Millennials to drive spirits growth in the US

The future of spirits in the US is seemingly secure, as millennials take up their tipples with pleasure. But there is debate over which categories will win the most affection.

Millennials will lead growth of the US spirits market, according to Diageo’s North America president

Larry Schwarz, president of Diageo North America, describes his domain as “a developed market with a runway for growth,” which he believes will come from millennial consumers. Of course he’s not alone in targeting a group growing by four million a year with a recognised bias towards spirits, and this has led to intense price competition and discounting. Once you climb into the super-premium category and above things get easier, allowing brands like Bulleit Bourbon to raise prices and maintain a 50% growth rate.

American whiskey is undoubtedly trendy and on a roll, especially the flavoured variety. “If you look at Tennessee Honey and its competitive set, it’s currently growing by 66% a year in the US,” claims Jack Daniel’s group brand director, Phil Epps. The distiller dipped its paw in the honey pot in 2011 and now sells over a million cases, two thirds in the States. “With Tennessee Honey we think we’ve brought in about a million incremental Jack Daniel’s drinkers in the past 12 months,” says Epps.

Cinnamon takeover

Yet stealing the headlines is Fireball – the Canadian whisky liqueur owned by Sazerac whose sales are suitably on fire. Jack Daniel’s has retaliated with its own cinnamon-based Tennessee Fire which is being rolled out nationally this spring. Overall the flavoured whiskey category is “growing in strong double digits” says Epps, who sees no sign of it slowing down.

Back in 2013 the buzz was all around flavoured vodka which grew 19% that year. As many predicted, it has proved unsustainable with US sales now collapsing under the weight of whipped cream and marshmallows. It won’t happen with whiskey, insists Epps, who points out there are only so many flavours that complement the spirit. That said, Diageo hasn’t quite abandoned those 1950s dessert flavours it employed with vodka – last year it launched Piehole whiskey in apple pie, cherry pie and pecan pie versions.

Vodka is also suffering in the on-premise according to Jacob Ehrenkrona, CEO of The Reformed Spirits Co., which owns Martin Miller’s gin. “If you look at drinks menus you’ll find maybe one vodka cocktail to eight gin cocktails. Eighteen months ago it was the other way round.” With the Martini, he feels “men in their 40s are stuck with what was cool when they left college, like Grey Goose and Belvedere, whereas the younger generation are into Gin Martinis”. He credits the TV series Mad Men for inspiring an interest in classic, gin-based cocktails, though despairs of America’s fumbled attempts to master the gin and tonic. “G&T in the US is appalling for two reasons – tonic from a gun and, even worse, bad ice.”

The Tequila market in the US is continuing its premium trajectory

‘Unknown’ Scotch decline

The overall US gin category is shrinking although the rate of decline is slowing, reports the IWSR. Meanwhile the Scotch Whisky Association (SWA) says US shipments were down 12% by volume in the first half of 2014, though no-one seems to know why. “Most of us were perplexed by that, though there may have been some de-stocking,” says Paul Ross, CEO of Edrington Americas, which has been growing nicely. “Our flagship Macallan is trending at plus 14% which just shows what you can achieve with your own operation,” he says. Edrington took distribution in-house last year, opening a string of offices and hiring over 120 staff.

The Scotch category seems to be polarising in the US, however. “The old blended market like Dewar’s and Cutty Sark, where consumers aged over 60 buy 1.75-litre bottles with a handle, is very price sensitive and declining by 3-5%,” says Ross. “That’s a structural trend of the last 20 years, but premium blended Scotch is growing steadily and recruiting 25-35-year-old consumers.” He puts growth in the single malt category at 6%, and says the only constraint on The Macallan is supply. “To be candid, the slow-down in China and Russia allows us to reallocate stock to North America, but we still don’t have enough.”

Flavour debate

Ross insists there are no plans to shift US consumers from The Macallan 12-year-old to no-age-statement whiskies to ease the pressure. He also disputes the claim made by John Hayes, Jack Daniel’s MD, in The Spirits Business last October, that flavoured whiskey now outsells Scotch in America. Yet it remains a thorny issue among Scotch distillers whether or not to embrace flavours like Dewar’s Highlander Honey. “We have to innovate,” says Ross, “but we can’t just go adding stuff to our whiskies. That’s not what we’re about.”

Tequila has also been polarising, with mixto Tequilas down 5% last year according to Raffaele Berardi of Corralejo, which as a 100% agave brand has been enjoying double-digit growth. “There’s definitely growing premiumisation in the US,” he says, pointing to increasing use of silver and añejo Tequilas in cocktails, and more sipping and less shooting. Ann Stickler, global brand MD for Herradura and El Jimador, puts premium and super-premium growth at 6% (CAGR). “There’s still a long way to go with projections that 80% of growth in the category is going to come from the US,” she says. “People are really in-tune with the trend for authenticity and craft, and high-end Tequila is all about that.”