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Kicking an opponent while he's down may not be gentlemanly, but in the sharp-elbows world of alcoholic beverages, gaining an advantage by striking your adversary while he's in a weakened state is sometimes called for. After two years of better than 3% annual growth, the spirits market was only able to edge 1.3% higher in 2013 to 208.6 million cases, according to the market analysts at Impact Databank, and that may be all that brewer SABMiller  (NASDAQOTH: SBMRY  ) needs to offset lackluster sales in the U.S. and Europe.


Through its joint venture with Molson Coors (NYSE: TAP  ) , the brewmaster is evolving the portfolio of MillerCoors to focus on premium beverages such as its Redd's ales, an apple- and strawberry-flavored malt beverage; Third Shift, a small-batch lager; and Leinenkugel Summer Shandy. Its new Smith & Forge brand will try to capitalize on the popularity of cider, but will clock in with 6% alcohol by volume, higher than the typical cider beverage.

The latest addition that will launch next month is Miller Fortune, a stronger, darker golden lager that is being pitched to challenge not only Anheuser-Busch InBev's (NYSE: BUD  ) brand extension Bud Light Platinum, but also the spirits market. It features 6.9% ABV, higher than Platinum, but on the same plane as Bud's Black Crown, and a design and marketing that will evoke the passions of a spirits drinker. Considering their passions are apparently waning, now might be the time to make a move.

According to Impact Databank, the top five spirits brands that make up 17% of U.S. spirits market volume -- Smirnoff, Bacardi, Captain Morgan, Jack Daniel's, and Absolut -- only added 100,000 cases last year, a meager 0.3% increase. Of course, that might not tell the whole story.

The maker of Jack Daniel's, Brown-Forman, said American whiskey volumes grew 7% in 2012, and it anticipated another 8% growth last year, along the lines of the heady growth wine and vodka have achieved, and putting it near the top shelf of alcoholic beverage sales. Diageo, the distiller of the market-leading Ciroc vodka brand, owns 25% of production in one of the fastest-growing drink niches, which has witnessed compounded annual growth of 5.2% since 2005, more than any other spirit. And it just bought the super-premium tequila brand DeLeon in an effort to catch that white lightning in a bottle again.

What's really being seen here is the trend toward premium beverages, ones that offer up a better taste profile, greater quality, and finer craftsmanship. Indeed, the premium and super-premium spirits market expanded at a 10% rate in 2013.
SABMiller is the world's second-largest brewer, whose revenues rose 4% in the third quarter, but U.S. sales fell almost 2% as Coors Light and Miller Light continued their decline. Transitioning its portfolio to above-premium markets might help reverse that trend, and at the same time bolster profits while giving it leverage over other alcoholic beverage rivals that may be seeing a pause in their own growth trajectories.

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Rich Duprey

Rich has been a Fool since 1998 and writing for the site since 2004. After 20 years of patrolling the mean streets of suburbia, he hung up his badge and gun to take up a pen full time.

Having made the streets safe for Truth, Justice and Krispy Kreme donuts, he now patrols the markets looking for companies he can lock up as long-term holdings in a portfolio. So follow me on Facebook and Twitter for the most important industry news in retail and consumer products and other great stories.


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