The San Juan Star / July 23, 2004
By Larry Luxner
SANTO DOMINGO — Economic difficulties in the Dominican Republic are taking their toll on the Dominican liquor market, says one of the country's top liquor executives.
José Jiménez, general manager of Diageo Dominicana S.A., said his company's various brands command 42% of the country's $19 million scotch market, which is around 400,000 nine-liter cases. That market used to be over 500,000 cases, but it began shrinking in 2001, when the Dominican government raised liquor taxes by 25%.
That tended to favor local rum producers at the expense of scotch and beer. At present, the Dominican rum market is around 5.5 million cases and is the only liquor segment that's grown in the last three years. Brugal enjoys an 85% share of that market, with Bermudez and Barceló controlling most of the remaining 15%.
"All of these are family owned companies," said Jiménez. "What happened is that Barceló and Bermudez went into a big family crisis with the shareholders. They're all fighting each other, and Brugal took advantage of that. They saw an opportunity, so they invested consistently in their brand and took over in the beginning of the 1990s. Neither Barceló nor Bermudez ever had the market share that Brugal has today."
But things could change yet again, Jiménez told The STAR.
"In January, we switched from an ad valorem regime to a fixed tax regime based on alcohol content, which is the simplest tax regime in the world," said the liquor executive. "In the long term, it should improve the position of the scotch category versus rum, because of the way the new law works. Over the next five years, all categories with the same alcohol content will pay the same tax."
For instance, he explained, a bottle of rum today costs around 91 pesos, and the alcohol content is 40%, so the tax is 40 pesos per bottle. "For scotch, it's 216 pesos," he said. "The end result is that basd on a pure liter of alcohol, all categories will pay the same whether it's scotch or rum. That will reduce the gap in prices between the two."
These days, a standard 750-ml bottle of scotch costs the equivalent of $10, while 12-year-old scotch is around $20. A 12-oz. bottle of Presidente beer costs the equivalent of 63 cents.
Of the country's 8.5 million inhabitants, about 5.3 million are 18 years or older, and "out of those, around two million can afford our products," said Jiménez, noting that 70% of Diageo's sales are in the "off trade" (supermarkets and grocery stores) and 30% in the "on trade" (bars and restaurants).
Per-capita consumption of rum in the Dominican Republic is 38 liters, while per-capita consumption of scotch is 0.7 liters.
London-based Diageo, the world's largest drinks conglomerate, reported 2003 sales of £9.44 billion ($17.3 billion) and owns nine of the world's top 20 premium distilled spirits brands including J&B, Dom Perignon, Johnnie Walker, Guinness, Seagram's and Smirnoff.
Jiménez estimated Diageo's sales in the Dominican Republic at around $10 million. Its local advertising budget is around $1.5 million, down from $2 million before the economic crisis.
Diageo has six brands of scotch and one brand each of cream liqueur, vodka, wine and gin in its portfolio here. Its biggest competitors are Bacardi, which has Dewar's, and French drinks conglomerate Pernod Ricard, which has Chivas Regal, Havana Club rum and part of the Seagram's portfolio.
Jiménez noted that consumer purchasing power has declined by 40% over the past 12 months with the devaluation of the Dominican peso. That has triggered a correspondeing 30% drop in Diageo's local sales — not surprising, since the Dominican economy is expected to show zero GDP growth this year.
"Dominicans are downgrading to rum," he said. "Middle-class consumers are not drinking scotch as frequently as before. Those who would buy two or three bottles a year are now buying only one bottle a year, usually at Christmas.
Jiménez said Puerto Rico is by far Diageo's largest market in the Caribbean, mainly thanks to Johnnie Walker Black, Bailey's Irish Cream and Smirnoff Ice.