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On-Premise Channel Looks To Continue Recovery In 2012

March 16, 2012

With the first quarter of 2012 nearly complete, bar and restaurant operators, as well as suppliers and distributors, are expressing confidence that this year will see an on-premise growth curve that hasn’t been witnessed since the downturn began. “The on-premise market is growing,” says Matt Davenport, vice president of sales for Campari America. “It’s been three years since we could say that with confidence. The current numbers point to sustained month-over-month growth for the past nine months. We have to look back to late 2007 to see that type of growth for the industry.”

On-premise research and consulting firm Technomic Inc. forecasts that alcohol sales in restaurants and bars will increase 2.4% this year, led by wine with a 3.5% jump and spirits and beer with 2.3% and 2.2% increases, respectively. “Across the on-premise market, we’ve seen a remarkable recovery following a prolonged period of negative trends,” says Southern Wine & Spirits president and COO Wayne Chaplin. “Our on-premise business in January was the strongest we’ve seen since before the recession, and February remained strong as well. While the economy continues to have its challenges, we’re cautiously optimistic that solid on-premise growth should continue for the foreseeable future.”

Bob Krall, channel director for the on-premise at Brown-Forman, attributes some of the recent growth to increasing drinks prices in restaurants and bars. But he adds that on-premise spirits volume has risen over the last year, pointing to whisk(e)y, Tequila and vodka as strong performers. “Restaurants in all segments are showing a renewed emphasis on beverage alcohol to help offset overall pressure on bottom line growth,” Krall says. “They’re looking for incremental drinking occasions, or they’re revamping happy hour-type specials.”

The upscale Ruth’s Chris Steak House chain, which operates more than 130 restaurants in nine countries, is a prime example. “We’ve seen seven consecutive quarters of comparable sales growth and eight consecutive quarters of consumer traffic gains,” says Helen Mackey, director of beverage strategy for Ruth’s Chris Steak House. “Beverage alcohol sales have been key to that success, especially wine by the glass and spirits due to cocktails.” In recent days, Ruth’s Chris unveiled Sizzle, Swizzle and Swirl, a happy hour program featuring handcrafted cocktails, premium wines, select beers and new bar food offerings, at nearly 40 of its U.S. locations.

On the other end of the dining spectrum, fast casual concepts are also posting gains, and many restaurant industry analysts believe this segment will reap the most profits this year. Technomic predicts that the fast casual sector’s growth will outpace that of the entire restaurant industry for the next five years, forecasting a compound annual growth rate of 8%. Brands like Chipotle, Wing Stop, Pei Wei Asian Diner and Noodles & Co. offer beer and wine at select locations.

While the upper and lower ends of the restaurant industry have been showing growth, the middle ground—comprised primarily of casual dining venues—has been slower to recover. “The middle seems to be getting squeezed,” says Dale Stratton, vice president of strategic insights for Constellation Wines U.S. “The core consumer for the casual dining channel is facing the most uncertainty in terms of the economy. Many have shifted to the quick-service channel or are choosing to do more cooking at home.”

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