Notorious Beam Team

From the Glasgow Evening Times:

"Around 650 workers at the Diageo Johnnie Walker factory in Kilmarnock will be sent home for a week in March and a week in April following an internal review. They will, however, continue to be paid while production is halted.

And Diageo today stressed that the hi-tech plant in Hill Street remained viable and had a long term future...

A company spokesman said: "In response to our current volume outlook we have decided to temporarily close our Kilmarnock packaging site for two weeks during which the employees affected will continue to be paid.

"We will continue to work closely with employee representatives during these difficult times - and ensure regular communications with all our employees.""

For more on this have a look at Luxist's article on Johnnie Walker and also a more detailed look into the Diageo restructure.

Interesting commentary on the effects of economic downturn and the Absolut issue from Wine and Spirits Daily.

"How is the economy affecting Fortune Brands’ spirits portfolio? That’s the million dollar question. Most of the spirits companies (other than Brown-Forman) have been reluctant to admit that the U.S. economy has taken much of a toll. The general consensus is that consumers view spirits as an “affordable luxury.” Sure, there might be a slowdown in value spirits brands, but premium and super-premiums continue to grow. In an age of premiumization and trading up, spirits companies are generally more concerned with their premium and up brands anyways. Most spirits companies also seem to think they will have no problem bouncing back from a slowdown and that the dawning recession is merely temporary. Declines in the on-premise are perhaps the biggest thorn for distillers, but most claim it’s not a significant change.

“What we have seen a little bit is a little less consumption at bars and restaurants and more people buying at their local liquor store, but it's not that significant,” Fortune ceo Bruce Carbonari told WSJ earlier this month.

In the first quarter, spirits sales were flat in the U.S., but Fortune says some of that was a result of larger-than-usual seasonal reductions in distributor inventories.

"While our reported spirits sales were relatively flat, shipments of spirits were adversely impacted in the U.S. by larger-than-usual seasonal reductions in distributor inventories that don't reflect the health of our brands in the marketplace," Carbonari said in a statment. "Had distributor inventory movements been consistent with the prior year, our worldwide spirits sales would have been solidly higher.”

Spirits sales increased at the premium end of the portfolio, reflecting favorable mix shift and Fortune’s continued focus on growing premiums. On a depletions basis, Fortune’s global premium brands grew in the U.S. and demonstrated strong growth in the U.K., Spain and Germany, as well as in Russia, India and China."

...

First quarter depletions for Jim Beam were off in the first quarter, but Fortune is still expecting another strong year for Beam. The next generation of Jim Beam’s market campaign will rollout in the second quarter.

Sauza had lower shipments overall in the quarter due to inventory movements and tough comps. Depletions were strong in the U.S., however, and super-premium Sauza Hornitos continued to see strong growth.

Courvoisier increased double digit net sales on strong increases in the U.S. Maker’s Mark also experienced strong depletions overall.

WEAKENING ECONOMY. There was a lot of economy talk in today’s conference call. Overall, Fortune maintains that the economy has not had a large impact on spirits sales, although it has taken a toll (albeit it small) on value brands and the on-premise. Florida and California in particular have experienced a slowdown.

“We have seen no significant changes in the U.S. market...we’ve seen some change on-premise versus off-premise...geographic slowdowns correlates to the housing market, which we are seeing most heavily in Florida and California, especially on-premise,” said Carbonari.

“We have not seen the softening U.S. economy have a meaningful impact on total consumer demand...we benefit from our strong premium position,” cfo Craig Omtvedt.

“We had a good Christmas season...we have not seen trading down. The premium brands grow more than the value side and we’ve seen this trend for awhile now. The cocktail is still an affordable luxury and people aren’t willing to give that up. We’ve seen very little trade down at this point,” said Carbonari."

From Luxist:

"Our faltering economy is starting to hit the cocktail culture. MarketWatch reports that while alcohol manufacturers usually do just fine in a tough economy, bars and nightclubs may find themselves in trouble. As the purse strings tighten people tend to opt for drinking at home versus spending their cash on pricey bar cocktails. Currently liquor is still seen as an affordable luxury, it is far easier to buy top shelf booze than a top-of-the-line car, but that may change over time. As we've mentioned before on this website, the current economic climate is having more of an effect on the middle of the wealth spectrum rather than the upper end. Therefore casual dining restaurants are feeling more of the pain thus far and the bar tab makes up a significant portion of each sale. Brand loyalty will protect many labels especially in the cases of people who have ordered the same drink for years.

Wine Spirits Daily has also been on the case trying to predict what will happen to the various liquor ranges. Most of the people in the industry that they surveyed believe that the $20 to $30 "premium" spirits are probably safe but the "ultra premium" bottles that are in the $50+ range might not be so appealing as the aspirational consumer starts to pare down. Most feel certain that the middle range of the market will remain safe. One of their respondents echoed the concerns expressed in the MarketWatch article that where people drink may change more than what people drink. Most people, regardless of the economy, won't be willing to give up their cocktails but if they can get them for cheaper they will."