Expanded product selections, in-store tastings, promotions of exclusive releases, and trading up fueled strong spirits sales in the 17 control states in 2018. Single-barrel Bourbons, Irish whiskies, Cognac, Tequila, and RTD cocktails experienced high growth rates. Consumer demand for super-premium spirits rose, even as popular brands like Tito’s, Jim Beam, Fireball, and Crown Royal remained top-sellers for many states. “The economy is strong and prompting demand for premium products across categories,” says Agnes Stevens, administrator of the North Carolina Alcoholic Beverage Control Commission. “The outlook for 2019 is positive.”
Control states are modernizing and expanding retail operations, making technological advances in inventory management, and utilizing e-commerce. For the third consecutive year, spirits growth in control states outpaced license states. Spirits volume in control states grew 2.8% last year to 53.1 million 9-liter cases, according to Impact Databank. By comparison, total U.S. spirits volume increased 2%, according to Impact Databank.
Dollar Sales Rule
Michigan, the No.-1 spirits control state by volume, grew 3.2% in 2018 to 8.19 million cases. “For the last seven years, sales of spirits in Michigan have climbed significantly, with a very strong price mix each year,” says Andy Deloney, chairman of the Michigan Liquor Control Commission.
Ranked second, Pennsylvania was the only control state among the top ten to decrease in volume, with a 1.6% dip to 7.67 million cases. Nevertheless, dollar sales in the Keystone State grew 4.4% to approximately $1.4 billion as consumers traded up, particularly in whisk(e)y, Tequila, and Cognac. The highest dollar sales increases in Pennsylvania last year were in the RTD, brandy/Cognac, and Tequila categories, which saw increases of 34.5%, 13.3%, and 10.6%, respectively.
In 2018, Pennsylvania’s highest-volume growth category, whisk(e)y, grew 8% to 1.97 million 9-liter cases. American whiskey, primarily Bourbon, gained $15 million, or 7.7%, while flavored whiskey gained $6.3 million, or 16.7%. Imported whiskies saw double- and triple-digit growth in some price segments. “Last year Pennsylvania consumers responded very favorably to single-barrel spirits selected by and bottled exclusively for Fine Wine & Good Spirits,” says Tim Holden, chairman of the Pennsylvania Liquor Control Board (PLCB). Some exclusive barrels offered by Fine Wine & Good Spirits included Four Roses Fine Wine & Good Spirits 22nd Edition ($90 a 750-ml.), Blanton’s Single Barrel Fine Wine & Good Spirits Barrel 209 ($68), and Knob Creek Single Barrel Select Kentucky Straight Rye Barrel 6976 ($50).
In third-ranked Ohio, volume increased 4.6% to 6.16 million cases, while dollar sales grew 8.1% to approximately $1.26 billion, according to the Ohio Division of Liquor Control. The state saw double-digit gains for American whiskey, Irish whiskey, and Tequila, as well as strong Cognac sales, and the popularity of private-barrel Bourbonreleases at agency stores soared. “Consumers are really going for those top-shelf brands,” says Jim Canepa, superintendent of Ohio’s Division of Liquor Control. He added that the state instituted a new computer system to control inventory and ordering, which allowed officials to evaluate sales data and make more informed decisions about products.
Social Media Blitz
Control states are using social media to promote sales. Facebook is the strongest driver of the PLCB’s online sales, according to Holden. PLCB Facebook promotions have included a Fill-A-Tote wine program, free shipping on e-commerce orders over $50, and a $10 gift card for online orders of $50 or more. “We see significant return on investment with Facebook ads, especially carousel ads that feature multiple products,” Holden says, adding that such ads are continuing this year. The PLCB’s Instagram presence also drives sales, and the Board uses Twitter and YouTube for marketing campaigns as well.
Elsewhere, the Virginia Alcoholic Beverage Control Authority Board (ABC) is developing an omni-channel business plan to improve its e-commerce. “This will work to enhance Virginia ABC’s e-commerce capabilities for consumers and licensees, from easy payment and verification options to quick order fulfillment and potentially direct-delivery options,” says Jeffrey Painter, chair of the Virginia ABC.
North Carolina, the No.-4 control state by volume, posted the highest volume growth rate among control states at 5.2% to 5.98 million cases. Trading-up trends are evident among the state’s top five spirits brands by volume. While such premium brands as No.-1 Tito’s ($22 a 750-ml.), No.-3 Fireball ($16), and No.-5 Hennessy VS ($38) all increased in volume—by 28%, 8%, and 9%, respectively—standard labels No.-2 Aristocrat Supreme vodka ($5.50) and No.-4 Burnett’s vodka ($8) saw volume decline.
While the spirits market in North Carolina is on a roll, there is room for improvement. The North Carolina State Auditor released a report last August criticizing the North Carolina Alcoholic Beverage Control Commission (NC ABC) for poor contract administration—costing the state at least $11.3 million over 13 years—and unused warehouse space, which cost at least $2.1 million over seven years. The NC ABC is implementing some of the report’s recommendations, including contract review and third-party assistance in rebidding the contract for future warehouse services next year, as the current contract expires in 2021. The audit stated that a three-year warehouse contract with LB&B Associates that began in 2004 exceeded “the three-year contract term limit four times without proper review and approval.” Stevens replaced Robert Hamilton as NC ABC administrator after his resignation two weeks prior to the release of the audit.
