Dr. Peter Cressy, president and CEO of the Distilled Spirits Council of the United States (DISCUS), delivered a keynote address at the 2012 Nightclub & Bar Convention and Trade Show, held March 12-14 in Las Vegas, focusing on accelerating recovery and overcoming obstacles in the beverage market. According to Cressy, the beverage and hospitality industries have reason to be cautiously optimistic.
The hospitality business currently is the second-largest employer in the United States, second only to the healthcare industry, Cressy said. Venues serving food and alcohol beverages gained 230,400 jobs in 2011, hard numbers that prove restaurants and bars continue to fuel the hospitality sector. This healthy growth led to a projection of $631.8 billion in restaurant sales for 2012.
Spirits volume also was on the rise in 2011, up 2.9% (in terms of 9-liter case shipments). These increases in volume led directly to an upswing in spirits revenues of 6.3%, which translated to $20.3 billion. In 2011, the industry enjoyed a return to pre-recession levels, reaching on-premise spirits sales of $36.3 billion. According to Cressy, volume growth by price segment in 2011 also returned to a pre-recession pattern. The premium price segment reached 3.7% with high-end and super-premium segments reaching 10.6% and 13.8%, respectively. When analyzing the 12-month rolling totals of full-service and drinking-place revenues, the pre-recession peak (in July 2007) was well over $230 billion. In September 2011, both the U.S. Census Bureau and National Restaurant Association showed 12-month rolling totals reaching almost $240 billion.
Cressy pointed out that a number of factors have contributed to growth in the industry, and it is once again profitable. Hard work by the retail sector, stable pricing and consumer confidence are chief among these factors. However, product innovation also has proven to dramatically improve growth; since 2009, 1,800 new products have been introduced. But future growth also is dependent upon the state of the economy and no new taxes being levied at the hospitality industry.
There exists a triple tax threat, Cressy said. Federal, state and local hospitality taxes must be defeated. At the federal level, the national deficit is growing to $19 trillion, and the Federal Excise Tax (FET) on alcohol is very much in play, supported strongly by anti-alcohol advocacy groups. The current FET on spirits is $13.50 per proof gallon. When adjusted for 65% inflation, the FET is $22.30 per proof gallon. At the state level, budget deficits remain at more than $100 billion across the United States. This year, the industry is already under attack by tax threats in 13 states, a number that is expected to rise to 25 states. Hospitality coalitions, however, continue to work together to overcome these threats, defeating 303 to 331 tax threats from 2001 to 2011, a success rate of 92%.
The growing threats, though, are municipal, county and local taxes. According to Cressy, local officials are seeking revenue because of huge local deficits, and they are manipulating the public through the exploitation of sympathetic causes. A glaring example of this growing threat is the “Pyramid of Taxes” in Chicago, Cook County. In 2005, Chicago increased its excise tax; in 2008, the city’s excise tax increased again. The Illinois state excise tax increased in 2009, and the Cook County excise tax increased in 2011. Now, the localities in 15 states are considering local alcohol taxes with five of those states (Georgia, Indiana, Pennsylvania, South Dakota and West Virginia) considering expanding tax authority to localities statewide. The local threat is very real and getting stronger.
Cressy has called the industry to action. Those in the beverage industry must engage local officials and meet with or write to municipal, state and federal legislators. Tax threats must be identified early on, and DISCUS should be contacted. Local meetings can be organized, and restaurants and hotels must be asked to join the fray; the involvement of the hospitality industry is the key to exposing and defeating tax threats. The press, it should be realized, is an extremely powerful tool in the fight against further over-regulation and over-taxation (more than 4,000 laws exist regarding alcohol, and taxes still represent 58% of bottle price). The message of the beverage industry’s commitment to social responsibility must be heard, Cressy said. With the unemployment rate at 8.3%, these tax threats are poor social policy and consistently hurt the middle class while economic recovery in the United States is still very fragile, Cressy elucidated.