Dear Client: 

Grupo Cuervo reported a global volume decrease of 9%, while net sales were up 5.3% for the first quarter ended March 31. 

The COVID-19 pandemic impacted results and that will “continue into the second quarter,” said chief Juan Domingo Beckmann on this morning’s earnings call, who actually recently recovered from the virus himself. 

GLOBAL BRAND PERFORMANCE. Jose Cuervo (which represents about 35% of total volumes and 37% of total net sales) was the only category to report volume growth for the quarter, up 5.8%, with sales up 18.2% globally. 

The company’s other tequilas (1800, Azul Centenario and Maestro Dobel) global volumes were down about 8% and net sales were up just over 17%. RTDs were up 16.4% in volume and almost 20% in net sales.  

Other spirits (Bushmills, Three Olives, Kraken, Tincup etc.) were down about 7% in volumes and down 9.5% in net sales. 

PROXIMO SEES NET POSITIVE GAIN FROM SHELTER IN PLACE ORDERS. The company reported stronger results in the US & Canada, with volumes up 6.4% and net sales up nearly 15% for the first quarter. 

Wholesaler depletions were up 16% for the quarter, according to Mike Keyes, chief of Cuervo’s US subsidiary Proximo Spirits.

The company’s tequilas were up 23% collectively, driven by continued strength of super premium offerings. The whiskey portfolio grew 8% for the quarter, led by Irish whiskey brands, which were up double digits, according to Mike. 

Ready-to-drink margaritas reported strong growth in March, “which helped to drive 17% growth for the quarter,” he said, adding, “Due to our strong RTD business, Proximo is over-indexed in off-premise with 87% of value coming from off-premise, providing us less exposure than most from the closure of the on-premise channel.” 

Indeed, Proximo “experienced a net positive impact from shelter in place orders as gains off-premise outweighed the losses in the on-premise” in Q1. 

Discussing current US consumer shopping habits, Mike said the “best description” he’s heard is that “consumers aren’t shopping, they’re buying,” i.e. when they go to the store, the goal is to get in and get out quickly. “That’s why the big 1.75L, familiar brands are doing better than discovery brands.” 

When asked whether he sees that trend (buying bigger sizes of familiar brands) sticking around longer term, Mike said, “I think we’re going to have to wait and see how quickly we return to ‘new normal’, whatever it is.” 

“We will continue to monitor the situation and adapt to this ever changing business environment,” he said. “We have worked hard to keep our supply chain functioning while we partner with our distributors to meet the increased demand in the off-premise and we are developing contingency plans to address the unknown changes that will materialize as the on-premise reopens.”

SURVEY: 43% OF CRAFT DISTILLERY EMPLOYEES FURLOUGHED

A new survey of craft distillers paints a pretty bleak picture for the industry. 

Since the start of the pandemic, about 43% of distillery employees have been let go or furloughed, according to a survey of 118 distilleries across 35 states released by the Distilled Spirits Council and the American Distilling Institute. 

On average, respondents reported a 64% decline in sales. 63% said they canceled purchases of agricultural products or other inputs such as stills, bottles and barrels. 

Two-thirds of those surveyed said they likely won’t be able to sustain their businesses for more than 6 months, and 42% said no more than 3 months. 

“There’s no way to sugarcoat this news – the economic climate for the craft distilling industry is dire,” says ADI president Erik Owens. “Thankfully, many state governments have relaxed regulations to provide distilleries some flexibility with their business models. This certainly helps, but we have a long way to go to get the once vibrant craft distilling sector back to booming again.”

A few responses from craft distillers themselves:

“It’s terrifying that such a robust industry could be so deeply threatened in a matter of weeks. I worry that many of us won’t survive and the farmers and small suppliers that depend on us will be hurt as well.” – Pia Carusone with Republic Restoratives in Washington D.C.

