SIC 2085
DISTILLED AND BLENDED LIQUORS



This category includes establishments primarily engaged in manufacturing alcoholic liquors by distillation and in manufacturing cordials and alcoholic cocktails by blending, processing, or mixing liquors and other ingredients. Establishments primarily engaged in manufacturing industrial alcohol are classified in SIC 2869: Industrial Organic Chemicals, Not Elsewhere Classified, and those bottling purchased liquors are classified in SIC 5182: Wine and Distilled Alcoholic Beverages.

NAICS Code(s)

312140 (Distilleries)

Industry Snapshot

In 2002, American consumption of distilled spirits totaled 153.0 million cases, an increase of 1.8 percent from 2001, the fifth consecutive year of gains for the distilled spirit industry. Despite a weak economic climate, adult beverages were driven by desirable high-end premium products and consumers growing thirst for fruit-infused vodkas, rums, and other flavored alcoholic beverages. These newly introduced flavored beverages combined with mixability were key factors in the spirit industry's growth.

Although product introductions such as "hard" lemonades and iced teas became popular spirits in 2001, flavored-malt beverages dubbed "malternatives" were the favored adult beverages of 2002. Spirit-branded products, especially vodka and tequila, were the leaders in this fast-growing segment. Malternatives grew 25 percent in the United States in 2001 and 7 percent worldwide. Vodka-infused drinks were the most successful, owning 24 percent of the market, followed by tequila-infused drinks with 5 percent.

All the major liquor companies watched the international arena, especially the Asian market. Japan was already at the top of the U.S. export list and had been a favorite home for American whiskey. Latin America was also noted for its tremendous growth opportunity, especially for premium-priced products.

Organization and Structure

A few large companies that offer a variety of alcoholic beverages dominated the distilled spirits industry. Most started with a flagship brand, such as Jim Beam Bourbon, and diversified into a family of products that included whiskey and non-whiskey items, such as gin, vodka, rum, tequila, cordials, mixed cocktails, and even fruit juices and other nonalcoholic or low-alcohol beverages. Many, such as Seagram's, Diageo, and Allied Domecq were subsidiaries of large multinational conglomerates with diverse portfolios.

This category includes only those companies that produce distilled spirits. All distillers have to sell their products through wholesalers and retailers in order to accommodate various federal, state, and local regulations regarding the sale of alcoholic beverages. The Federal Alcohol Administration Act (FAA) was established at the end of the 13-year Prohibition Era in 1933. The FAA, which is enforced by the Bureau of Alcohol, Tobacco, and Firearms (ATF), qualifies distillers, collects producer and wholesaler occupational taxes, and regulates trade practices, advertising, and labeling. Beyond the uniformity of the FAA, regulations vary greatly among the 50 states.

States can sell distilled spirits either with an "open," licensed method or in a controlled environment. Open states have licensed retailers and wholesalers that handle the distribution and sale of alcoholic beverages. Thirty-two states and the District of Columbia use the open method. The other 18 states operate under the control method, in which each state government buys and sells alcoholic beverages at the wholesale and retail levels.

In addition to federal regulations, some states have set up their own independent agencies that are responsible for the administration, licensing, and enforcement of state laws and the collection of state revenues. Some state legislatures have created their own Alcoholic Beverage Control (ABC) agencies with rule-making power, and 32 states allow their citizens to vote for or against the sale of liquor on a city or county-wide basis.

Background and Development

All forms of alcoholic beverages—beer, wine, and liquor—are based on fermentation, the natural process of decomposition of organic materials containing carbohydrates. Liquor production involves the extra step of distillation, which reduces the original water content and greatly increases the alcoholic strength. Whereas beer averages 2 to 8 percent alcohol content, and wine averages from 8 to 14 percent, distilled spirits range from 35 to 50 percent alcohol. Two types of raw materials are used to make a distilled spirit: sugar and carbohydrates. Sugary materials include grapes, sugarcane, agave, molasses, and sugar. Those materials with high levels of carbohydrates are corn, rye, rice, barley, wheat, and potatoes.

