Executives running the United States' large liquor companies may need a few stiff drinks right about now.
Typically this is the best season for the industry as people toast another year of accomplishments and look ahead to the next with a bottle of Cabernet, a quart of Scotch or splits of Champagne. Consumption of alcoholic beverages typically kicks up from Thanksgiving through Jan. 1 as households and companies entertain more.
But this year, the business has been plagued by a slump in the bar and restaurant trade, consumers who are trading down to less expensive brands and stiff price-cutting to boost sales.
The industry is dealing with customers such as David West, who on a shopping trip in Seal Beach, Calif., picked a $13.99 bottle of Finlandia vodka over more expensive brands.
"I hear that Stolichnaya is good, but there is not that much difference to make it worth $17.99," West said.
Others are taking the same approach when it comes to year-end entertaining.
"Normally I drink Grey Goose or Ketal One, but this is all about feeding the masses," Jennifer Kucera said as she ran a 1.75-liter bottle of Smirnoff vodka through the self-check scanner at a Seal Beach supermarket. It was on sale for $16.99 compared with its regular price of $27.49.
Such buying habits have taken their toll.
"November was weaker than we and I think the rest of the industry anticipated.... We have lowered our expectations for December," Ivan Menezes, president of Diageo North America, told investors recently.
Other spirits companies are similarly cautious.
"No doubt, there continues to be a lot of uncertainty about consumer behavior, particularly as it relates to this holiday season," Paul Varga, chief executive of Jack Daniels owner Brown-Forman Corp., told investors recently.
The liquor industry finds itself fighting the same economic headwinds buffeting other consumer products companies, said Nick Lake, an analyst for market research company Nielsen Co.
People are spending less on gifts this year, are spending less entertaining at home and are dining out less often.
Sales of distilled spirits, both in dollars and by volume, fell in the first half of November compared with a year earlier, according to Nielsen. Sales dropped 1.4 percent to $601 million for the four weeks ended Nov. 14, the latest period for which Nielsen has data.
And that has happened at a time when liquor makers are slashing prices.
"Most spirit suppliers have been promoting heavily, and prices have come down this past October, November and December," said Annette Alvarez-Peters, a liquor buyer for Costco Wholesale Corp.
One spirit that is bucking the trend is Sobieski vodka from Poland, which has grown rapidly since its introduction two years ago into a 600,000-case-a-year brand in the United States.
Although that's still small potatoes compared with the 9 million cases of Smirnoff sold domestically each year, Sobieski looks to have hit the sweet spot created by the current economic environment.
At a typical price of about $10.99 for a 750-ml bottle, Sobieski, along with the Swedish vodka brand Svedka, have become popular substitutes for people trading down from more expensive labels but who still want an import, Lake said.
"Nobody is happy about the poor economy, but it played into our hands" said Chester Brandes, of Imperial Brands Co., which distributes Sobieski. "Pricing is contracting, not expanding, in this industry and we can show that you don't have to spend a king's ransom to get a good bottle of vodka."
But there is only so far that consumers such as West, the Seal Beach retiree, will trade down. Looking at vodka prices recently, he noticed the Gran Legacy brand on the bottom shelf at two bottles for $11.
"That's where you can start to tell the difference," he said. "I can't drink that."