Market overview

17th June, 2019 by admin

While the year just gone was reasonably healthy, a mixture of uncertainty caused by Brexit and US trade wars means the future performance of the spirits industry is far from clear.

An ever-growing number of consumers, particularly those classified as millennials or Generation Z, have adopted the mantra ‘drink less, but better’. As a result, the spirits industry has seen premiumisation take effect across the globe, as consumers switch their focus to quality rather than quantity. However, in spite of changing consumption habits, spirits volumes continued to deliver growth – if only marginal – in 2018.

The latest figures from market research provider Euromonitor show total spirits volumes grew again last year, rising by 1.1% to 2.42 billion nine-litre cases. “Top-line growth covering all categories was just over 1% for 2018, which was more or less in line with 2017, so it’s healthy, at least overall,” says Spiros Malandrakis, industry manager – alcoholic drinks, Euromonitor. “It’s not particularly exciting, but generally it was an optimistic year. My concern is there are macroeconomic clouds on the horizon.”

The most notable “cloud” is Brexit. The UK’s departure from the European Union is pencilled in for 31 October 2019, deal or no deal. But with a new prime minister set to take the reins in the coming weeks after Theresa May steps down on 7 June, who knows what the Brexit landscape could look like in another month’s time. Will the UK government be able to strike a revised deal with the EU? Will a second EU referendum be granted to the British public? Only time will tell – and with that will come an awakening of the full impact Brexit could have on the spirits industry. “The main concern with Brexit and spirits are production issues and logistics that would arise from borders, taxes and all of that,” notes Malandrakis. “Additionally, there’s the impact of trade agreements and GI protection that the UK will need to renegotiate across the world, which is huge.” For the time being, his main concern is how this uncertainty is affecting consumer confidence, which he says has been falling for some time now thanks to the lack of clarity about Brexit.

“Regardless of common misconceptions, people do not drink more when they feel insecure, challenged and worried about the immediate future, but they will definitely cut down on their premium purchases,” he explains. “We need to look at how we can instil greater confidence in consumers.”

TRADE WARS
In the US, the major talking point has been the trade wars ignited by US president Donald Trump last year. A game of tit-for-tat followed Trump’s tariffs on aluminium and steel (10% and 25%, respectively), which came into effect on 1 June 2018. As a result, American whiskey found itself the target of several retaliatory tariffs from the EU, Canada, Mexico and China. While the US came to an agreement with Canada and Mexico to revoke the tariffs in May this year, at the time of writing the nation was still at loggerheads with China and the EU.

A report released by US trade body the Distilled Spirits Council in March showed American whiskey exports fell by 8.2% between July and November 2018. Despite an overall increase in American whiskey exports last year of 5.1%, this was a stark deceleration compared with the 16% increase in 2017 before the trade disputes ensued.

Malandrakis notes: “While American whiskey’s figures appear bullish, my concern is that US trade disputes have affected exports of Bourbon. It’s not entirely certain that the trajectory we’ve seen for Bourbon over the last few years will continue.”

Looking to the wider whisk(e)y category, overall volumes grew by 2.8% last year. Malandrakis also draws attention to the success of Irish whiskey – and with more distilleries having come into operation over the past year, the outlook for the category looks increasingly optimistic.

Elsewhere in brown spirits, brandy and Cognac continued to show the woes of China’s austerity measures are behind them, as sales climbed by 1.4% to 169.1m cases in 2018. And combined, Tequila and mezcal made an enormous leap in volumes to reach 36.8m cases in 2018 – a 6.6% spike on 2017.

Ireland’s gin is also demonstrating “high single digits”, says Malandrakis – but it is English gin that is the star of the show, reporting the “highest volume growth for a decade”. Total gin volumes demonstrated colossal growth in 2018, soaring by 7.5% to 77.1m cases in 2018. “Gin-based liqueurs are also doing quite well,” notes Malandrakis. “The shift towards focusing on indulgence and a hedonistic approach, rather than the previous over-reliance on female consumption, seems to be working.” This undoubtedly helped the liqueurs category grow by 1% last year.

With gin on the rise, however, its white counterpart, vodka, continues to lag behind. Overall volumes dipped again in 2018, down by 0.5% to 322.2m cases. Malandrakis calls vodka’s tribulations a “cyclical” misfortune, which he says is usually down to generational trends – and as such, the category’s slowed sales are likely to continue for some time.

“The majority of mainstream [vodka] brands are struggling,” Malandrakis says. “A number of craft producers are doing OK, but not good enough.”

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

2017 2018 %+/-
Total spirits 2,389,587,840.8 2,416,632,680.6 1.1%
Other spirits 1,168,708,627.7 1,173,063,973.7 0.4%
White spirits 395,418,425.2 399,203,645.1 1.0%
Whiskies 365,040,849.1 375,243,613.9 2.8%
Brandy and Cognac 166,721,937.8 169,113,980.0 1.4%
Rum 147,982,844.8 150,904,831.8 2.0%
Liqueurs 111,192,053.8 112,293,344.5 1.0%
Tequila and mezcal 34,523,102.3 36,809,291.5 6.6%

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