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For liquor makers, holiday spirits not as high this year

Consumers are looking for sales, or shopping for less costly brands.

Jerry Hirsch

Executives running the United States' large liquor companies might need a few stiff drinks right about now.

Typically, the holiday season is the best time of year for the industry as people toast another year of accomplishments and look ahead to the next with a bottle of cabernet, a quart of Scotch or splits of champagne. Consumption of alcoholic beverages typically kicks up from Thanksgiving through Jan. 1 as households and companies entertain more.

But this year, the business has been plagued by a slump in the bar and restaurant trade, consumers who are trading down to less expensive brands and considerable price-cutting to boost sales.

The industry is dealing with customers such as David West, who on a shopping trip to a CVS pharmacy in Seal Beach, Calif., picked a $13.99 bottle of Finlandia vodka over more expensive brands.

"I hear that Stolichnaya is good, but there is not that much difference to make it worth $17.99," West said as he perused the shelves in the liquor aisle.

Others are taking the same approach when it comes to year-end entertaining.

"Normally I drink Grey Goose or Ketel One , but this is all about feeding the masses," Jennifer Kucera said as she ran a 1.75-liter bottle of Smirnoff vodka through the self-check scanner at a Seal Beach supermarket. It was on sale for $16.99 compared with its regular price of $27.49.

Such buying habits have taken their toll.

"November was weaker than we and I think the rest of the industry anticipated," Ivan Menezes, president of Diageo North America , told investors recently. "We have lowered our expectations for December."

Menezes made his comments after a nationwide tour of 11 of the beverage company's most important markets. Diageo owns Smirnoff vodka, Johnnie Walker Scotch whisky and Jose Cuervo tequila among many large liquor brands.

Other spirits companies are similarly cautious.

"No doubt, there continues to be a lot of uncertainly about consumer behavior, particularly as it relates to this holiday season," Paul Varga, chief executive of Jack Daniels owner Brown-Forman Corp. , told investors recently.

The liquor industry finds itself fighting the same economic headwinds buffeting other consumer products companies, said Nick Lake, an analyst with market research company the Nielsen Co.

People are spending less on holiday gifts this year, are spending less entertaining at home and are dining out less often.

"If you are a premium spirits supplier, this is tough sledding," Lake said.

Sales of distilled spirits, both in dollars and by volume, fell in the first half of November compared with a year earlier, according to Nielsen. Sales dropped 1.4 percent at food, drug and convenience stores to $601 million for the four weeks ended Nov. 14, the most recent period for which Nielsen has data.

That year-over-year drop has happened at a time when liquor makers are slashing prices.

Diageo has poured rebates and coupons into the market, including a recent offer of $15 off on purchases of three bottles of some of its premium products. That represented some of the biggest discounts that experts who follow the liquor industry can remember.

"Most spirit suppliers have been promoting heavily, and prices have come down this past October, November and December," said Annette Alvarez-Peters, a liquor buyer for Costco Wholesale Corp.

Costco has been running its own coupon program, offering $10 off on some of the more expensive Johnnie Walker Scotches and $6 off a bottle of Jack Daniels Single Barrel Tennessee whiskey.

"The liquor category is down for the year, and they are selling more goods on promotion. That's why the spirits companies are so thrilled this holiday season," Lake said.

One spirit that is bucking the trend is Sobieski vodka from Poland, which has grown rapidly since its introduction two years ago into a 600,000-case-a-year brand in the U.S.

Although that's still small potatoes compared with the 9 million cases of Smirnoff sold domestically each year, Sobieski looks to have hit the sweet spot created by the current economic environment.

At a typical price of about $10.99 for a 750-ml bottle, Sobieski, along with the Swedish vodka brand Svedka, have become popular substitutes for people trading down from more expensive labels but who still want an import, Lake said.

"Nobody is happy about the poor economy, but it played into our hands" said Chester Brandes of Imperial Brands Inc., which distributes Sobieski. "Pricing is contracting, not expanding, in this industry, and we can show that you don't have to spend a king's ransom to get a good bottle of vodka."