No More Flavoured Whiskey

No More Flavoured Whiskey

Fred looks at the ever increasing demand for line extensions

Thoughts from... | 25 Apr 2014 | Issue 119 | By Fred Minnick

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Bourbon is booming. In 2013, American distilled spirits earned $1.5 billion in exports with bourbon and Tennessee whiskey accounting for more than $1 billion. The Distilled Spirits Council also reported whiskey "paced" the U. S. domestic $22.2-billion supplier sales, a growth of 4.4 per cent.

This big money news coincided with the Suntory purchase of Jim Beam for a lofty $16 billion and the Kentucky Distillers Association announcement of a record 630,000 Kentucky Bourbon Trail visits.

For a good month, the mainstream media focused on bourbon growth. Fortune magazine featured Bourbon on the cover, while investor websites drooled over the possibilities of quick profits in Diageo and Brown-Forman stocks.

Hidden in the "buy now" stories was not-so-subtle praise for the spirit industry's fastest growing segment—flavoured whiskey.

"Tennessee whiskey grew 10% over the first six months of its fiscal 2014 year with a global rollout of its Tennessee Honey — the first flavoured Jack Daniel's product — helping to push net sales higher by 30%," wrote American investor website Motely Fool.

According to 2012 Nielsen research, flavoured whiskey represented 75% of the growth in all whiskies. Thus, investors see flavoured products as innovative and an opportunity to cash-in big.

"New flavoured whiskeys are also driving category growth," said Peter McDonough, chief marketing and innovation officer of Diageo North America, in a recent investor's call. "Flavoured whiskeys came into play just a few years ago and currently make up only 11% of the category, but as you can see here, are driving more than half of the category value growth this past year. Flavours make whiskey more approachable to consumers and they help to recruit women, younger LDA and multicultural consumers into the whiskey category."

Although the U. S. federal government allows flavoured whiskey and even the usage of Kentucky Straight Bourbon Whiskey on the labelling, this category is short-sided and will be more responsible for bad hangovers and brand depreciation than bringing new consumers into the category. Just look at the spirit industry's running joke—flavoured vodka.

The past five years the U. S. government has granted 3,142 flavoured vodka label approvals, which include Alaska Purgatory Hemp Vodka, Pinnacle Rainbow Sherbet Vodka and Zubrowka Grass-Flavoured Vodka. Connoisseurs and bartenders are leaving vodka every day for more appealing spirits categories that are not bastardizing their brands.

American whiskey is a long way from reaching rubbish-laden vodka levels, but there's immense pressure on brand managers to create line extensions. Four Roses master distiller Jim Rutledge says he was once approached about creating a flavoured line, to which he gave an "over my dead body" reply with a few more expletives. "As long as I'm around, Four Roses will never have a flavoured product," Rutledge says.

Right now, Jim Beam, Jack Daniel's, Knob Creek, Wild Turkey, Evan Williams and many others have flavoured product lines to capture new consumers.

Listen, I know Bourbon was once the bottom dweller of the liquor business and the 1970s saw the closure of the Old Taylor Distillery, the selling of the Van Winkle owned Old Fitzgerald Distillery, aka Stitzel-Weller, and the steep decline continued in the 1980s.

For the first time in decades, this business is enjoying steady growth, and the brands are booming at record rates. Brands are doing everything they can to keep the momentum going; nobody wants a repeat of the 1970s and '80s from a business perspective.

But, line extensions are not the answer.

The bottom line is whiskey's marketers shape the category's future. We need more true brand ambassadors who stand up against the short-term profits of flavoured whiskey and build a foundation for the future of better whiskey.
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