Civilizations in almost every part of the world developed some type of alcoholic beverage. The Chinese distilled a beer from rice before 800 B.C. The Arabs developed a method used to produce a distilled beverage. A reference to distillation appears in the writings of the Greek philosopher Aristotle, and the Romans produced distilled beverages, although no written references have been found prior to 100 A.D. Liquor production was reported in Britain before the Roman conquest. However, production of distilled spirits in Western Europe was limited until the eighth century, after contact with the Arabs.

Distilled spirits can be classified into two categories: brown goods and white goods. Brown goods include all whiskies, bourbons, and scotches. White goods include vodka, gin, rum, and tequila. Other major segments in the distilled spirits market are the cordial or liquor category and the assortment of ready-to-drink cocktails.

Whiskey. Whiskey is an all-encompassing term for any distilled liquor made from a fermented mash of grain. Although all whiskey is distilled in a similar manner, each can taste quite different. The four primary steps to make whiskey are mashing, fermenting, distilling, and aging. The grains of corn, barley, rye, and/or wheat are ground into a fine meal, mixed with water, and cooked until the starches have been converted into sugars. This process creates a "mash" that is mixed with yeast, converting the sugars into alcohol. The fermented mixture is then pumped into a still where steam condensation allows the alcohol to separate from the water and byproducts. Fresh from the still, the whiskey is colorless, harsh, and in need of aging. The aging process enhances the spirit and refines the whiskey, giving it an amber color.

Federal regulations specify that whiskey must be "produced at less than 190 proof and bottled at not less than 80 proof." American-distilled whiskeys include Tennessee, rye, and blended. Tennessee whiskey, such as Jack Daniel's and George Dickel, is a distinct product due to the filtering of the whiskey through charcoal prior to aging. Rye whiskey is made from at least 51 percent rye and distilled at no more than 160 proof. The whiskey then is stored at no more than 125 proof in new oak barrels. Blended whiskey, such as Seagram's Seven Crown, comes from at least 20 percent straight whiskey mixed with other whiskey grain neutral spirits. Blended whiskey became popular during World War II when whiskey was in short supply and distillers stretched its availability by adding grain neutral spirits.

Scotland remains the international leader in high-quality whiskey making. Blessed with natural resources and the ideal climate for making whiskey, Scotland boasts a long and rich history of distillation and a devotion to creating distinctly individual malts. By law, all scotch whiskey must be aged at least three years, although few brands enter the United States without being aged at least four. Scotch can be bottled in the country of origin or it can be shipped in bulk to the United States for bottling, which can be more cost effective.

More than 95 percent of scotch consumed worldwide is blended whiskey. Blends are the result of mixing both single malts and grain whiskies and are created to "soften" the harsher characteristics of individual malt whiskies. Although they are still a small percentage of the overall scotch consumption in the United States, single-malt whiskies have been made by Scottish distillers for more than 500 years. Single malts, the original scotch whiskies, are derived from sprouted barley that has been dried in kilns fired by peat and coal, which imparts a distinctive smoky character to the spirit. Produced by more than 100 scotch distilleries, each single malt has a style and flavor all its own.

Canadian whiskey is a blend of mostly rye with corn, wheat, and barley malt. By Canadian law, no more than 9.09 percent of a Canadian label may include whiskey from other countries. It must be blended from cereal grains, and it has to age in wood at least three years. As a rule, Canadian whiskies are light-bodied and slightly pale, with a reputation for having a mellow quality.

Irish whiskey is made from a fermented mash of malted and unmalted barley, corn, rye, and lesser amounts of other cereal grains. Unlike the Scots, who dry malt over an open peat fire to give it a smoky flavor, the Irish dry malt in closed kilns. Irish whiskies are full-bodied and possess a smooth malt flavor. All Irish whiskies are triple-distilled in copper pot stills and are aged three to nine years in reused sherry, brandy, bourbon, or rum oak casks. Irish whiskey remains the smallest of all the distilled spirits categories in the United States, accounting for less than 1 percent of all distilled spirits consumption.

