Trading Down & Drinking Up

The wine and liquor segments of beverage alcohol have done their part over the past 18 months to ensure the industry continues to see positive, albeit slower, growth."They are pretty recession tough," says Danny Brager, vice president, group client director for The Nielsen Co.'s beverage alcohol team, based in Orange County, Calif. "They've been impacted because they're not growing as fast as they once were, but at a top-line level, these categories have done comparatively well if you look around at the many other categories we measure."The stronger of the two, table wine, from the 52-week period ending April 3, was up 3.5% to $9 billion in the U.S. food, drug, convenience, liquor and other select channels (excluding Walmart). At the same time, spirits were up 0.6%, reaching $8.2 billion, according to The Nielsen Co.As two of the most highly promoted categories, according to Brager, it appears the wine and spirits companies know the value of marketing to consumers. "Wine and spirits are up there toward the top 10% of all categories in terms of how much business is driven by promotions," he says.A February 2010 study from IBISWorld, a Los Angeles-based industry research firm, had a similar finding, stating, "During the boom between 2002 and 2007, while Americans were earning record disposable incomes, spirit companies spent aggressively on marketing to get consumers to drink more and drink better." They were successful in doing so, the report continues. "Aggregate liquor consumption rose at 3.1% per year during this period, only slightly trailing the 3.2% growth achieved by wines and significantly better than the stagnant sales of beer."It's no surprise then that these companies continue to raise the bar when it comes to product development, innovation and consumer insights to reach their increasingly sophisticated consumers.Defining DrinkersConstellation Wines U.S. gained a deeper understanding of its shoppers when it underwent a segmentation study in 2005 (which was enhanced using Nielsen Household Panel data in March 2008). The research identified six different segments, as well as two subsets, says Dale Stratton, vice president of strategic insights for the San Francisco-based company."The overall headline of the study was that there isn't one wine shopper, but that there are very distinct shoppers out there in the wine category," he says, adding that these findings have since been used "as a guidepost for what we do, how we market and how we help our retail customers reach these consumers."Constellation's segments range from Enthusiasts to Overwhelmed (with Image Seekers, Savvy Shoppers, Traditionalists and Satisfied Sippers in between). The subsets are Core Wine Drinkers and Marginal Wine Drinkers. Stratton says 16% of the population is considered a Core Drinker -- and accounts for 91% of the volume -- and the Marginal Drinkers comprise 14%, accounting for the other 9%."That core wine consumer is obviously very important to our category," he says, adding that 57% of Marginal Drinkers are female and 43% are male, while there's an even male/female split amongst Core Drinkers. Overall, The Wine Market Council's studies estimate that 40% of the American adult population drinks wine.On the spirits side, there's a higher male skew, according to Joe Karcz, vice president of marketing activations at Deerfield, Ill.-based Beam Global Spirits and Wine, noting that in both liquor and grocery, approximately 60% of consumers are male and most frequently are shopping alone.Sean O'Connor, senior vice president and director of sales, North America region, for Brown-Forman, Louisville, Ky., says the type of shopper varies by channel. "We think about occasions and attitudes and believe that liquor shopping varies by channel, based on the occasion. And that occasion will dictate their level of aspiration, [i.e. the price tier]."O'Connor says grocery stores tend to see a higher share of shoppers purchasing wine vs. spirits, mainly because of the bundling aspect of purchasing within grocery. Liquor stores and drugstores -- environments he sees as more focused on the spirits shopper because of convenience and variety -- gain more spirits sales and are where Brown-Forman has subsequently pushed more SKUs. "We have the ability to provide value and variety in size and SKU mix, which is why we tend to get more share of purchases for our spirits brands in those channels."Relying on ResearchLike many, Diageo North America has put more resources into research. "We've really tried to up our game in shopper insights and shopper marketing," says Jim Green, vice president of customer marketing for the Norwalk, Conn.