UK: why it’s not all doom and gloom for spirits
You might be forgiven for thinking that everything is awful in the UK’s spirits sector, what with duty hikes and the government breaking its promises to help the industry. But there are still some bright spots, as we discover.
*This feature was originally published in the February 2025 edition of The Spirits Business magazine.
Morale in the UK spirits industry at the start of 2025 feels almost as gloomy as the weather. The market has been hit by some heavy blows over the past year – not quite as vigorous as the 100mph-plus (160kmh) winds of Storm Éowyn that battered parts of the UK in January, but hefty, nonetheless.
“2024 was a mixed bag for the spirits industry – and a particularly tough year for us all, economically,” says Nick Gillett, managing director of spirits distributor Mangrove Global. “There were a few true success stories, in terms of individual brands and categories, but there’s no doubt that we are an industry battered and bruised by government policy – and I see no sign of this abating in 2025.”
With a new Labour government voted into power in 2024, there was hope that the previous year’s double-digit alcohol duty hike, introduced by the former Conservative government, would continue to be frozen –particularly as now prime minister Keir Starmer had promised to back the whisky industry “to the hilt” during his election campaign. Regrettably, that was not the case. As of 1 February 2025, alcohol duty rose again in line with inflation.
Squeezed margins
Thanks to its premium portfolio, Mangrove Global is, fortunately, less affected by the duty increases, according to Gillett. However: “It has a bigger effect on the lower end of the market,” he says. “As lower-priced brands have their margins squeezed even further, there are two choices – they either lower the alcohol content or lower the quality.”
He continues: “I (and other commentators in the industry) don’t believe the duty hike has been implemented for health or lifestyle reasons. A tax hike is purely designed to raise revenue – and, I’d argue, it’s probably not raised the government as much as they thought it would. And they’ve crippled businesses with it meantime – especially in the hospitality sector.”
Data from His Majesty’s Revenue and Customs shared by the Scotch Whisky Association in January revealed the UK Treasury has lost £500,000 (US$607,000) a day in revenue since the double-digit increase on spirits tax – leaving many understandably worried about the latest uptick. For Miles Beale, chief executive of the Wine and Spirit Trade Association (WSTA), the UK’s impending Extended Producer Responsibility (EPR) scheme is now the number-one worry for the UK spirits trade, eclipsing the aforementioned duty woes. The UK government’s Department of Environment, Food and Rural Affairs (Defra) intends to implement the EPR scheme this year, which will hold producers accountable for packaging waste. The new fees will be incurred from 1 April, the deadline for reporting packaging supplied by registered producers in 2024. However, producers won’t know until after this date what those exact costs will be.
“Defra snuck out revised cost estimates [in December] at £240 (US$298) per tonne [for glass], which was well above the mid-point of the range they’d previously announced, and that says quite a lot,” explains Beale. He shares frustration at the lack of clarity surrounding EPR – particularly at the refusal of the government to respond to the trade body’s endeavours to engage in conversation.
“I keep trying to be clear,” he says, “we are calling for a delay not because we think it’s wrong and should be U-turned. We accept the policy is coming, and we accept the principle behind the policy – it doesn’t mean we like it, but we understand it. That is settled.
“What we’re trying to do is help the government put in place a policy that works. Our industry is the biggest user of glass, and glass is indefinitely recyclable. This is a scheme that should work, but it has to be properly arranged and organised.
“Government ministers aren’t really speaking in private or public, but are asking officials to hold the line that the timetable won’t change. They will have to delay or come up with answers, or possibly both. We are desperate to explain to the government, and Defra in particular, how keen we are to devise something that works in practice.”
Threat of tariffs
The hits keep on coming. Beale highlights another potential “big headwind” for 2025: the threat of tariffs, as Donald Trump resumes his presidency in the US. The country is the UK’s third-largest export market for food and drink. More than 10% of all British food and drink exports are sent to the States, according to the UK’s Food & Drink Federation. During the first nine months of 2024, whisky exports from the UK to the US fell by 23.2% in value and by 19.8% in volume. As whisky is the UK’s biggest export to the US, this heavily contributed to the global whisky export decline from the UK during this period, 36.5% by value and by 28.5% by volume. Gin exports from the UK to the US also took a hit, dropping by 38.1% in value and by 37.1% in volume.
In the UK, spirits sales have also struggled. “The UK spirits market experienced a decline during the first half of 2024. Spirits and wine volumes deteriorated more rapidly than in previous years, with total beverage alcohol volumes decreasing by 2% in H1 2024 compared to the same period in 2023,” says Patrick Fisher, senior market analyst, IWSR Drinks Market Analysis. “The market outlook remains cautious. Growth opportunities are primarily tied to premiumisation in certain segments like Tequila and world whiskies. However, moderation trends and economic pressures are expected to persist, limiting overall volume recovery.”
Welsh producer Penderyn felt the contraction in the UK market in 2024. As a result, the company paused production at its third and newest distillery in Swansea, Wales, at the tail end of last summer. “We paused production to bring our production plan in line with our long-term sales forecast,” explains Stephen Davies, chief executive of Penderyn. “We intend to restart as soon as possible, and as market conditions allow.”
He continues: “There are very many challenges that we face as an industry from general economic conditions, high interest rates and rising costs of production.”
