Spirits backgrounder 1 of 2
October 7, 2013 13:56 ET
By the Numbers
Spirits are LCBO’s largest and most profitable product category. In fiscal 2012-13, net sales of LCBO’s spirits and ready-to-drink (RTD) products were $1.97 billion, an increase of 2.4 per cent. This category represents more than 40 per cent of total LCBO sales; wine represents 39 per cent ($1.89 billion) and beer represents 21 per cent ($1.02 billion).
Of total spirits sales in fiscal 2012-13, whisky led sales at $600 million, followed by vodka at $465 million, rum at $259 million, liqueur at $227 million, RTD at $184, brandy/Cognac at $85 million, gin at $63 million and tequila at $42 million. The remaining $46 million was comprised of duty free, private ordering, and all other spirits products (e.g. Eau de Vie, kosher and soju/shochu).
Vodka is currently the largest growth segment of spirits, with sales of $465 million in 2012-13, up 2.8 per cent. The growth is being driven by premium ($25.45-$26.95) and deluxe (more than $30) vodkas, as well as flavoured vodkas. In fiscal 2012-13, super premium ($27.00-$29.95) vodka sales were $5.9 million, representing year-over-year growth of 56.9 per cent. Premium vodka sales were $279 million representing 2.1 per cent growth, and deluxe vodkas sales were $43 million, representing 4.8 per cent growth. Flavoured vodkas grew by 9.5 per cent year over year, at $36 million in sales. Standard vodkas had sales of $99 million, which was a 0.4 per cent decrease year-over-year.
Whisky continues to be one of the largest and most profitable segments in spirits. Total sales for 2012-13 were $600 million, accounting for 30 per cent of all spirit and RTD sales. This also represented impressive sales growth of 2.6 per cent. Imported whisky, up six per cent, fuelled the growth. Irish whiskey and bourbon were hot topics in the media, which led to greater consumer interest. Perceived as being more trendy, these products are recruiting the next generation of whisky consumers. American whiskey gained 10.3 per cent, while Irish whiskey rose 19.3 per cent over last year. Canadian whisky continues to comprise the largest portion of whisky sales and a large portion of overall spirits sales at 12.5 per cent in 2013.
Tequila is another growth area, which had an exceptional year in 2012-13. It grew to $41.7 million, or 9.3 per cent over last year. Growth continued to be driven by premium, 100 per cent agave products.
There is an aspect of seasonality to spirit sales. In brown spirits (e.g. whiskies, brandy/Cognac and liqueurs), about 23 per cent of sales occur during the holiday period. Forty per cent of LCBO sales in XO Cognac occur during this period, and about 45 per cent of Whisky Shop (see explanation below, in Promoting Spirits) sales occur then as well. On the white spirit side, consumers seek out premium and deluxe vodkas, such as Grey Goose and Belvedere, during the holiday season. Consumers also look for new seasonal flavoured vodkas, such as Three Olives S’Mores vodka and Stolichnaya Chocolate Raspberry.
Dark rums, especially deluxe and premium brands, also see increased sales during the holiday season, in part due to their use in baking and beverages such as eggnog. Rum has also become a collectible item, as connoisseurs eagerly anticipate unique aged rums from different countries.
About 40 per cent of spirits sales take place in the summer months. This year, tequila and gin were the trend-setters. Over the last few years, tequila sales have shown average growth of about nine per cent, being driven by the increasing number of deluxe and ultra-deluxe products coming into the Ontario market. These new high-quality items are perfect for sipping, or for mixing in super-premium cocktails.
Gin sales have experienced a revival as customers discover more complex spirits. The trend in gin outpaced all other white spirits at 6.7 per cent growth year-over-year, lead by the dominant premium category trending at 12 per cent growth and the small but mighty deluxe gin category trending at 28 per cent growth. Customers are starting to discover how the unique botanicals add depth to cocktails and are rediscovering classic gin cocktails.
Flavoured Spirits Popular
Customers have shown an increased willingness to experiment and try flavoured spirits. Flavoured vodkas, rums and spiced rums and whiskies accounted for almost six per cent (or $103 million) of total spirits sales, and 43 per cent of annual incremental sales value. Of the new spirits products launched in 2012-13 in spirits, just over 22 per cent were flavoured. The introduction of new dessert flavours, such as cake and whipped cream, contributed to a 10 per cent increase in flavoured vodka sales. Spiced rum has also experienced a large sales increase of 14.6 per cent in 2012-13.
Within VINTAGES, LCBO’s premium spirits and wine business unit, premium spirits are currently growing at 12.4 per cent. Scotch represents 47 per cent of the sales in this area, with Eau de Vie at 31 per cent, other spirits at 14 per cent and liqueurs at six per cent. VINTAGES will continue to focus on rare, unique and limited spirits products. The areas where growth is most expected are bourbon, Armagnac, unique liqueurs and award-winning whiskies.
In 2013-14, the hot categories in spirits are expected to be American and Irish whiskey, gin, rum, scotch and tequila. In fact, at the halfway mark of the 2013-14 fiscal year, whisky has been performing better than what had been forecast. Canadian whisky has increased $4.6 million or 2.95 per cent over the same period last year; scotch is up $3.3 million or 6.1 per cent; American whiskey has risen $1.8 million or 12.4 per cent; and Irish whiskey is up $1 million or 19.4 per cent.
Total LCBO spirit sales are expected to grow by 2.5 per cent to almost two billion dollars.