Canada spirits sales to reach $26.6bn by 2020

Spirits spending is expected to increase in Canada over the next two years to reach CA$26.6 billion (US$20.4bn) by 2020, according to forecasts from BMI Research.

BMI Research forecasts spirits sales by value will outpace volume in Canada until 2020

Alcoholic drinks spending is predicted to increase by a compound annual growth rate (CAGR) of 3.6% between 2018 and 2020, outpacing value growth which is forecast to rise by 1.2% CAGR over the same period.

BMI Research attributes the increases to “rising spending power” and “sophisticated tastes of consumers” in the country.

In 2017, per capita spirits consumption in Canada was estimated at 5.5 litres, and is expected to reach 5.7 litres by 2020.

This amount remains below Canada’s developed market peers, including the US, France, Germany and the UK. BMI Research said this is due to market saturation, ageing demographics and consumers becoming more health-conscious.

Furthermore, BMI Research also attributed the lower consumption levels to Canada’s “highly regulated” market, with retail pricing, listing, distribution and sales all controlled by provincial government liquor boards.

However, BMI Research sees “strong premiumisation” within the Canadian market with opportunity for niche spirits to grow. Large drinks firms such as Diageo and Pernod Ricard continue to control almost half the Canadian spirits market.

EU-Canada CETA deal

BMI Research also highlighted the EU-Canada Comprehensive Economic and Trade Agreement (CETA) – agreed in February last year – which will abolish specific import tariffs on spirits and recognise geographical indications (GI) in Canada when put into place.

The group said: “In our view however, the most significant benefits from CETA relate to additional barriers to entry, which previously hampered the ability of EU producers of spirits to penetrate Canada’s drinks market, but which have now been removed.

“Given that Canadian tariffs on spirits were already relatively low prior to CETA, particularly for whiskey and gin, the removal of these ‘behind the border’ regulations will therefore prove more effective in terms of boosting the performance of EU spirits, as they will help protect and promote specific EU products such as Irish cream or Swedish vodka within Canada and reduce the competitive advantage enjoyed by local alcoholic drink producers.”

Spirits accounted for 9% of the EU’s total food and drinks exports to Canada in 2016, with an export value of €327m surpassed only by wine.

Whiskies were the main driving force behind this value, with whisky imports reaching €176m in 2016. Scotch dominated the overall whisky imports with a value of €114m.

Irish whiskey potential

However, BMI Research noted opportunities for Irish whiskey to gain market share.

“We pinpoint strong expansion opportunities for the Irish whiskey market which is relatively underpenetrated across premium and higher price points compared to Scotch,” BMI Research said in its report. “Exports of Irish whiskey to Canada have grown substantially over recent years, with export values reaching €16.7m in 2016 (latest available data), up 171% since 2011.

“While this is still well below EU Scotch exports (which reached a value of €114m), we believe there is scope for Irish whiskey to make further gains as a result of CETA.”

The group also noted room for growth for gin and liqueurs. “We believe European gin distilleries are well positioned to tap into this fast-growing artisanal gin movement, especially given that gin has its origins in Western Europe and the region is home to a large number of craft brands, BMI Research said.