When it comes to beverages, many variables, including taste, product quality, brand image, price, and consumer preferences, play important roles. Competition is intense in this industry, and it dents the companies' top and bottom-line performances. The best way for a company to remain competitive is to distinguish its products; after all, premium products have better pricing, and thus drive better margins. What are companies doing to increase their positions in these markets?

Pushing whiskey up
With operations in 180 countries, Diageo is the global leader in premium drinks.

This fiscal year, the company improved its earnings thanks to deep cost-cutting measures. Truth is, Diageo experienced soft sales and volumes due to low European sales. Western Europe contributed 18% to total sales in fiscal 2013, so the company is taking a serious hit there.


However, Diageo's brands remain solid. The company possesses eight out of the world's 20 premium spirits brands, including the leader in volume, Smirnoff, and the leader by value, Johnnie Walker. Plus, it has the only global stout brand in the beer category with Guinness.

The company is putting efforts into expanding its whiskey division in the emerging markets. It made a $1.6 billion investment in Scotland in fiscal 2013 to increase its production facilities. Big demand in Russia is pushing sales in the country, which have been growing by double digits for the past several quarters. China is adding profits as well, recording high single-digit growth in the past two years. Cheers for Diageo!

Booming U.S. operations
Another company to analyze is the largest wine company in the world, Constellation Brands .

The company posted strong second quarter results, thanks to the consolidation of its $1.85 billion Crown Imports acquisition. This operation provided Constellation Brands with the distribution, marketing, and pricing rights for Modelo brands in the U.S.

The Grupo Modelo beer business acquisition from Anheuser-Busch InBev is proving fruitful for the company in the region. Constellation Brands is showing steady depletion trends, which give us positive signs for future market growth. Moreover, a key revenue driver for the company is its wine and spirits businesses, which are showing increasing market share in the U.S. Constellation Brands has a predominant position in the premium wine segment in the country, which is a very profitable business.

However, the company's high debt concentration could make it susceptible to macroeconomic factors. Its long-term debt of nearly $6.9 billion and debt-to-capitalization ratio of 61% should raise some concerns.

Another whiskey champion
Finally, we have one of the leading producers and distributors of premium alcoholic beverages: Brown-Forman , which owns the Jack Daniel's brand.

Brown-Forman's fiscal first quarter 2014 earnings showed a 4.3% year-over-year decline. Although sales are up, higher input costs and an increase in operating expenses are putting pressure on the company's bottom line.

Nonetheless, the company is focusing on expanding its whiskey brand share in the emerging markets. Global net sales are up 2% year over year, mostly driven by its whiskey division. That is why Brown-Forman has decided to build a new cooperage for manufacturing barrels for Jack Daniel's in Decatur, AL. This production increase will serve higher demand and push earnings back up.

However, the company's international business accounts for 60% of sales. This exposes Brown-Forman to risks such as currency fluctuations and disruptions in shipments. Moreover, since distilled spirits are subject to excise tax in many countries, any modifications will affect the company's sales.

Bottom line
Diageo remains solid and its strategy is proving successful, especially considering its growth trends in the emerging markets. It is a company to buy.

Constellation Brands' strong branding efforts and recent acquisitions make it a solid investment looking forward. However, its debt metrics should be closely monitored.

Regarding Brown-Forman, the company could face issues related to macroeconomic headwinds if the global economy does not fully recover. Sales rely on whiskey, and other companies like Diageo are adding extra competition in this market.

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The article Which Drinks Are Driving Beverage Sales Up? originally appeared on Fool.com.

Louie Grint has no position in any stocks mentioned. The Motley Fool recommends Diageo plc (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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