Scotch struggles against ‘more innovative’ spirits

Scotch whisky exports continued to drop in the first three quarters of 2014, as the segment struggled to retain market share against other “more innovative” spirits such as Bourbon and rum.

Scotch maybe to losing market share to Bourbon, rum and gin as exports continue to decline

During the period, Scotch exports totalled £2.81 billion, signifying a 8.6% dip when compared to 2013, Rabobank’s Spirits Quarterly Q1 2015 has revealed.

Citing HMRC figures, analysts claim the decline was due to “subdued demand” in some of the core markets for Scotch, including the US, where the category dropped by more than 10% in value to £571m.

The greatest decline was seen in Singapore – the main entry point for Scotch into China – where export value declined by 41.1%. This is predominantly due to a slowdown in China, which has embarked on an anti-extravagance drive over the past two years.

In 2013, Scotch exports to China plummeted by 30%, dropping the region out of the top 20 markets for the spirit.

The slowdown in exports has also been attributed to a global slowdown in spirits consumption as international spirits sales increased by a marginal 0.1% to 3.09bn nine-litre cases in 2013.

The report states that while the recent slowdown in Scotch exports “does not yet represent a long-term trend”, declining shipments to the category’s key markets are a “concern” since it may indicate “structural challenges”.

In particular, Rabobank notes that Scotch may be losing market share to other “more innovative” spirits categories, such as Bourbon, Irish whiskey, rum and gin.

Furthermore, analysts claim Diageo’s announcement to delay plans for expanding its production capacity in Scotland suggests “some companies see the recent slowdown as more structural than temporal”.

Rum rivalry

Rabobank also claims Scotch drinkers could be turning specifically to dark rum as the category continues to premiumise. “One category that appears set to capture share from Scotch is dark rum,” claims Rabobank.

“High-quality aged sipping rums are winning over consumers in the UK, Benelux, France, the Nordics and Eastern Europe as they look to change up Scotch or gin consumption on the back of the current premiumisation trend.

“However, rum is also growing outside of the super-premium category, with Diageo’s president in Europe dubbing Captain Morgan as the growth driver in Europe.”

However Scotch exports to United Arab Emirates (UAE) and Taiwan soared by 27% and 45% respectively due to an ongoing trend of premiumisation in the regions. Meanwhile France – the top export destination for Scotch in volume terms – showed modest growth of 2.2%, and the coveted Indian market saw 20% growth.

Furthermore, exports of single malt Scotch whisky were up 17% in Q3 2014, indicating consumers are still trading up in the category.

In September last year, the Scotch Whisky Association (SWA) said it was “confident Scotch whisky will continue to grow in the long-term”, but called on the UK Government to help “beat down trade barriers”.