottles such as Absolut Denim (denim-wrapped), Absolut Exposure (a designer bottle carrying prints of actress and supermodel Lydia Hears), and Absolut Unique (a limited edition of four million uniquely designed and individually numbered bottles). Innovation is crucial for Absolut as it faces up to the challenges of relative maturity in the US

© Datamonitor This report is a licensed product and is not to be reproduced without prior permission Page 5 Source: Rémy Cointreau © Datamonitor The key to Rémy Cointreau's strong performance was the combined effect of price increases and innovation. Rémy Martin XO Centaure launched in Asia in 2011 and Rémy Martin VSOP limited edition fine champagne cognac launched in 2012. The company reported that Rémy Martin cognac achieved growth for a fourth successive year in 2012, increasing in value by 12.7%, thereby accounting for some 60.3% of Rémy Cointreau's sales. At the same time, 60.2% of Rémy Martin's cognac sales were in Asia. Liqueurs and other spirits accounted for 20.0% of company sales, while partner brands, such as those of the Edrington Group, accounted for the remaining. Cointreau liqueur also performed well, thanks to increased marketing investment in its key US market coupled with an upturn in the on-premise sector. Despite the continued challenging economic situation in its homeland, Greek spirit Metaxa reported growth thanks to its Eastern European markets (including the Czech Republic, Hungary, and Poland). Nevertheless, a high reliance on Greece continued. Bruichladdich, which only joined the portfolio in September 2012, did not have a significant impact during the period. Future financial results will undoubtedly be negatively impacted by the Edrington Group's announcement that it is to discontinue its long-standing partnership with Rémy Cointreau in the US from the end of March 2014. The whiskey producer is taking over its own distribution in this market. Rémy Cointreau has handled the Edrington Group's portfolio in the US market since 1985, and this has represented a significant segment of Rémy Cointreau's US business in recent years. The Edrington Group portfolio accounts for around one third of Rémy Cointreau's US market volumes, so it will be sorely missed. However, the purchase of the Bruichladdich Scotch whiskey company should help in contributing some future contribution towards US turnover. Another major concern is the crackdown on conspicuous consumption by the Chinese authorities in the wake of a number of corruption scandals in the country. As a result, the lucrative gifting market is being squeezed. There are now concerns that the cognac boom in Asia may finally be slowing. According to the BNIC, exports were flat or down between August and October 2013, compared to the previous year. Another major problem is the planned change to the minimum age of 'extra old' (XO) cognac from six years in the barrel to 10 years in 2016. This will further constrain supplies, already under pressure from unexpectedly high demand in the past few years. Revising this regulation would add some oxygen to the market. Indeed, there is already growing demand from Vietnam, while strength is returning to the South Korean market. Additionally, there is still room for growth in Greater China, with demand spreading from the south and east of the country to fast-growing cities in the interior. Meanwhile, although corporate gifting remains very important, there is also increasing trade from clubs and bars, where cognac is consumed with ice or mixers.

© Datamonitor This report is a licensed product and is not to be reproduced without prior permission Page 6 All Rights Reserved No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher, Datamonitor plc. The facts of this report are believed to be correct at the time of publication but cannot be guaranteed. Please note that the findings, conclusions and recommendations that Datamonitor delivers will be based on information gathered in good faith from both primary and secondary sources, whose accuracy we are not always in a position to guarantee. As such Datamonitor can accept no liability whatever for actions taken based on any information that may subsequently prove to be incorrect. © Datamonitor This report is a licensed product and is not to be reproduced without prior permission.

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