Spirits
The Lebanese drink approximately 3.6 million bottles of spirits every year, roughly one liter per person. Dominating the $40 million market with an estimated 43% share is whisky, with 280,000 cases imported into the country in 2004. However, vodka has steadily been gaining ground, growing by an estimated 4% to 5% over the last five years. In 2004, some 33,000 cases were imported into the country, although industry insiders assess this number to be closer to 40,000.
“Lebanon is following a global trend, which has seen increased consumption of wine and vodka,” said Nagi Hmouda, business manager with KFF Food & Beverage, whose brand, Absolute, has witnessed a 25% increase in sales in recent years. “Like RTD [beverages] and beer, vodka is a great entry point to the alcohol category. When people reach the legal drinking age, they want to drink something that will give them the effect of alcohol without the taste. While, their palate isn’t used to the strong taste of scotch or gin, vodka on the other hand is practically tasteless and can be mixed with anything.
The current market leader is Stolichnaya, followed by Absolute, Eristoff and Smirnoff, the four of which cover 85% of the vodka market. However, premium vodka brands such as Stolichnaya Elite and Grey Goose are slowly gaining ground.
Although, whisky accounts for nearly seven times more sales, sales of “regular” whisky – the top five brands are acknowledged to be Johnny Walker Red Label, Dewars, Ballantines, Jim Beam and William Lawson – have been contracting by an estimated 5%, a result of the introduction of the VAT in 2002 and greater competition from Vodka. Deluxe whisky – luxury blends and single malts – represent 15% of the whisky market. Distributors for this highly competitive market are reluctant to reveal figures, but it is clear that Johnny Walker Black Label – almost a national icon – leads the way with an estimated 60% of the market share, followed by Dewars and a resurgent Chivas Regal.
“People are more loyal when it comes to premium brands,” said Carlo Vincenti of the Vincenti Group.
With over 80% of regular whisky consumption occurring in people’s homes, the whisky wars have been largely focusing on off-trade sales. “The consumer has been spoiled by the sales promotions of regular whisky brands – you have promotions going on virtually 365 days a year,” says Hmouda.
The alcohol sector ranks among the top 10 Lebanese sectors in terms of ad expenditures in 2004 but has witnessed a shift towards greater below-the-line advertising, which now accounts for more than 60% of the ad budgets. “Consumers attach less value to the brand and therefore investment in brand-building is much less than it is supposed to be and promotions have taken a bigger chunk [of the budgets],”admitted Hmouda. “We go for instant gratification: gifts with purchase, goods discounts, trade deals such as volume rebates. It’s a very dynamic category,” said Hmouda. “The margins in the trade are minimal, so the focus is on volume and visibility. We’re trapped now, without these promotions sales would drop. It’s a very unhealthy situation. We are following the textbook marketing approach of not to do.”
Total advertising spending on spirits is estimated at $15 million – $5 to $6 million (all media included) for above-the-line advertising and $8 to $9 million for below-the-line. Whisky takes up the bulk of this, with Diageo spending an estimated $5 million annually to promote Johnny Walker, while Fattal spends $3.5 million on Dewars and Vincenti $1.5 million on William Lawson, one of the biggest movers in recent years.
Beer
The Lebanese drink an average of 4.5 liters per person annually – far less than the Europeans who average 75 liters per year. In a country with a distinct preference for spirits, the beer industry has traditionally played second fiddle and is seen mainly a summer thirst quencher, a trend bore out by the fact that roughly 70% of beer sales occur during this period.
“Beer is much more of refreshment in Lebanon. It is seen as a summer product, for beaches and picnics,” said Ronald Voorn, head of Heineken’s operations in Lebanon, in a recent interview.
Heineken holds over 60% of Lebanon’s $50 million beer market, following its 2002 acquisition of Almaza, the country’s only brewery. The company’s stable now has the bulk of the market’s niches covered through its array of brands, ranging from the lighter, value beer in the form of Almaza and Laziza, to more expensive up-market brands with Heineken, to the stronger beers, with newly launched and competitively-priced Rex.
Approximately 60% of the market is held by local beer, with the remaining 40% going to imports, one third of which are Heineken and Amstel beers. The overall market favorite remains Almaza, responsible for over 40% of all sales. In the imported beer segment, Heineken leads the pack.