Bourbon. Part of the whiskey group, bourbon is a uniquely American product, as corn is its main raw material. The drink was created unintentionally in 1789 when a Bourbon County, Kentucky, farmer sealed his whiskey in a charred barrel. This aging process picked up the mellow smoky flavor of the wood, giving bourbon its distinctive taste. In 1964, the U.S. Congress officially named bourbon America's "Native Spirit" and has tightly regulated bourbon's production to ensure a consistent, quality product. Straight bourbon whiskey is required by law to contain at least 51 percent corn, to be distilled at no more than 160 proof, and to be aged a minimum of two years in new, charred oak containers. Jim Beam Kentucky Straight Bourbon Whiskey continues to be the best-selling bourbon in the United States.

Vodka. Vodka continues to be the most popular liquor in the United States, accounting for more than one out of every five bottles of distilled spirits sold. According to U.S. federal regulations, vodka lacks aroma, taste, and color. It is distilled at a high proof, extracting all of the congeners, or the natural compounds in the distillate that give the product its taste and aroma. Because vodka is highly neutral, it is possible to make it from a mash of the cheapest and most readily available raw ingredients. Although traditionally made from potatoes, vodka is now generally produced from cereal grains, including rye, wheat, and barley, but mostly corn.

Vodka originated in Russia during the fourteenth century and has remained commonplace in Russia, Poland, and the Baltic States. It became popular in the United States after World War II with the introduction of a drink called the Moscow Mule. In the land of its origin, vodka is usually consumed chilled, straight up in small glasses and accompanied by appetizers. In the United States, vodka is the base ingredient in a variety of popular cocktails.

Gin. Gin is the distilled product of juniper berries mixed with a clear grain-based spirit. First distilled by a seventeenth-century professor of medicine in Holland to produce an inexpensive medicine, gin quickly became a popular drink in Britain and later in the United States. Government regulations require that gin be bottled at 80 proof or higher, have a juniper berry flavor, and be made either by distillation or compounding. Compound gin, made by a less costly method, is the combination of neutral spirits with the oil and extracts of the botanicals.

Aging is not a factor with gin, although U.S. producers sometimes age their gins, imparting a pale, golden color. Instead, each gin achieves its distinct taste through the distiller's specific combination of gin botanicals, such as cassia, anise, coriander, angelica, and juniper. Gin is a flavored spirit. Without the flavoring, it would be vodka.

Rum. A favorite American spirit long before bourbon whiskey, rum is a sweet, distilled spirit made from sugar cane. Although debate continues as to where rum was first produced, by the late seventeenth century the liquor was being distilled in the American colonies using molasses from the West Indies. In fact, the first distillery in what is now called the United States was built on Staten Island and was already producing rum when the English seized the Dutch colony in 1664.

By federal law, rum must be distilled from the fermented juice of sugar cane, sugar cane syrup, sugar cane molasses, or other sugar cane byproducts at less than 190 proof. It can be made anywhere, although more than 80 percent of rum is produced in Puerto Rico. The two main types of rum are light-bodied rums, which have a dry, subtle flavor, and full-bodied rums, a more aromatic variety.

Tequila. Made from the heart of the agave plant, Tequila is produced in its namesake town located in the central Mexican state of Jalisco. The core of the plant, which resembles a large pineapple, is harvested, cut into chunks, and baked in steam ovens. The juice is extracted by steaming and compressing the core. After fermenting for several days, the juice is distilled at a low proof. The tequila then is double distilled to a powerful 110 proof and reduced to 80 proof with water before bottling.

Although tequila can be bottled as a clear product, the gold and "anejo" products are aged in wood. Gold tequila is kept in large oak vats for about nine months to a year, acquiring its pale gold color. By law, tequila designated anejo must be aged in a wood container for at least one year, although most anejo products are aged for three to seven years.

