American drinkers have a taste for premium alcohol, and that's giving liquor from whiskey to tequila a boost.
Spirits gained market share compared to beer and wine for the ninth straight year in 2018, according to the Distilled Spirits Council, a national trade organization that represents distilled spirits makers in the United States.
Much of that growth has been driven by increased sales of super premium liquors: Luxury products that cost $35 or more per bottle on average.
Last year, super premium rum grew 26.8% by volume compared to 2017. In that period, super premium brandy and cognac grew 26.2%, American whiskey grew 16.9%, gin grew 14.7%, and tequila and mezcal grew 9.7%, according to the council.
Jack Daniel's maker Brown-Forman reported Wednesday that its portfolio of super-premium American whiskeys, including Woodford Reserve, Jack Daniel's Single Barrel and Gentleman Jack, had net sales growth of 21% for the nine months ending in January compared to the same period last year.
"Woodford is on track to be the single largest contributor to growth in the US market this fiscal year." Brown-Forman CEO Lawson Whiting said on analyst call Wednesday. "The brand is simply on fire."
Robin Clough, co-founder of the two-year old UK luxury tequila company Tequila Enemigo, said that high demand for the product convinced his company to enter the United States sooner than intended.
Enemigo launched in the United States in November 2018. The company sells bottles of tequila — which can go for $170 — out of stores in New York City. The company hopes to expand elsewhere in the country.
Clough thinks that demand for luxury liquor is coming from a new kind of consumer who cares about products' origins. It's not enough to lean on celebrities to sell alcohol, he said. "People really want to understand the brand story."
Chris Swonger, CEO and president of the Distilled Spirits Council, thinks Millennials in particular are drawn to premium alcoholic beverages because they "demand diverse and authentic experiences, and desire innovative and higher-end products." The council attributed growth in the super-premium business to the "social currency of brand authenticity and heritage," and consumers looking for "unique" experiences.
Just as premium alcohols can help companies drive growth, inexpensive products can drag them down.
Constellation Brands, which makes Corona beers, Svedka vodka, Casa Noble Tequila and more, said in January that its wine and spirit sales slumped in the last quarter of 2018 largely because of the performance of its cheap alcohol.
"We're disappointed with the performance of our wine and spirits business as we're facing challenges with the low end of the portfolio," Bill Newlands, the company's then-president and current CEO, said at the time. He added that Constellation's premium wine lines, including Kim Crawford, Meiomi and Prisoner, which cost more than $11 per bottle, were performing well.
Last month, Newlands noted that the company is planning to drop many of its underperforming brands.
"Everything that's not a power brand, you can assume that we're either going to sell it, discontinue it or milk it very quickly over the next year or so," he said at the annual Consumer Analyst Group of New York Conference, which was held in Florida.
Though alcohol companies are seeing success with their luxury brands, they're also suffering from tariffs placed on American liquors.
Brown-Forman reported Wednesday that net sales grew 3% to $904 million in the three months that ended in January when compared with the same period last year, missing analyst expectations. The company said it believes tariffs on American spirits had a 1% drag on its sales.
CFO Jane Morreau called tariffs a "substantial burden" on the business. Shares of the company fell 5% Wednesday.
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