In Virginia, spirits volume increased 3.4% to 5 million cases in 2018. Consumers traded up as well, evidenced by the 4.5% dollar sales growth for fiscal 2018. Virginia is on pace this year to become the fifth control state—after Michigan, Pennsylvania, Ohio, and North Carolina—to reach $1 billion in annual gross sales after reaching $983.4 million in fiscal 2018.
During fiscal 2018, the Virginia ABC opened five new stores which generated $5.4 million. The agency also oversaw 11 store remodels and two store relocations. Bourbon was up almost 8% and rye increased in sales by 25%. Four of the top five spirits brands in Virginia are brown spirits—a Cognac, two Bourbons, and a whiskey-based cordial. But it’s a vodka that tops the list: Tito’s Handmade vodka ($22 a 750-ml.) rocketed 33.7%, by $8.5 million, to approximately $33.5 million last year, leapfrogging from No. 3 in 2017 to become the No.-1 selling spirits brand in Virginia in 2018. Jack Daniel’s ($25), the No.-3 brand, increased 2% to $33.55 million, and No.-4 Jim Beam ($17) grew 5.3% to $21.5 million. No.-2 brand Hennessy VS was down 2.3% to $33.2 million, while Fireball increased 0.5% to $18.7 million, rounding out the top five.
Retail operations are also expanding in Pennsylvania, where seven standard Fine Wine & Good Spirits stores are being converted into Premium Collection stores to meet increasing consumer demand for luxury wines and spirits. The PLCB is planning roughly 70 store projects for 2019, including new stores, upgrades, remodels, and relocations.
Check-Out Impulse Buys
Consumers are experimenting with new and premium products and smaller packages. “Over the last two years we’ve taken a new approach with small sizes, expanding our selection of 200-ml. and 375-ml. spirits and moving them out from behind the counter wherever possible, making them shoppable for consumers,” Holden says.
The initiative has been a success, and the PLCB is now developing a merchandising strategy for stores where theft concerns prevent small sizes on the sales floor. “We’re testing an expansion of our 50-ml. spirits portfolio, and we’re adding multi-packs in that size, creating a destination in stores for those products,” Holden says. “In new stores, the goal is to create enough space near the checkout area to position this 50-ml. and multi-pack section and promote impulse buys.”
Virginia also has increased sales of smaller spirits sizes. “Virginia has seen sales growth of RTD cocktails in 200-ml. bottles and 12-ounce cans,” says Travis Hill, CEO of the Virginia ABC. “Since they are cooler-ready, they performed well in the warmer months.”
Sunday sales also showed their value in Virginia in fiscal 2018 with 23.3% growth to $73.9 million. This increase is partially attributed to two high-sales days—Christmas Eve and New Year’s Eve—that both fell on Sunday last year. Friday, however, was Virginia’s most profitable day of the week; during fiscal 2018, Friday spirits sales totaled $242.9 million, accounting for 24.7% of total spirits sales in the state.
The Virginia ABC has taken steps to expand consumer engagement and merchandising. A promotional kiosk display program focusing on seasonal recipes, product category education, food pairings, and Virginia products expanded following strong sales in a 30-store pilot program. The kiosk display is now in 137 stores and continues to show good results.
The Virginia ABC also launched a holiday Door Buster Days promotion, which offered ten top-selling 1.75-liter products at a 15%-20% discount during the three-day promotion in 2017. The promotion’s great results led to a second Door Buster in June last year, the “Declaration of Savings,” featuring select 1.75-liter items at 17.76% off, which yielded similar success.
For the 2018 winter holidays, Virginia ABC launched its “Raise the Bar” marketing campaign. Promotional events included a three-day Door Buster sale on ten premium 1.75-liter products, six category-specific “Spirited Thursdays,” and Black Friday and Cyber Monday sales. All promotions offered 20% off and were supported by a 12-week, statewide media campaign that featured ads on TV, radio, digital displays, and social media. The campaign generated $7.5 million in sales.
Also during the 2018 holiday season, Virginia ABC created mall kiosks and temporary storefronts in three areas of the state, which offered a selection of gift sets that featured 15-20 premium spirits starting around $50 as well as various bar accessories.
Crafts’ Big Growth
The craft segment maintains strong growth in control states. Virginia has seen rapid expansion—from ten craft distilleries in 2008 to 61 in 2018, with 11 licenses currently pending, according to the Virginia Distillers Association. “Millennial consumers are looking for new products and are drawn to the authenticity that craft products offer,” Hill says. The craft industry also forged ahead in Pennsylvania, with nearly 30% growth in licensed limited distilleries in Pennsylvania from 2018 to the start of this year. There are currently 105 licensed limited distilleries, each allowed to produce up to 100,000 gallons of spirits annually. At Fine Wine & Good Spirits stores, sales of Pennsylvania spirits grew 2.8% in 2018, while sales of spirits in the Pennsylvania Spirits Program—which allows smaller producers to select up to ten products to sell in up to ten Fine Wine & Good Spirits stores to introduce their products to new customers—increased by more than 50%.
Looking ahead, the PLCB is investing significant resources into the Fine Wine & Good Spirits website. Online sales have increased more than 50% year over year, driven by brown spirits. PLCB officials are exploring same-day delivery and in-store pickup options. “This complete redesign of our site will provide a modern-looking, mobile-friendly shopping experience when it’s launched,” Holden says.
Control states appear poised to continue seeing consistent growth. “We expect to maintain growth thanks to consumer demand for craft spirits, trial sizes, premium spirits, and engaging information online and in stores,” Painter says.