Cordial. The cordial or liqueur category is the largest and most diverse in terms of the number of brands, flavors, and alcohol content. It also is one of the largest in total case sales. Products in this category encompass all flavors and are used as after-dinner drinks, aperitifs, components of classic cocktails or popular shooters, or flavorful enhancements to foods.

Originating in Europe, cordials and liqueurs are alcoholic beverages that are prepared by mixing or compounding various spirits with flavorings. The cordial category includes schnapps, liqueurs, cremes, and brandies. Cordials must contain at least 2.5 percent sugar by weight, although most are considerably higher in their sugar content and may contain up to 35 percent of a sweetening agent.

Cordials are produced by one of three methods: percolation, maceration, or distillation. The percolation process starts with pouring the spirits in the bottom of a large tank with a basket-like container filled with fruit and spices near the top. The sprits then are "percolated" up through the basket, extracting the flavors of the fruit. With maceration, the fruit and other ingredients are mixed with the spirit and allowed to steep until all the flavors have been extracted. In the distillation process, all the ingredients are placed in the still with grain neutral spirits and gently heated.

Industry Regulations. After a peak consumption year in 1981, the industry saw consumption decrease slowly nearly every year. Seagram Americas became the first spirits marketer to break the 48-year-old voluntary ban on television advertising in June 1996 with its ad for Crown Royal Canadian whiskey on KRIS-TV in Corpus Christi, Texas. Major TV networks, however, refused to take liquor ads, and cable and local stations were left as the only outlet for spirits advertising.

The issue of liquor advertising opened a floodgate of controversy, including admonishments from President Clinton, Mothers Against Drunk Drivers, and Reed Hundt, chairman of the Federal Trade Commission. All of these parties said the ban should remain to protect children. George Hacker, of the advocacy group Center for Science in the Public Interest, said the repeal of the broadcast ad ban "marks the beginning of an open liquor-marketing season on America's children and teens."

The Federal Communications Commission (FCC) began a formal inquiry into the placement and content of Seagram's ads, while the Federal Trade Commission (FTC) followed with its own investigation. Congress took up this issue with the Senate Commerce Committee telecommunications subcommittee hearings in March 1997. Witnesses included the FTC Chairman Robert Pitofsky, FCC Chairman Reed Hundt, industry critics including former Senator George McGovern, and representatives of the beer, liquor, broadcast, and cable industries.

In September of 1999, the FTC released its report on industry efforts to avoid promoting alcohol to underage consumers. The report, "Self-Regulation in the Alcohol Industry," recommended that industry improve enforcement of its "Code of Good Practice" by adopting a third-party review of compliance and reduce underage exposure to alcohol ads by changing the current placement standards. The report recommended that all industry members adopt and build upon the industry's current best practices and go beyond the minimum code requirements. The report also urged companies to give special attention to restricting access to Web sites that advertise alcohol. It noted that some companies had already made an attempt to address concerns by discontinuing the use of content that would appeal to underage users. Dr. Peter H. Cressy, president and CEO of the Distilled Spirits Council of the United States (DISCUS), issued a statement confirming that the distillers were willing to review the "Best Practices" identified in the report and consider any new provisions recommended.

Other legislative action of the late 1990s included the BAC Amendment. Approved by the Senate in 1998 by a wide margin, the amendment, which set a 0.08 blood-alcohol content level, brought a lobbying blitz from the liquor industry. About 15 states passed the BAC laws and legislation was introduced in 25 state legislatures.

The passage of the so-called "21st Amendment Enforcement Act," restricting the sale of alcohol over the Internet, was passed by the U.S. House of Representatives in August 1999. The legislation originated with Mothers Against Drunk Driving (MADD), which had concerns about the sale of alcohol to minors over the Internet. Bob Shearouse, MADD's director of public policy, said, "We don't want a total ban, but just proper safeguards." The legislation was welcomed by anti-alcohol crusaders and by wine wholesalers, who considered themselves vulnerable to online vintners. Those opposing the legislation included the wine industry and e-commerce advocates, who believed the restrictions posed a threat to a free Internet marketplace.

