Are Liquor Companies Discounting Themselves Onto Skid Row?

If there’s one thing alcohol distillers and distributors know about it’s repititive, compulsive behavior (some might say they depend on it). And a new report suggests that Big Booze’s current addiction to discounts and coupons may end up doing long-term damage to the industry.

It was a buyer’s year for fans of alcohol, with many brand-name spirits offering deep discounts in an attempt to lure new customers. And while the reduced prices did move product — total volume of sales was up 1.4% — it did nothing to increase revenue, which remained flat at $18.7 billion.

For example, Diageo PLC, the world’s largest distiller in terms of sales, has been very aggressive in dropping the price on top-selling vodka brand Smirnoff, the net result has been a negative to the company, with net sales down 6%. And while Diageo chief Paul Walsh says they’ve gained market share and visibility with the discounts, he recently told investors that it’s unlikely they’ll be able to increase the price in coming months.

“The major suppliers have conditioned the consumers and retailers that there is going to be major deals,” opines John McDonnell, COO of Patron Spirits International, whose top-shelf Patron tequilas did not drop prices.

The question remains — When prices do eventually go back up, will people still stick to the brands that lured them in with discounts? Or will they simply go for lower priced alternatives?