Fighting The Canadian Whisky Downdraft

Low prices continue to drive sales of whisky from north of the border.

Black Velvet is the second-largest Canadian whisky brand in the United States. It rose almost 4 percent in 2013 for both core and flavored variants.
Black Velvet is the second-largest Canadian whisky brand in the United States. It rose almost 4 percent in 2013 for both core and flavored variants. (Photo by Chris Bolin)

Canadian whisky producers have added flavors, higher-priced line extensions and new competition from provincial craft distillers, but still the category has struggled, with U.S. sales volume merely flat in 2013 at 14.57 million cases. To keep revenue flowing, the big whisky houses continue to count on that old standby: discounting.

A whisky lover who’s been away for a decade or more may be surprised to return to America to find that Canadian whisky prices haven’t budged much. In September, the Cardinal Warehouse Wine & Liquors chain in Chicago trumpeted ads featuring Beam Suntory’s Canadian Club at $15.88 a 1.75-liter bottle, and a $5 rebate lowered that price to $10.88. The store was offering the same size bottle of Jameson Irish whiskey at $36 and Jim Beam Bourbon at $18.

Jeremy Brock, a general manager at the five-store Cardinal group and 15-year veteran of beverage alcohol retailing, admits that he can’t remember when Canadian Club was so cheap for his customers. “The rebates are important to sell Canadian brands,” he says. “It’s mostly just the old-timers who are drinking a name like Canadian Club these days. The young people are all drinking Bourbon or craft beer. And the customers in their mid-30s or older are more likely to be stepping up to Scotch. Flavors don’t seem to be helping much. Canadian whisky is caught in a squeeze of sorts.”

The rebate coupons appear to be giving Canadian Club a boost, with the brand up 2 percent last year to 2 million cases, while its sister brand, Windsor Supreme, also eked out a gain of 1 percent to 932,000 cases. Yet the entire category was flat the last two years. Claire Richards, Beam Suntory’s brand director of whiskies and Cognac, calls Canadian whisky “a very stable category which continues to be a large part of our U.S. business.” She also contends that Canadian whiskies, known for their light flavor profiles, are a strategic entry point for many consumers coming to brown spirits for the first time. Richards adds, however, that Canadian whisky might not be as relevant to U.S. consumers as it has been in the past.

And yet Beam Suntory hasn’t given up trying. In the past year the company has nurtured a “Join the Club” campaign in print and social media in support of Canadian Club. The brand’s Small Batch Sherry Cask variant is now retailing for $25 a 750-ml. bottle, while the 9-year-old Reserve ($20) and Classic 12 ($25) have gotten updated packaging. As for flavors, Canadian Club offers its Dock No. 57 Blackberry ($16), and Windsor Canadian whisky features Spiced and Black Cherry variants (both $12). All these choices impress, but it’s the basic Canadian Club, sometimes on sale for below $11, that drives 95 percent of the brand’s overall volume, Richards says.

It’s rare that retailers get excited about a new Canadian offering, yet category leader Diageo North America’s Crown Royal, which saw its sales rise nearly 3 percent last year to 4.33 million cases, is getting plenty of buzz this fall for its Monarch label, a 75th anniversary blend that pays homage to the brand’s beginnings as a gift to the visiting King George VI and Queen Elizabeth The Queen Mother before World War II. Monarch retails at $75 a 750-ml. bottle, a hefty premium to much of the Crown Royal portfolio, including Black ($30), Maple Finished ($25), Reserve ($44) and XO ($50) variants, the last of which is aged in Cognac casks. For a time, Monarch may cap the line, since Diageo has announced its intention to discontinue its ultra-premium Extra Rare ($175) in the face of shrinking stocks of old whisky.

Many retailers say Monarch, which has a more Bourbon-like mash bill with caramel overtones, is flying off their shelves. But in a twist of irony, Diageo is making it clear that Monarch will be a temporary release. “I’d be surprised if it’s still around a year from now,” says Diageo vice president of marketing for whisky Yvonne Briese.

Diageo isn’t sitting still. This month, it’s releasing a new expression called Crown Royal Regal Apple, retailing at $25 a 750-ml. bottle. The flavor became a priority after management noticed that Crown Royal was often being served in a cocktail called the Washington Apple with equal amounts of DeKuyper Pucker Sour Apple schnapps and cranberry juice. Briese believes the apple flavor contrasts well with the maple expression that’s already in the line. “The maple whisky is stronger on the palate,” Briese says. “The apple flavor has a lighter and cleaner finish.”

Diageo intends to support Crown Royal Apple with television, print and online advertising, and some of the exposure is likely to come from the company’s continuing marketing relationship with the National Basketball Association. Additional flavors may be added to the Crown Royal line. “The possibilities for more flavors are pretty tremendous,” Briese says.