“We desperately need FET to be permanent. If we get a loan, we’ll have to be paying that back on top of higher FET rates.” – Skip Rock Distillers in Washington state

“Tariffs on overseas sales seem to have been ‘masked’ in the current discussions. Tariff relief would aid in recovery and building a sustainable business going forward.” – New York craft distiller 

You may recall, last week spirits trade groups sent a letter to Senate and House leadership urging for additional economic relief for distillers, including suspending federal excise taxes, suspending tariffs, creating an industry stabilization fund and continuing to robustly fund no- and low-interest loan assistance [see WSD 04-23-2020]. 

HEAVEN HILL BRANDS INKS EXPANDED DISTRIBUTION AGREEMENT WITH SGWS

Heaven Hill Brands today announced an expanded distribution agreement with Southern Glazer’s Wine & Spirits primarily in the wholesaler’s west region and control states divisions. 

As part of the agreement, SGWS will represent the new Heaven Hill business in a dual capacity with Heaven Hill’s current distributor partner, effective May 1, and will then become the exclusive distributor in those regions, effective June 1, per a release. 

“This commitment from Heaven Hill comes at one of the most challenging times our industry, and the world, has ever faced,” says SGWS ceo Wayne Chaplin. “While both of our family-owned businesses have been hyper-focused on protecting the safety and wellbeing of our employees during the COVID-19 pandemic, we also believe it’s just as important to continue planning for the future so we are positioned to be even stronger when this crisis is over… The Southern Glazer’s team looks forward to further integrations of Heaven Hill’s outstanding portfolio; preparing for growth and success as businesses in the US ultimately prepare to reopen.” 

“Our diverse portfolio of recognized brands positions us for success and we look forward to working with Southern Glazer’s on a greater scale to help us execute our strategy and achieve our long-term business goals,” says Heaven Hill president Max Shapira. 

You may recall, Beam Suntory also realigned its distributor network with Southern Glazer’s Wine & Spirits earlier this year [see WSD 02-04-2020]. 

WSD BRIEFS: 

375 PARK AVENUE SPIRITS ADDS GLEN MORAY SINGLE MALT TO PORTFOLIO. 375 Avenue Spirits has added Sazerac’s Glen Moray Speyside Single Malt Whisky to its portfolio. Available SKUs include Glen Moray Classic, Glen Moray Classic Port Cask Finish, Glen Moray Classic Sherry Cask Finish, Glen Moray Classic Chardonnay Cask Finish, Glen Moray Classic Cabernet Cask Finish, Glen Moray Classic Peated, Glen Moray 12YO, Glen Moray Classic 15 YO, Glen Moray 18 YO and Glen Moray 21 YO Port Wood Finish.

INTERNATIONAL BEVERAGE HOLDINGS PARTNERS WITH HOTALING & CO. International Beverage Holding Ltd. has partnered with Hotaling & Co. as part of a new phase of ambitious growth for its portfolio in the US market, per a release. Hotaling & Co. will distribute and support International Beverage’s Scotch whisky and spirits brands including Old Pulteney, Speyburn, Balblair, anCnoc, Hankey Bannister, Scottish Gin Caorunn, Phraya Rum and The Spirit of Thailand Mekhong.

DEKUYPER UNVEILS CLASSIC OL’ FASHION LIQUEUR. DeKuyper has unveiled DeKuyper Classic Ol’ Fashion, meant to make it easier to make Old Fashioned cocktails at home. It’s available in stores and online through Drizly and Reserve Bar at a suggested retail price of $13 a 750 ml.

LUXARDO INTRODUCES LONDON DRY GIN TO US MARKET. Luxardo has introduced Luxardo London Dry Gin to US markets. The gin is made from infusing nine botanicals for 24 hours in a traditional copper pot still prior to distillation. It is refined for 19 days before being filtered, diluted to 86 proof and bottled. It will be available nationwide for approximately $35. The gin is imported to the US by Hotaling & Co.

Until tomorrow,
Sarah

“People seldom refuse help, if one offers it in the right way.” – A.C. Benson

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