-based company. "That's giving us the ammunition, if you will, to look differently at the path to purchase."Green says studying how the brand intersects with a shopper in different ways and by channel "will have implications for pre-shop routines, for the shelf and for the merchandising, but even for packaging and multicultural activities." For example, an occasion can begin when a couple decides on Tuesday to have friends over on Friday. "That sets the wheels in motion for that path to purchase," he says. "We want to intersect with those shoppers at all the different points."Diageo conducts a combination of surveys, interviews, focus groups and quantitative methods. In certain states, it may have to consider some legalities, but Green, like others interviewed, says, "It's not a barrier to us getting to the insights we need."Through focus groups, online research and syndicated data, James Nunes, managing director, brand marketing for Trinchero Family Estates, St. Helena, Calif., says that its research helps the company "make sure retailers understand who these consumers are coming in so they can maximize what they get out of our brands." When creating cross-promotions, his team likes to think of it as understanding "a day in the life" of a consumer, "to make sure when we're putting these programs together, especially in-store, that we understand what they do, how they do it, how they're using our products, and what other products are in their basket or are of interest to them."Constellation Wines uses focus groups and leverages the Internet. For the past three years, Stratton says, it has also done market structure analyses with The Nielsen Co., "which tells us how consumers shop, what they're looking for in the wine section and how we should arrange it to better meet the shopper's need."Brown-Forman uses various forms of research, from online to focus groups to consumer intercepts.Trading DownOne of the most significant shifts over the past 18 months has been consumers trading down in price point from more premium products."There are a lot of uncertainties permeating out there," says Stratton. "We see our category as an affordable luxury. We see consumers drinking something a little different on that daily basis Monday through Thursday -- bringing the level of sophistication down one notch. Come Friday, Saturday or Sunday, with a special occasion or meal, they're going back up and finding the good deals out there and are still consuming wine."Kathy Pyrce, director of marketing at Don Sebastiani and Sons, Sonoma, Calif., says, "Consumers are more price-conscious than ever before, but they're finding when they come down a price point or two that the quality is still very good," she says. "Some are staying down there vs. rationing back up as the economy slowly begins to improve."For many consumers, it comes down to getting the best quality product they can at the best price. In other words: a really good deal. McCormick Distilling Co. has always offered mail-in rebate programs on its products, but according to Vic Morrison, vice president of marketing for the Westin, Mo.-based distiller, in the last year and a half its redemptions "have skyrocketed," he says. "So if I can give consumers a good quality product with a decent price and then throw a discount rebate on top of that, it seems to really help people make a decision."On-Premise vs. Off-Premise"Return to home" is the coined term for the other major shift that has undeniably changed the way wine and spirits companies are operating today. "If you think about our point-of-sale in an account, the picture might have been people in a restaurant celebrating," says Constellation Wines' Stratton. "Maybe now it's people at somebody's house celebrating."Consumers spending more time at home hasn't helped on-premise business. Bars and restaurants have "fallen on some tough times in the recession," says Lou Applebaum, senior vice president of strategy and business development at Victor, N.Y.-based Constellation Brands (the parent company of Constellation Wines). He says 20% to 25% of wine and spirits were traditionally sold in restaurants."That certainly has reduced over this last 18 months as people were going out less, and as corporate expense accounts were dramatically reduced," he says.The IBISWorld report predicts distilleries will continue to be less adversely affected than other discretionary goods producers, however. "This is because drinkers would rather reduce expenditure by consuming off-premise (i.e. at home) than give up their favorite drinks altogether."Continuing to support on-premise operators -- through education and inventory management to present the right selection to consumers -- will be crucial going forward, Applebaum says. Constellation "has put forth a lot of effort with our retail partners with this shift," focusing on wine pairings with food, and eating and entertaining at home."We shifted our efforts more toward off-premise activities [and away from traditional mass media]," he says, "knowing that a big part of this decision is in-store, so cross-merchandising, selection management and displays are a big focus for us." As consumer confidence slowly rises again and people return to restaurants, Applebaum adds, "We'll get ahead of that curve and get back to some of our more traditional brand-building activities."Eric Schmidt, manager of information services for the