Ontario-based craft Canadian whisky producer Still Waters Distillery defies te category's low pricing by offering its Stalk & Barrel single malt whisky at $70 a bottle.
Ontario-based craft Canadian whisky producer Still Waters Distillery defies te category's low pricing by offering its Stalk & Barrel single malt whisky at $70 a bottle.

Shifting Focus

Perhaps the biggest winner in Canadian whisky lately has been Constellation BrandsBlack Velvet. Its sales jumped nearly 4 percent last year to surpass 2 million cases, cementing it firmly in the category’s No.-2 position. Black Velvet benefits from its low price—about $10 a 750-ml. bottle—and aggressive discounting. But the brand’s flavors seem to be delivering too. Two years ago, Black Velvet debuted its Toasted Caramel expression at $12.50, followed last year by Cinnamon Rush at the same price. There’s also a real bargain in the Black Velvet Reserve, which is aged for eight years and retails at $13.

Black Velvet brand director Vicky Arcos admits that competition has kept prices down for the entire line. But she’s encouraged by the uptick in volume. “Flavors are playing a big role in bringing women into brown spirits,” Arcos says. The brand’s top demographic target is the Generation X consumer—some 82 million people born between 1965 and 1984. Yet she’s limited in her resources for reaching that base, as Constellation’s marketing mostly focuses on social media and in-store merchandising.

At Brown-Forman Beverages Worldwide, senior brand manager Pedro Berrueco is targeting an even younger audience in his efforts to turn around the faltering Canadian Mist brand, which saw sales retreat more than 3 percent last year to 1.54 million cases. He’s a realist about Canadian whisky’s chances: Canadian Mist’s sales have been falling since the mid-1980s, when the brand hit its high-water mark of 4.3 million cases in the United States. “My goal is to get our sales to be flat this year,” Berrueco says. “We want to stay above 1.5 million cases.”

So far, Berrueco hasn’t been willing to plumb Canadian Club’s pricing depths. In most places, Canadian Mist gets as low as $13 a 1.75-liter bottle with the help of a $2 rebate. A year ago, Brown-Forman bet big that flavors would pull the brand up, but that experiment has proven to be a bit of a disappointment. This fall the company is dropping its vanilla and cinnamon offerings while keeping Peach Mist and Maple Mist variants (all line-priced). There are no immediate plans to bring back the upmarket Canadian Mist Black Diamond ($15 a 750-ml. bottle), which was jettisoned a year ago. A separate super-premium brand, Collingwood ($27), is merely performing “OK,” according to Berrueco.

The executive continues a refrain that he has voiced in the past: Canadian whisky is suffering from too little media exposure. “This category hasn’t spent much on marketing,” he says. “We haven’t spent money like the American Bourbon brands are spending. Too many consumers view Canadian brands as the whisky their grandfathers drank, which leads to negativity. Marketing is the only way we can reverse those perceptions.”

Sazerac is expanding the reach of several of its smaller Canadian brands, including Rich & Rare.
Sazerac is expanding the reach of several of its smaller Canadian brands, including Rich & Rare.

Extending The Bottom Shelf

Sazerac hasn’t provided much marketing support for its raft of value brands, including Rich & Rare, Canadian Hunter and James Fox (all around $9 a 750-ml. bottle). But it’s investing in other ways. Rich & Rare launched a Reserve variant ($13) two years ago, and the expression is steadily rolling out to more states. The company recently introduced a new 45-percent alcohol-by-volume (abv) Canadian Hunter rye, priced around $10 at retail.

Looking at the higher-end, Sazerac launched a label a year ago called Legacy Small Batch, priced at $22 a 750-ml. bottle and now available in about 20 states. The company’s Caribou Crossing brand ($50) is in 40 states, though it’s currently on allocation. Due out this fall is Rich & Rare Caramel ($9), a 35-percent abv flavored whisky that’s initially limited to states like Texas, Michigan and Washington.

Sazerac marketing director for whiskies Kevin Richards concedes that prices have proven difficult to push higher. “The problem is that the big retail chains increasingly are offering private-label Canadian whiskies, and we have to compete against their low prices,” Richards says. “We’ve found that the value whisky customer on a fixed income will resist even a 50-cent or $1 boost at retail. You can’t get greedy in pricing your Canadian whisky labels.”

Nevertheless, Canadian distilleries are still in demand. In March, Gruppo Campari spent some $160 million to acquire John Hall’s fast-growing Forty Creek Distillery, a pioneer in the craft Canadian business. Forty Creek’s Barrel Select, finished in Sherry casks, is priced around $22 a 750-ml. bottle, though Campari senior marketing director of brown spirits Andrew Floor vows to steer the offering to at least $24 at retail. He’s also betting that the new 43-percent abv Forty Creek Copper Pot Reserve, priced at $29, will find an audience beyond its initial releases in Texas and California. Another new product is the Forty Creek Double Barrel Reserve ($55), which is finished for a year in Bourbon barrels and has very limited distribution so far.