In a bid to promote the expansion of the market, the Dutch beer giant is looking into developing new beer products, such as flavored varieties. It also envisages boosting its line of non-alcoholic beers, which currently account for 10% to 15% of the local market, and has benefited from Lebanon’s tourist boom over the last few years, comprising a number of teetotal Arab visitors.
Sadly, recent political events have dealt a blow to the industry and the market witnessed a 35% drop in its February sales. With the political crisis ongoing, Heineken has temporarily put on hold its year-old plan of building a new brewery.
Wine
Wine consumption is on the increase as local tastes dovetail with international drinking habits. Chateaux Kefraya and Ksara dominate the local consumption, forcing many Lebanese producers to seek out export markets. The $27 million local industry is virtually a cottage industry by global standards, but new wineries are opening at a rate of two a year with a new generation of producers offering affordable, eye-catching wines. Local consumption has increased in the last decade and stands at just over a bottle per person. This is not only due to the influence of snazzy new local wines but also to the returning disapora, who have brought with them a modicum of Western “sophistication” and many Lebanese, always anxious to be seen getting it right, are gradually eschewing the once obligatory bottle of luxury-blend whisky in favor of wine with their meals. That said, the day when Lebanon can be called a genuine wine drinking nation, is a long way off.
Annual monitored advertising spending for wine in 2004 was $1.7 million, the bulk of which came from Chateaux Ksara, Kefraya and Domaine Wardy.
Ready-To-Drink
Ready-To-Drink (RTD) beverages made their first entry into the Lebanese market in 2001 with the launch of Bacardi Breezer. Bacardi Breezer and Smirnoff Ice control some 80% to 90% of the total market, with local brands such as Basally Chtaura’s Buzz in third. Following the worldwide craze for the affordable beverages, sales have rocketed, reaching their peak in 2002 with 105,000 cases imported into the country. “It was a category and a brand which was perceived as cool among the younger crowd,” remembered Vincenti. “Kids would drink it at beach parties, at clubs. It hit the market in a big way.”
The craze subsequently stabilized and the market has been declining over the course of the last three years by over 25%, reaching 75,000 cases imported in 2004. Today RTDs hold approximately 11% of the spirits market share in Lebanon, at an estimated value of $255,000. “It’s a high maintenance category, which requires constant product development and innovation, a lot of investment,” said Hmouda. “That being said, it’s also a highly profitable, if you consider the price you pay for the little amount of alcohol that is in it.”
RTDs introduced competition to both the beer and the spirits market, although for the latter, it has also provided a boost. “If RTDs do well, the motherbrand will eventually do well,” Vincenti explains. “Bacardi Breezer has contributed to the promotion of Bacardi rum, which has witnessed a 50% to 60% cumulative increase over the last few years.”
Cigarettes
British and American Tobacco (BAT) estimates the Lebanese cigarette market at roughly $400 million or some 7.5 billion sticks a year. By international standards, Lebanon remains an attractive market for the tobacco industry, combining few anti-tobacco regulations and a lax legislative environment, with high smoking prevalence rates.
Some 56% of the Lebanese smoke, 43% of whom are between 13 and 18, thereby in all likelihood ensuring the tobacco industry a sizeable market for at least another generation. Spurred by the low price of cigarettes (LL1,000 to LL2,000), the average Lebanese smoker consumes around 3,300 cigarettes a year, or 165 packs.
Market shares between premium – Marlboro, Kent, Gitanes, Viceroy, Gauloises – mid-market – Fine, Rothmans, Craven, Pall Mall, L&M, Royale and budget brands – Brilliant, Winchester, Business Club, Sovereign – are distributed evenly, with each category holding respectively 38%, 25% and 36% of the market, according to a 2003 report by the Altadis tobacco group.
Imports into the country are dominated by four of the world’s leading transnational tobacco companies, with Philip Morris in the lead at 45%, followed by BAT (29%), Japan Tobacco International (10%) and Altadis (9%). They collectively generate 90% of total tariff revenues reaped by the Regie Libanaise des Tabacs et Tombacs, which has a monopoly on all tobacco imports into the country. Lebanese taxes on cigarette imports reached an all time high in 1999 at 120%, but subsequently dropped to average 60 to 70%. Yet despite apparent favorable market conditions, the Lebanese market may have reached saturation as growth has slowed to around 1.5% since 2001.