The legislation provided state attorneys general in 20 states the power to seek a federal injunction against any company who might be in violation of state alcohol laws. In the other 30 states direct shipments were illegal, and in Florida, Georgia, Indiana, Kentucky, North Carolina, and Tennessee, direct shipments were a felony. Because most states require alcoholic beverages to be sold only through a state-licensed wholesaler, under the Enforcement Act, states can prosecute out-of-state companies if they make shipments violating the state's law.

As of 2000, alcohol was the most heavily taxed consumer product in the United States; more than half the money consumers spent on a bottle of distilled spirits went for taxes. Federal, state, and local governments received more than $7.5 billion per year in tax revenue from the distilled spirits industry and $18 billion from the entire alcoholic beverage industry. According to DISCUS, the federal beverage alcohol tax structure was particularly biased against distilled spirits.

Current Conditions

American consumption of distilled spirits remained strong in 2001, showing sales of more than $2.4 billion in U.S. supermarkets and drug stores, an increase of 6.4 percent over 2000. In total 146.1 million cases were consumed, up .6 percent from 145.3 million cases in 2000. In 2002, U.S. consumption of distilled spirits totaled 153.0 million cases, an increase of 1.8 percent from the previous year. Then 2002 marked the fifth consecutive year of gains for the distilled spirits industry, despite a weakened economic climate in the early 2000s.

The top sellers in the measured channels in 2001 were Smirnoff's Vodka ($138 million, up 21 percent), Bacardi's Rum ($135.8 million, up 10.6 percent with a 44.6 percent share of the rum market), and Jose Cuervo tequila ($83.3 million, up 4 percent). Vodka continued to surpass all other types of distilled spirits, gaining 9.3 percent in sales to reach $619.5 million during 2001. Domestic vodka led the category in sales, at $457 million, up 8.9 percent from 2000. In the past, vodka was popular because American consumers wanted lighter, less flavorful beverages. But as classic cocktails were revived in the 1990s, many were resurrected with a vodka base. Moreover, premium vodkas such as Ketel One, Absolut, and Skyy were growing in popularity, as well as infused vodkas such as Absolut Citron, Absolut Kurrant, Finlandia Cranberry, Finlandia Pineapple, and Tanqueray Sterling Citrus. North American whiskey ranked second in sales at nearly $542 million, up 3.9 percent. Tequila also reported an increase in sales, up 7.8 percent to $166 million, making it one of the fastest growing categories.

In 2001, the sales breakdown of other distilled spirits was as follows: rum, $305.7 million, up 10.9 percent; gin, $139.8 million, up 2.7 percent; Scotch whisky, $170.7 million, down .4 percent; brandy/cognac, $162.4 million, up 4.1 percent; flavored brandy, $16 million, up 12.2 percent; Irish whisky, $8.2 million, up 2.8 percent; and cordials, $284 million, up 7.1 percent.

Rum usage rose 10.9 percent in 2001. Following in the footsteps of infused vodka, rum flavored with spices or citrus also gained popularity with American consumers. Captain Morgan Original Spiced Rum from Seagram's captured the number-two spot in the rum category with sales of $75.9 million in 2001, up 13.7 percent that year.

The Scotch whisky category was one of the few that suffered a decrease in sales in 2001, down .4 percent. Blended Scotch dropped 1.6 percent, with $152 million in retail sales, while single-malt Scotch continued to gain in popularity, up 9.9 percent to $18.5 million.

Cordials were up 7.1 percent, selling nearly $284 million in 2001. The category benefited from the growing popularity in cream liqueurs, which alone gained 12.3 percent to $70 million in sales. The trend for sweet liquors boosted the small chocolate liqueur subcategory the most, with a 258 percent increase to $147,347 in sales. Coffee liqueur followed, up 2.2 percent to $49.3 million, and premium schnapps, up 7.3 percent to $47.3 million.