Beverage Information Group in Norwalk, Conn., says he's seen similar strategies throughout the economic downturn. "Brands are typically grown in the on-premise, where consumers can try a new cocktail or different ingredient, but now we're seeing companies looking to grab consumers in-store by creating scenarios where they can use their products at home."Brown-Forman is also increasing programming and messaging around home entertaining, "which has been a pretty big shift for us," says O'Connor. "Just over the past 12 to 18 months, we've shifted our emphasis increasingly toward the off-premise," he says. "We're continuing to work to enhance our shopper trade marketing capabilities to build better in-store programming and become a greater strategic and tactical partner with our retail customers." That comes in the form of bundling and more value-added packages, he says.New flavors (particularly for cocktails), brand extensions and packaging innovation are an important focus, says O'Connor. "You'll see a lot more of that coming in the next year."In May, Brown-Forman launched its largest package evolution in a decade, while also introducing two new ready-to-drink products -- Southern Comfort Lime and Southern Comfort Ready-To-Serve Lemonade.Campbell Brown, vice president, director of the Americas, says the more contemporary look of its labels and neck wraps serves to strengthen the company's ties to Southern Comfort's home of New Orleans."Both products speak to consumers' desire for great-tasting, hassle-free cocktails at home," says Brown, and the company is leveraging those emotions in the marketing. The company will also conduct consumer sampling across the country where legal.Tapping into TechnologyDiageo's Virtual Bartender is in more than 400 off-premise locations across the country. In stores since 2007, the unit provides information on how to make cocktails, drink recipes and how to plan for parties. "The Virtual Bartender and our digital tactics allow us to communicate that type of information," Green says. "If sampling is the No. 1 ask, the next is product or brand information."Eric Nordquist, president of Woodridge, Ill.-based Digital Aisle, the software and content company that created Virtual Bartender, says the unit is constantly updated based on promotions, SKU changes and other factors. In addition, the company gleans information from shopper activity."Every time the unit gets touched in-store, we're taking that consumer information and studying it," says Nordquist. "This ongoing dialogue companies can have with the shopper is so important. They know more about the brands, products and use and, in turn, we know more about them."To date, Diageo has seen a 24% sales increase in dollars and 17% in volume. Data shows more than 50% of engagements convert into print-outs; 60% of users said the unit influenced their purchase; and the unit has seen a higher than 85% repeat usage rate.Toronto-based Curiosk Marketing Solutions is in the pilot phase in many retailers in both the United States and Canada with its self-service kiosk. Along with giving consumers product information, they can print out a card with a personalized greeting for any occasion, and simply hang it on the bottle's neck for a gift when they walk out of the store. "The solution is so simple," says David Weinberg, president of the company. "They scan, personalize and print, and they're ready to go."Constellation Brands' Applebaum says the wine and spirits segments were "pretty guilty of a lot of clutter," and as retailers continue to push clean stores, "that challenges us to get more unique pieces that fit better with the retailer and their strategies to intrigue and entice consumers to pick up our bottle and put it in their cart."All sources interviewed agree the Millenial cohort is providing much optimism for the industry today. "Wine is becoming a larger portion of their consumption at a much faster rate than any cohort before them," Applebaum says. "That's a big force behind our digital strategy -- to talk to Millenials the way that they consume information."Trinchero's Nunes believes smartphone technology is a good fit for the wine industry. The company is currently using a Microsoft Tag reader for advertising and promotions for its Sutter Home brand. "That technology to me is kind of the next piece," he says. "We have mobile applications and videos for any Sutter Home products where consumers can scan an ad, go to our website and can get any information they want on the fly. I think it will become more and more granular as time goes on."Social media is helping brands connect with this group and other consumers in ways the industry has never seen before. "The new wave of everything has to do with getting to your consumers through social media," says Beverage Information Group's Schmidt. "These manufacturers have to get on top of this to reach out to a lot of the younger consumers who are going to shape their future."

Trading Down & Drinking Up

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