“The market is essentially stagnant,” said Naushad Ramoly, head of Corporate and Regulatory Affairs at BAT’s Levant and Yemen operations. There has also been a shift in tastes as more competitively priced local brands – especially Cedars – have increased their market share by 18% since 2000. Others have not fared as well. In the late 90s, 93% of the market was dominated by international brands. By 2003, this share had dropped to 79%. Philip Morris and BAT, who controlled over 85% of the market in 1998. Five years later, they made up less than 50%.
Cedars’ impressive growth places it second in terms of current market share at 19%, behind by Marlboro, with 24%. Battling it out in third place are Winston and Viceroy, with around 13%, followed by Gauloises and Gitanes. Adding to the pressure is a proposed ban on all above- and below-the-line tobacco advertising issued by a group of MPs in May 2004. The ban has yet to be ratified by Parliament and the current political crisis leaves little reason to believe that it will be made effective this year. However, the proposal does indicate that Lebanon’s days as a liberal haven for tobacco advertising could be numbered.
Still, the tobacco sector’s $8 million annual advertising spending is in freefall and has, like alcohol, seen a staggering shift to promotional advertising, with BAT, slaughtering its above-the-line expenditure, once at 75% of its ad budget, to 5% last year.
“Tobacco advertisers have been affected by the economic situation and they don’t care about the reputation of the brand,” Mounir Torbay of the World Federation of Advertisers’ Lebanon Chapter said in a 2004 interview. “That is why media advertising has dropped so drastically. They need the ‘push’ and not the ‘pull’. They want people to buy more, to switch from one brand to another.”
Cigars
Despite its small size, Lebanon ranks as the 5th highest Cuban cigar consumer in the world today. The driving force behind the promotion of this culture has been cigar superemo Mohamed Zeidan, Chairman of the Phoenicia Aer Rianta company, who enjoys a close friendship with Cuba’s President Fidel Castro and has the sole distribution and retail rights for Cuban cigars in Lebanon.
“From being the prerogative of businessmen and politicians, cigar smoking has expanded across the population, now also reaching the younger segments of society,” said Walid Saleh, managing director of the Phoenicia Group. “We engaged in major promotional activities in 1998 to 99, targeting the 22 to 25 age group, so as to educate them and prepare them for when they entered the job market and could afford more upscale brands. Cigars are now enjoyed by a wider age group and have become a product for every occasion.”
The total number of Cuban cigars sold annually on the domestic market and at Beirut Duty Free combined is estimated at four million, of which 35% are sold domestically and 65% at the airport. A major tax hike from 45% to 152% between 1998 and 2000 witnessed an intervention by the Cuban government to appeal for a reduction, and Lebanese authorities subsequently lowered the rates to 60%, where they remain today. The economic recession has had little effect on the market, according to Waleh. “Consumers might go down a notch in brand, buy a Montecristo rather than a Cohiba, but they will continue smoking cigars,” the manager explains. “The idea that the Cuban cigar is a luxury item is an erroneous one – you find cigars for as little as $1, so people can afford to enjoy them.”
The sturdiness of the market’s growth has undoubtedly been assisted by Phoenicia’s successful two-pronged marketing strategy. At Beirut Duty Free, the company opened the largest cigar store in the world. La Casa del Habano offers every brand of Cuban cigars, cigarillos, accessories, a VIP cigar lounge and a walk-in humidor. The unique retail concept paid off, becoming the largest point of sale for Cuban cigars worldwide. While cigars generally account for 1% of an airport duty free outlet’s sales, at Beirut Duty Free, this figure stands at 22-25%, reaching $15 million in annual sales.
On the domestic front, Phoenicia invests $700,000 on predominantly below-the-line marketing. “Our focus is essentially on the on-trade business, to bring direct added value to our clientele,” Waleh explains. “People already know our brands, so there is no need for brand building. What we seek is to increase penetration rate and spending rate.”
Gifts with purchases, promotions teaming up with products such as Cadillac, Ferrari and Glenfiddich, and monthly events held at Lebanon’s leading hotels are but a few of the array of promotional activities the company has engaged in. Its two latest innovations include a Montecristo platinum VISA card, which circumvents strict international anti-tobacco advertising regulations, and a Partagas calling card for travelers at Beirut Airport.
For the record, all 34 Cuban brands are sold in the country today and dominate the market by 98%. The top five most popular cigar brands are Cohiba, Partagas, Romeo y Julieta, Montecristo and Hoyo de Monterrey, all come from the small Caribbean island. Popular cigar sizes were initially Double Coronas and Churchills, but for the last five years, Torpedos, regular Coronas and Robustos have been gaining ground.