Overall, in 2001 white spirits led the market with 48.3 percent, a slight increase over 48.2 percent the previous year; whiskey held 28.8 percent of the market, down slightly from 29.1 percent in 2000, whereas specialties took a 22.6 percent share, down from 23 percent the previous year.

One of the major trends driving the growth of the traditionally restrained spirits market was spirit-branded products, especially vodka and tequila. Dubbed malternatives, this new sector grew an impressive 25 percent in the United States in 2001. Globally, ready-to-drinks have grown an average of 33 percent from 2000-2003. Vodkainfused drinks led the category with 24 percent of the market, followed by tequila-infused drinks with 5 percent. Smirnoff had great success with it's popular Smirnoff Ice, introduced in 1999, which alone accounted for annual sales of $900 million worldwide and an estimated 11 percent of maker Diageo's operating profitin 2002. The May 2002 launch of Captain Morgan Gold, however, proved much less successful and was withdrawn within one year. Other ready-to-drinks included Stolichnaya Citrona, Sauza Diablo, SKYY Blue, and Jack Daniel's Original Hard Cola. High-end spirits, especially imports, were the other important trend begun in the 1990s and continued into the 2000s. Imported spirits made up 35.9 percent of total consumption in 1994 and rose to 38 percent in 2002. New flavor-infused beverages and mixability were other important factors in the success of the spirits market.

Distilled spirits continued to thrive in the United States despite a poor economy with lessened consumer spending in 2001 and 2002. Analysts also predicted healthy growth in the industry for 2003.

It was announced in 2003 that after lobbying efforts by several alcohol industry associations, revenue and regulatory control issues relating to alcoholic drinks were removed from the control of the Bureau of Alcohol, Tobacco, and Firearms (ATF). Provisions of the Homeland Security Act of 2002 moved revenue and regulatory issues related to distilled spirits, wine, and beer to the newly created Tax and Trade Bureau in the Treasury Department. Criminal activity related to the alcohol industry remained under the ATF and would become part of the Justice Department.

Other issues facing the industry included the continuing concern about alcohol marketing and advertising on television as it affects underage audiences. A group formed in 2002 at Georgetown University called the Center on Alcohol Marketing and Youth reported that up to a quarter of ads for alcoholic beverages in 2001 were seen by an audience disproportionately made up of teenagers. Although the industry argues that the voluntary guidelines are in place to prevent such advertising from being seen by underage viewers, others say such guidelines are often ignored. Spirit makers spent about $28.7 million on television advertising from 1998 through August 2002.

Industry Leaders

Diageo Plc was the world's leading and most profitable wine and spirits company, with 2002 sales of $17.2 billion and a reported 91 million cases in sales in 2000. Diageo was the result of a merger between Grand Metropolitan and Guinness in 1997. The creation of Diageo was a strategic breakthrough in the spirits industry, bringing together leading brands in most spirit categories and access to customers in more than 200 countries. Diageo's brands included Baileys liqueur, Gordon's, Gilbey and Tanqueray gin, Johnnie Walker, J&B Rare and Bell's whiskeys, and Smirnoff vodka. Additionally, it acquired Captain Morgan, Crown Royal, and VO Canadian brands through the purchase of Seagram's drink business from Vivendi Universal. Diageo also formed trading partnerships with Moet Hennessy and Jose Cuervo.

Allied Domecq Plc is the world's number-two distiller, recording annual brand shipments of 48 million nine-liter cases in 2000. Allied Domecq owned 12 of the top 100 international premium spirit brands, including Ballantine's scotch whiskey, Beefeater gin, Kahlua, Sauza tequila, Canadian Club whiskey, and Courvoisier.

