80 proof, not recession proof for liquor industry

Drinking away your troubles? Possibly. But chances are you're doing less of it, and you're imbibing at home.

The alcohol industry is often thought of as "recession proof," but the spirits industry said Friday that its business softened last year, with revenue growth slowing and spending shifting away from bars and restaurants.

Revenue reported by liquor suppliers rose 2.8 percent from the previous year to $18.7 billion in 2008, according to the Distilled Spirits Council of the United States. That's slower than the 6 percent average annual growth rate since 2000. Volume grew 1.6 percent, also below the 2.7 percent average growth of recent years.

That there is even still growth shows the spirits business is "recession resilient," said council president Peter Cressy, but not immune to the pressures of the economy.

"It is absolutely not recession proof," Cressy said. "There's no question the fourth-quarter softened substantially."

He said 2008 wasn't "a great year" and the quarter that ended in December was one the industry was counting on. The industry is still compiling numbers for the fourth quarter, so they did not want to break out those results yet, but Cressy said he expected business in both restaurants and bars - called "on-premise" - and also in stores, or "off-premise" - to be down about 3 percent in the quarter.

Consumers are eating out less as they try to save money, and when they do go, Cressy said, they're limiting what they order. On-premise volume fell 2.2 percent last year.

Instead, people are drinking at home and buying from stores. Off-premise volume rose 2.9 percent for the year.

So people are drinking, but they're paring back, said David Ozgo, the council's chief economist. The number of drinking occasions - whether it's at home, or in bars - is falling. He said he wasn't sure yet how much they were dropping.

"They still want to have a good time so a certain amount of those drinking occasions will be shifted to at-home," he said.

What are people drinking? Whiskey, of all the spirits, is making a bit of a comeback, the council said, and showed good performance in a slow market. Premium rum, super premium tequila and premium vodka also grew.

But market share for spirits fell slightly, perhaps as more people turned to beer, Cressy said. This year, beer had just over half the total alcohol market, with spirits at just about a third and wine with the remainder, Ozgo said.

Spirits accounted for 32.9 percent of revenue in the alcohol market in 2008, down from 33.1 percent the prior year. The last time it dipped or was flat was in 2000 and 2001, the group said. From the 1980s through the mid-'90s, the category lost about one-third of its volume due to heavy beer marketing, Ozgo said.

But that industry isn't recession proof, either. Earlier this month, SABMiller PLC, the maker of Miller Genuine Draft and Peroni Nastro Azzurro, said its beer shipments fell unexpectedly in the most recent quarter amid a worldwide slump in consumer spending.

Given the economy, Cressy was hesitant about predicting how business would be this year. If the recession remains much the same, the effect should be minimal, he said. But if the economy worsens, so will the spirits business.

"If there were big, fast fluctuations, that would be harmful. No question about that," he said. "If this economy slides into an even deeper recession the risk could be even greater."