Boston, MA -- (SBWIRE) -- 07/17/2014 -- The fiscal reform is clearly the event that influenced the most the performance of spirits during 2013. The tax rises in most tax types, from gasoline and savings to value added and excise, led to a double negative effect on the consumption of spirits: a decrease in the disposable income of consumers, and an increase in the prices of spirits in a magnitude never seen before. The subsequent volume drop was a sharp 8%, but it could have been worse, since the economic slowdown did not only affect the category negatively. The fact that the largest spirits category (rum) is also the most affordable allowed rum to capture downtrading, which is the typical effect during economic slowdown. As a consequence, rum volumes "only" declined by 7% during the year.
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Brugal & Co remained the leading company in rum with a 69% volume share in 2013. Since rum is 80% of total spirits volume, Brugal is also the leading company in spirits with a 56% volume share. The brand is also the most recognised Dominican brand in the world.
The impact of the tax-driven price increases on spirits' volume is not expected to be as negative as in 2013. There are several reasons behind that assumption: tax rises may be smoothed out vis-a-vis what is in the fiscal reform law enacted in 2012. The government saw that the shock therapy was counterproductive in 2013 since tax collections declined in spite of the massive tax increases, and that could lead to revision of the calendar of increases. In fact, the second annual round of tax rises, which was supposed to be implemented in January 2014, had not happened by February and the implementation date was still not clear then. This in spite of the fact that for 2014 there was not a triple tax increase but a double one, and to a lesser degree (only specific and ad valorem and not value added). Subsequently, prices could grow less on average for the year (if implementation gets delayed). Another reason behind the assumption of a not so negative impact on volume is the recovery of the economy and the subsequent increase in disposable income steadily over the forecast period. This would allow consumers to bear more the price increases and in that way limit downtrading or volume consumption decrease.
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Product coverage: Brandy and Cognac, Liqueurs, Other Spirits, Rum, Tequila (and Mezcal), Whiskies, White Spirits.
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