Pernod Riccard is the third largest spirits company, selling 28 million cases in 2000 and recording sales of $5 billion in 2002. It is the maker of the world's leading bourbon whiskey, Wild Turkey, and is the leading seller of Irish whiskey, including Bushmills and Jameson. Other spirits the company produces include Pernod, Ri-card, Eoliki, Zoco, Altai vodka, Havana Club Cuban rum, and Clan Campbell Scotch whisky.

One of the world's leading spirits producers, Bacardi, sold 34 million cases in 2000 and reported sales of $3.2 billion in 2002. The company produces the world's best-selling rum brand. Other brands include Dewar's Scotch whisky, Martini & Rossi vermouth, Bombay gin, DiSaronno Amaretto, and B&B and Benedictine liqueurs. The company also makes vodka, tequila, and cognacs.

Kentucky-based Brown-Forman Corporation was created in 1870 when George C. Brown and John Forman opened their distillery in Louisville to produce Old Forester bourbon. In 1902, Forman sold his interest in the company to the Brown family, which has remained in control of the business ever since. Revenues during 1999 were over $2 billion, and the company employed 7,600 people. Well-known brands included Jack Daniel's, Gentleman Jack, Old Forester, Early Times, Canadian Mist, Southern Comfort, Korbel, Jack Daniel's Country Cocktails, Finlandia Vodkas, Bushmills Irish Whiskeys, and Glenmorangie Single Highland Malts.

Fortune Brands Inc.'s subsidiary Jim Beam Brands Worldwide is the leading producer of distilled spirits in the United States, with $5.6 billion in 2002 sales. Jim Beam Bourbon has been the company's flagship brand and the best-selling bourbon in the United States and worldwide. The company started in 1795 when Jacob Beam, a Kentucky farmer, developed his recipe for Kentucky bourbon whiskey. His son, David, joined the business, and with the assistance of new roads the distillery business grew as distribution broadened into the surrounding counties. In the following years, the distillery was moved twice, first to take advantage of an abundance of spring water and again to be closer to the railroad lines. The company's distillery is located on 430 acres in Clermont, 30 miles south of Louisville. Booker Noe, grandson of Jim Beam, is the Master Distiller at Clermont. In addition to Jim Beam Bourbon, the company produces a number of other bourbons, cordials, liqueurs, and whiskeys.

America and the World

While the U.S. distilled spirits market continued its growth, worldwide sales of liquor were not as robust. Euromonitor International reported that tequila was the only category to make sales gains worldwide, climbing from $5.4 billion in 1997 to $6.6 billion in 2001 with an increase of 22.9 percent. Whisky was the hardest hit category of the spirits, losing 5.1 percent in sales, dropping from $51.1 billion to $48.4 billion between 1997 and 2001. Vodka, gin, and rum all posted smaller losses, with gin losing 3.5 percent during 1997 and 2001, falling from $36 billion to $35.7 billion; rum, with a 1.4 percent loss from $15.1 billion to $14.9 billion; and vodka slipping only .7 percent from $35.9 billion to $35.7 billion.

The U.S. distilled spirits industry exported $676.2 million in 2000. Because of a drop in exports of grain spirits due to a glut in the world market, this figure is a 10 percent drop from 1996. However, whiskey and bourbon exports have risen 24 percent since 1996 and account for 54 percent of all spirit exports. In 1991, U.S. distilled spirits exports totaled 10 percent of industry sales; by 1997, they totaled over half of industry sales. From 1995 to 1996, exports rose over 200 percent. U.S. exports of distilled spirits reached a record high in 1997, according to Adams 1998 Liquor Handbook. Since 1995, U.S. distilled spirits exports have more than doubled both in value and volume.

Distilled spirit exporters in the United States will continue to gain from lower tariffs and reduced nontariff barriers in the 2000s, which will increase market access. Growth can be expected in such markets, including the United Kingdom, Canada, Turkey, Spain, and Germany. With tariffs up to 35 percent in Latin America, 268 percent in Eastern Europe, and 210 percent in Asia, growth in these areas is less likely. Although the United States has had success in the abolishment of discriminatory excise taxes in Korea, Chile, and Japan, countries including Argentina, Ecuador, Uruguay, Thailand, the Philippines, and Singapore still harbor such discriminatory tax policies.