Floor believes that richer blends like Double Barrel are the key to sparking greater interest in Canadian whisky. “Canadian products have always been considered smooth and mellow and easy to drink—in other words, not very challenging,” Floor says. “And the low price points reflect that positioning. But the problem is that palates in America have evolved quickly. People now want to be able to taste their alcohol, not hide it. Spice and heat are good. That’s why we think Forty Creek will be important.”

At Van Gogh Imports, the focus is on different finishes. The company debuted its Canadian Tap 357 Maple rye more than two years ago at $29 a 750-ml. bottle, but since then has put its money behind the Tap Rye Port Finished at $40 and Tap 8 Rye Sherry Finished, also priced at $40. Van Gogh chief executive Norman Bonchick is considering an all-rye whisky—rare in Canada—for the next release.

New craft brands like Highwood Distillers' White Owl white whisky have found a market in the United States.
New craft brands like Highwood Distillers' White Owl white whisky have found a market in the United States.

Rise Of Craft Brands

The comparative scarcity of Tap whisky doesn’t bother Bonchick too much. He suggests that millennial consumers are largely turned off by big multinational brands and attracted to craft labels. “Millennials are doing a lot of research and know what they want,” Bonchick says. “To them, big is bad and small is good. They’re looking for true craft products.”

If so, the few microdistilleries operating in Canada should be encouraged. Highwood Distillers in Calgary, Alberta, launched its White Owl whisky four years ago, and the offering became a strong seller in Texas at $32 a 750-ml. bottle, along with a Ginger Lime flavor at the same price. Now the company is launching its Centennial 10-year-old rye in both chocolate and maple variants in Canada at C$25 a bottle, with distribution likely coming to the United States in the near future.

Glenora Distillery, which makes single malt whiskies on Nova Scotia’s Cape Breton Island, has taken Canadian pricing to unprecedented heights. The company’s Glen Breton Rare 19-year-old sells for C$300 ($268) in Canada and is destined for the United States soon. Next year, to celebrate the distillery’s 25th anniversary, a 25-year-old whisky is planned at C$500 ($446), according to executive vice president Bob Scott. “Big whisky retailers like Binny’s in Chicago and Park Avenue Liquors in New York City are interested in these types of products,” Scott says. Even the company’s core expression, Glen Breton 10-year-old, sells for $80 in the United States.

Still Waters Distillery, based near Toronto, offers its non-age-statement Stalk & Barrel single malt at $70 at retail in the U.S. market. The label will be supplemented this fall by the release of the Stalk & Barrel rye at about $75. Barry Bernstein, the owner and master distiller, reports that rye whiskies are increasingly finding an audience in Canada. “We have an advantage in that rye grows more slowly in Canada because of the colder climate,” Bernstein says. “As a result, the rye has more flavor and character at harvest time than other warmer-climate ryes.”

Davin de Kergommeaux, an Ottawa-based whisky writer who authored “Canadian Whisky: The Portable Expert,” is doubtful that a flood of craft whiskies will be following Still Waters and others to market anytime soon. He identifies only 30 craft distilleries in the entire country at present. “Canada won’t be like the United States because manufacturing is so tightly regulated by the government here,” he says. “Each province and city has its own rules and regulations, too.”

Distillers point to other barriers to starting up small-scale whisky production. About 70 percent of all Canadian whisky is sold in the United States, but American importers and distributors have shown little enthusiasm for unknown Canadian brands. Retailers also have mixed emotions. “Canadian whisky sales for us are pretty flat,” says Bill Brandt, co-owner of the two-store Traino’s Wine & Spirits based in Marlton, New Jersey. “Bourbon is really what’s driving our whiskey business now. In fact, with all the new craft American whiskies coming to market, we’re considering making new space for them by taking some Canadian and flavored vodka labels off our shelves.”

Some on-premise accounts are proving more aggressive. At Work & Class, a pub in the River North district of Denver, co-owner Tony Maciag makes his barrel-aged Old Fashioned with Tap Rye Port Finished. “We found that Tap rye isn’t as harsh as some other ryes and works really well in a cocktail,” Maciag says. His initial 10-liter batch sold out entirely on the first night, and many more batches have followed. “My experience is that people here don’t get excited by traditional Canadian whisky brands like Canadian Club and Crown Royal,” Maciag says. “But they do like the idea of smaller names like Tap. I don’t see any reason why more Canadian craft distillers can’t find a following in the United States. We need more brands coming from Canada.”