Market overview

18th June, 2018 by admin

In 2017, the spirits industry recorded its best volume performance in five years. SB takes a look at the broader trends and movements that had a major influence.

In an industry as complex as spirits, it’s easy to get caught up in the details: company finances, investments and divestments, legislation and brand developments can lead to opinions that are gratuitously optimistic or pessimistic. Sometimes it’s necessary to take a step back and look at the wider picture.

New data from market research provider Euromonitor paints a heartening image of the spirits industry in 2017, when global sales increased by 1.5% to 2.4bn nine-­litre cases. While modest, this growth is significant in an era that has seen volume progressively sacrificed for value as consumers drink less but better. In fact, last year, spirits experienced its best volume performance since 2012.

Spiros Malandrakis, industry manager – alcoholic drinks, Euromonitor, calls 2017 a “vintage year” for the entire alcoholic drinks market, with “general improvement” for most sectors, including spirits.

He notes that 2017 saw a “continuation and acceleration” of trends from previous years, including the rise of whisky, the much-vaunted ‘ginaissance’, and the soaring popularity of high­end Tequila.

According to Malandrakis, the continued improvement of blended Scotch whisky was a key driver for brown spirits in 2017. Figures from the Scotch Whisky Association show that exports of blended Scotch increased by 0.9% in 2017 to 802m bottles.

The broader Scotch sector had a successful 12 months, witnessing growth in volume and value. However, the sector was not without tribulation – producers searched for clarity as the uncertainty of Brexit loomed, and a decision from the UK’s Supreme Court paved the way for minimum unit pricing in Scotland, which the Scotch industry had ardently lobbied against for years.

The wider whisk(e)y industry also experienced some bumps in the road – Irish whiskey producers fought against proposed changes to the Public Health (Alcohol) Bill, and also sought stability for the sector’s ‘all­i-sland’ geographical indications after the UK departs the EU. On the flip side, the industry experienced unprecedented levels of investment from both established and new players.

MAJOR EXPANSIONS

This story is echoed in the US: new distillers entered the American whiskey market at a rate of knots, and major expansions were announced across the country. According to trade body the Distilled Spirits Council, sales of American whiskey were up by 8.1% in 2017, hitting US$3.4bn. Confidence in the category suddenly dropped this year when both the EU and China threatened to slap punitive import tariffs on Bourbon in retaliation to trade sanctions directed by president Donald Trump. For now, the nations have avoided an all­-out trade war, but tensions continue to run high.

In Indian whisky, leading producers started to recover from the impact of demonetisation and state­wide prohibition measures, while in Japan, distillers bemoaned stock shortages in the face of soaring global demand.

Elsewhere in brown spirits, Cognac continued to recover from its China hangover, reporting impressive volume and value sales. Rum, which straddles the white and brown spirits segments, saw growth of 0.7% in 2017, hitting 144.8m cases. The statistics may not be staggering, but they represent an improving picture for a category that has struggled to bounce back. Tequila and mezcal recorded the fastest rate of growth in 2017, according to Euromonitor data, up by 4.9% to 33.6m cases. Prices may be spiking due to an agave shortage, but that didn’t deter new drinkers. A swathe of acquisitions in the sector reaffirmed that Tequila has the attention of the world’s leading drinks firms, but also prompted concern about whether the category is poised for sustainable growth.

Despite talk of a fallout, gin has managed to stay strong, and as Malandrakis notes, the ginaissance “remained in full swing”. He adds: “Registering a consistently accelerating 5% volume growth for the year, 2017 was English gin’s most stellar performance since at least the early noughties.”

In a category that is traditionally quite staid, liqueurs posted a gain of 0.8%, boosted by the continued global development of cocktail culture, consumer interest in lower-­abv serves, and a host of bold marketing campaigns. All but two million­-case-­plus liqueur brands witnessed growth in 2017, according to Brand Champions figures.

‘Other spirits’ – in this case, ‘local’ brands such as soju and baijiu, which retain huge market share despite relying on a domestic consumer base – added more than 20m cases to its balance sheet in 2017, showing that such brands are batting away competition from international players.

Once again, vodka dragged down the performance of the wider ‘white spirits’ contingent as it lost important ground in Eastern Europe. Malandrakis notes: “Vodka, still seemingly trapped in a downward spiral, remains a prescient reminder of both the danger of complacency and the unrelenting nature of cyclical generational consumer movements.”

Category volume sales (figures: 9l case sales) Source: Euromonitor

2016 2017 %+/­
Total spirits 2,369,425,582.0 2,405,728,273.7 1.5%
Other spirits 1,156,814,014.9 1,177,124,627.9 1.8%
White spirits 403,158,109.8 404,242,519.7 0.3%
Whiskies 357,537,341.5 367,997,812.1 2.9%
Brandy and Cognac 169,192,264.8 170,149,210.5 0.6%
Rum 143,809,125.2 144,830,544.5 0.7%
Liqueurs 106,996,771.3 107,824,816.1 0.8%
Tequila and mezcal 31,917,954.5 33,558,742.9 5.1%

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