The producer has two distilleries in addition to its Swansea site, the original Penderyn in the Brecon Beacons and Llandudno Lloyd St on the north coast of Wales. Both remain operational – and Penderyn has not reneged on its new product development, despite the whisky market’s slowdown. Three new whiskies are already planned for 2025 – including the first from the Llandudno Lloyd St distillery, “so we feel very optimistic and have some great single malts to release and distribute”, adds Davies.
Glenglassaugh on pause
Penderyn’s position is not unique. At the end of January, Brown-Forman also announced it would be halting production at its Glenglassaugh Distillery in Scotland, and making a number of employees redundant. Brown-Forman said it would introduce a shared production model with BenRiach, which would see periods of production and periods of “silent seasons” at Glenglassaugh.
If that’s the reality for large corporations like Brown-Forman, how difficult is it, then, for newer, smaller brands to crack the UK at present? “The UK market is tough right now due to the financial climate,” says Lucy Smith, founder of Neurita Tequila. “Everyone I talk to says the same – distributors aren’t taking on new brands, bars and restaurants are closing, and marketing costs to open accounts are huge. There’s still pressure to prove a concept in the on-premise before retail. Big players can throw money at these challenges, but startups can’t always compete. Many are turning to e-commerce, with Amazon being a key channel if you know how to navigate it. Neurita is growing in the UK but we’re also expanding into Europe and Australia to diversify our approach.”
Mangrove’s Gillett also agrees with much of what Smith says, noting “there is a lot in the UK market that works against new brands”. He adds: “The cost to play in the UK market, the availability of expertise and distributors, the gatekeepers at wholesale and retail level. It’s hard for new brands to even be considered for the channels they need to succeed. And this gives way to success for the conglomerates who can pay to play.”
Sophisticated market
Gillett says he’s often surprised by how big those outside of the UK perceive the market to be. He credits the on-trade and competition between wholesalers for the market’s sophistication. “Behind-the-bar teams are incredibly creative and experimental – as are chefs in our restaurants. Appetite for education is high – and consumer demand is more experimental than in other global markets. In that sense, all brands, no matter how new or small, have a chance in the UK. The more we can drive this appetite for difference, the better.”
The UK on-trade is not without its struggles, though. Despite record sales over Christmas, The Revel Collective, which operates the Revolution and Revolución de Cuba chains, expects the costs from the UK budget to hit its annual profit to the tune of £4m.
In January, trade body UKHospitality made a fresh plea to the UK government to deliver a specific growth plan for hospitality to help drive economic growth. “Hospitality and the foundation economy can deliver growth now, if it is properly backed,” says Kate Nicholls, chief executive of UKHospitality. “Hospitality was the biggest driver of economic growth in November, demonstrating that we are already on the strongest growth path, despite the intense cost pressures our businesses face. My message is to back a sector like hospitality that can do that now, and deliver for the economy, jobs and communities.”
Is there anywhere in the UK where a sliver of optimism can be found? Fortunately, yes. WSTA’s Beale notes the strength of the liqueur category in the UK, and the rise of low- and no-alcohol. If understood, supported and backed properly, the low-and-no category could be just the tonic the trade needs against the increasing scrutiny on the alcohol industry from health lobbyists.
“I hope the government will recognise the fall in consumption and interesting trends around low and no, which could be an answer to increasingly responsible drinking,” he says. “I’m hoping they’ll persuade the government to leave the industry to do what it’s successfully doing anyway.”
If much of what is troubling the UK spirits market is influenced by government policies and the economic climate, is there anything the trade can do collectively to mitigate some of the challenges it’s facing in 2025?
“Absolutely,” says Beale. “The first thing we need to do is come together. There has been too much of different parts of the drinks industry thinking they’re more important, or prioritising different things. So much of what will challenge our businesses and our industry will be decisions made by the UK government. What we need to make sure the spirits industry does – and not just alcohol, also hospitality, retail – is we need to come together to remind the government they need economic growth, which will not be done without our businesses.
“We need to be a bigger, stronger lobby to convince the government to listen and do some things we like, rather than repeatedly intervening to make it harder for businesses to make profit – and therefore deliver no economic growth. That’s the biggest request I have of our members and wider leisure, retail, and hospitality. Let’s get together and make sure the government does what we would like them to do for the good of businesses and the industry.”
Industry insights
What changes would you like to see – on an industry level or a government one – to better support up-and-coming brands trying to establish themselves in the UK spirits industry?
Isobel Armstrong – commercial director, Secret Garden Distillery
“One crucial change could be the introduction of clearer and fairer regulations around listing fees. In recent years, we’ve seen a concerning trend where listing fees have doubled, with larger brands leveraging their financial power to secure prime distribution space and maintain market share. This has created a situation where only well-capitalised companies can afford to compete for listings, leading to an unfair advantage that stifles competition from smaller craft distilleries. To level the playing field, I would advocate for caps on listing fees, or tiered systems that consider the size and financial capacity of a brand. These changes would ensure that the craft spirits sector has a fair opportunity to showcase its unique products, encouraging innovation and increasing consumer choice without unduly restricting market access.”
Jaye Iwanowski – founder, Sauce Brands
“There could be more support at the government level to reduce overheads for venues. Whether that’s in the form of grants of rate reductions – the on-trade needs more support. Unfortunately, until the economy is back in growth, households and people individually are going to be unable to spend like they used to, whether it’s buying a bottle of alcohol or going out for dinner and drinks on a Tuesday night. In the meantime, how distributors can play their role is to look at their marketing budgets, and try to put some of that investment directly into our bars and retailers to support them, to keep them treading water until there are better times ahead.”
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