As Liquor Prices Rise, Consumption Stalls

A distiller's recent decision to raise prices has boosted profits but slowed sales, unintentionally providing statistical support to preventionists who argue that making alcohol more expensive is effective in preventing overconsumption and related problems.

The Wall Street Journal reported July 16 that Diageo PLC, maker of brands like Smirnoff vodka, Bailey's Irish Cream, and Captain Morgan rum, in the last year broke with industry precedent to sharply raise prices on at least 19 of its 25 brands. Through mid June, retail prices of Diageo products were up 2.1 percent, according to an ACNeilsen report. Company profits rose 5 percent during the same period.

But as prices and profits rose, sales of Diageo products began to slow. The company, which controls 21 percent of the U.S. liquor market, was widely credited with leading a 3.5 percent rise in industry sales last year. But in the first half of 2004, the company's sales volume in distribution outlets rose just 0.1 percent, far below the 1.7 percent growth in the rest of the industry.