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Premiumization Alive And Well In Fast Rising Sake Category

August 16, 2011

Sake has long been considered a niche category within the U.S. drinks market, but it now appears to be one of the areas of the industry offering a clear opportunity for premiumization amid what remains a fragile economy. Sake consumption in the U.S. rebounded from a down year in recession-plagued 2009 to jump 12% to 1.93 million cases in 2010, according to Impact Databank. Even taking into account the off year in 2009, it’s progressed at an average of 4% annually since 2005, with much of that growth coming at the premium end.

Steven Faith, vice president, customer experience at Total Wine & More, says several stores in the 75-store, 11-state chain are experiencing strong demand, leading to a rise in sake SKUs from 10 to 42 in the last five years. Over the past year, sake sales have increased 18% across Total Wine & More’s business. “It’s kind of a hot category. The premium sakes are definitely where the growth is coming from,” Faith says, noting that sakes selling for less than $10 a 750-ml. currently make up about 30% of Total Wine’s sake sales, a percentage that’s been falling steadily as consumers move more upscale. Nearly 50% of sake sales are in the $13-$20 price range, with leading labels including domestic brand Momokawa ($14.99 a 750-ml.) and Japanese brand Ty Ku ($21.99 a 750-ml.). Faith says sake has regional appeal, with particularly strong sales in California, Nevada, Florida and northern New Jersey.

Some retailers say the proximity and popularity of Japanese restaurants can have a big impact on sales. Mike O’Halloran, owner and manager of Monticello Liquor in Dallas, for example, says his store is a sake destination that gets many referrals from high-end Japanese restaurants throughout the city. “We carry many of the same brands as the high-end Japanese restaurants,” he explains. “They send customers here because we’re the largest sake retailer in Dallas. Sake is doing well along with other Asian spirits.”

Monticello Liquor carries about 30 sake brands with more than 100 total SKUs, ranging from $4 to $200 a 720-ml. Top sellers include Ichinokura ($57.99 per 1.8-liter) and Otokoyama ($53.99 a 1.8-liter). But more competitively priced brands also have a good following. Various types of the big-selling Gekkeikan and Sho Chiku Bai brands are very popular with customers. Gekkeikan Haiku, one of several Gekkeikan products, sells for $13.99 a 720-ml., while Sho Chiku Bai’s Nigori sake sells for $7.99 a 750-ml. O’Halloran has noted that since Japan’s March earthquake, which forced some Japanese brands to raise prices, some consumers have switched to domestic brands.

Lee Einsidler, CEO of Gekkeikan marketer Sidney Frank Importing Company, says the brand is growing at double-digits both on- and off-premise. “Gekkeikan is doing fabulously in major chains where the brand is merchandised in the sushi section,” he says. Consumers have been trading up to Gekkeikan’s ultrapremium Horin Junmai Daiginjo and Zipang Sparkling Sake offshoots as well, he adds.

One of the upstarts taking aim at the artisanal sake segment is Brooklyn-based Joto Sake, started in 2005 by Brooklyn Brewery and Millennium Imports veteran Henry Sidel. Sidel says greater profitability has lately been driving strong momentum for artisanal brands such as Joto’s Watari Bune, Taiheikai and Yuho. Leading distributors like Southern Wine & Spirits, Republic National Distributing Co., Wirtz Beverage and Young’s Market Co. have begun to see the profit potential in the category, and are taking the initiative to develop it, he says. Each of the above now employs sake specialists in key markets.

“During the downturn, a lot of winemakers have been lowering prices and putting pressure on distributors to move product. The distributors in turn are then looking at their own profitability,” Sidel says. “Sake is a harder sell, but it’s also more profitable.”

Despite moving nearly 2 million cases, sake still has opportunities for growth, especially by educating restaurants and bartenders about the category. “Most restaurateurs don’t seem to know how well sake keeps and think they need to buy smaller bottles,” Sidel has found. “We’ve been pushing our by-the-glass business using the 1.8-liter size, which actually saves restaurants 30% versus buying in 720-ml. bottles.” Joto also tries to demystify sake for consumers, insisting on printing important information in English on its labels, while taking care to stay true to the brands’ authenticity in packaging and marketing. As sake attempts to become more accessible while retaining the exotic aura that’s part of its allure, keeping a balance between the two will no doubt be a part of extending its upward momentum.

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