Reports have suggested that international expansion may provide opportunities for distillers; top spirit brands have already established themselves worldwide, especially in the whiskey and cognac markets. Export opportunities could be found in the fast-growing markets of the Asia Pacific region, Latin America, and the former Soviet Bloc. "Not only are these expanding markets, but the growth is generally occurring among higher-margin, deluxe brands. What's more, trade barriers were lifted in a number of countries, such as India and Taiwan," added Barrett. Impact projected that by 2000, the consumption of distilled spirits globally would stand at 18.33 billion liters, and by 2005 it would reach 18.44 billion liters.

The Asia Pacific area has included some of the largest whiskey markets in world, with Japan at the top of the U.S. export list. The rapid ascent of a middle class in these countries was a positive indicator for the future of beverage alcohol marketers, thus making exporting a key area for companies to concentrate their efforts. The U.S. Industry & Trade Outlook '99 forecasted that U.S. exports would increase 3 to 8 percent annually in the five years following 1999.

Beverage alcohol marketers also were beginning to focus on growth in other countries. After successful penetration of the Japanese market, whiskey advertising could be found in Britain and other affluent markets. Latin America, for example, has become the second greatest growth opportunity, particularly for premium-priced scotch marketers like Seagram. Sales of scotch grew over 50 percent in 1991 in Venezuela, with much of the growth occurring among higher-priced brands, such as Chivas Regal Scotch. Scotch whiskey has remained the most popular distilled spirit in the world and has been sold in 190 countries. In 1999, tequila had become the fastest growing distilled spirit, and companies increasingly produced new and unique tequila varieties in an effort to attract consumers.

Further Reading

"Allied Domecq: Sprits and Wines: Introduction," 2003. Available from http://www.allieddomecqplc.com .

Ball, Deborah. "Liquor Makers Go Local—Industry Sees Odds Against Another Global Premixed Hit." Wall Street Journal, 13 February 2003.

"Brown-Forman Corporation Products," 1999. Available from http://www.brown-forman.com .

"Developing Countries Expected to Lead Alcoholic Beverage Growth." The Premier Just-Drinks: Surveys and Stats 1999. Available from http://www.just-drinks.com . Accessed April 2003.

"Diageo: Who we are," 2003. Available from http://www.diageo.com .

"Distilled Spirits: Why Trade Matters." Distilled Spirits Industry Sector Report, Washington, DC: July 2001. Available from http://www.tpa.gov .

Distilled Sprits Council of the United States. "Distillers Spirits Advertising in Perspective," 1999. Available from http://www.discus.health.org .

——. "Distilled Spirits. Responsible Industry. Responsible Consumers. Overview," 1999. Available from http://www.discus.health.org .

Federal Trade Commission. "FTC Reports on Industry Efforts to Avoid Promoting Alcohol to Underage Consumers," September 1999. Available from http://www.ftc.gov .

"Goodbye, ATF." Beverage World, 15 January 2003.

"Malternative Lifestyle." Convenience Stores Decisions, March 2003. Available from http://www.c-storedecisions.com .

"Management Interested in Seagram Unit." The Wall Street Journal, 21 August 2000.

O'Connell, Vanessa, and Christopher Lawton. "Curbs Sought on TV Alcohol Ads—Watchdog Group Lobbies for Reduction in Exposure to Underage Audiences." Wall Street Journal, 18 December 2002.

——. "Self-Regulation in the Alcohol Industry." September 1999. Available from http://www.ftc.gov .

"Spirits on the Up and Up: U.S. Sales Continue to Climb." Beverage Industry, October 2002.

"U.S. Spirits, Wine and Beer Consumption Continues to Climb: Premium Products, Flavor Fuel Growth." Adams Business Research, 3 March 2003. Available from http://www.albevresearch.com .



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