A ray of light

A ray of light

Figures reveal domestic consumption is on the up

Whisky Learning | 27 Mar 2020 | Issue 166 | By Liza Weisstuch

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As common wisdom goes, there are two things that should not be discussed at a bar: politics and religion. Based on 2019 data, the industry is ready to declare a variation of that rule as well: two things you should not talk about in the political arena are liquor and religion (though we’ll stick to the former here). According to data compiled by the Distilled Spirits Council of the United States (DISCUS) and presented at the annual economic briefing in early February, responsibility messaging that the lobbying group has been pursuing is working. Teenage drinking is down by more than 54 per cent in 18 years and drink-driving fatalities are down by 50 per cent since 1982. Then there’s the figure that’s been anticipated after years of growth: domestic sales of American whiskeys are up, way up. But politics has spirits producers’ moods down.

American whiskey accounted for 65 per cent of all US spirits exports last year and the EU is the top export market. But after 20 years of double-digit growth of American whiskey exports, the 25 per cent tariff the EU has placed on imports of the spirit caused a 27 per cent decline in exports from American suppliers. The cumulative result is a staggering $996 million (£763 million) fall in revenue from US whiskey exports, from $700 million in 2018 to $514 million. DISCUS has been working to repeal the tariffs, a 25 per cent tax implemented in 2018 in retaliation for the tariffs the US placed on imported aluminium and steel.

All this came a day after an announcement from the Scotch Whisky Association that Scotch exports are at a record high despite US tariffs. International sales increased more than four per cent to £4.9 billion ($6.3 billion) in 2019. With £1.1 billion in sales, the US was the most valuable market, though exports volumes to the country tumbled by 25 per cent in the last quarter of the year.

On closer scrutiny, from 2018 to 2019, the tariffs on US spirits led to a 41.5 per cent decline in US spirits exports to the United Kingdom ($190 million to $111 million, or TKTK), a 41 per cent decline in exports to Spain ($119 million to $70 million) and a 30 per cent tumble in exports to Germany ($120 million to $83 million). It’s not all gloom and doom, though. Exports to Mexico were up 18 per cent ($61 million to $72 million) and to Japan by 18 per cent ($118 million to $138 million). American whiskey accounts for a bulk of those figures, with 39 states exporting whiskey. (Compare that to 45 states exporting any other spirit.) When considering just American whiskey, the biggest jump in exports was to Japan, with a gain of 25 per cent, and the biggest fall was the UK, down by 32 per cent.

“Obviously the tariffs have increased the level of uncertainty that our exporters are facing and we see the effects of these tariffs on our exports to the EU,” said Christine LoCascio, who oversees public policy at DISCUS.

There is a beam of light thanks to American consumers. Sales in the US did compensate for those lost overseas. Domestic sales and supplier revenues were up in 2019 over 2018 by 5.3 per cent. That may not sound significant, but consider the figures: $29 billion total, up $1.5 billion. With volume up by 7.6 million cases to 239 million cases, a bump of 3.3 per cent, that makes 2019 the fastest annual volume growth since 2006, according to data from David Ozgo, senior vice president of economic and strategic analysis at DISCUS.

Where whisky is concerned, domestic sales of Bourbon and other American whiskeys increased by 10.8 per cent. Ozgo dubbed rye whiskey a “very good story”; the category was barely a blip a few years ago but now it’s showing impressive growth, up 14 percent to 1.2 million cases, a boost of $235 million. However, Irish whiskey remains the “real success story in the last 10 years”. With sales floundering a decade ago, this has skyrocketed to 4.9 million cases in 2019, a boost of almost 4 per cent in volume and 5.7 per cent in revenue, clocking in at $1.1 billion.

An interesting point that’s become a well-entrenched trend is premiumisation. A great deal of revenue growth comes not necessarily from an uptick in sales volumes, but from consumers trading up. According to Ozgo’s data, 28 per cent of American supplier revenue ($8.1 billion) comes from the premium category while super-premium products represent 24 per cent ($7 billion). Value brands? A mere 14 percent ($4 billion).

Yet even the lift in sales from American consumers can’t help the peril felt by what’s long been looked at as the ever-flourishing craft spirits industry. The tariffs are having a profound impact on small independent producers who have been working to grow their international sales. Tom Potter, founder and president of New York Distilling Company, spoke about the stifling effect of trade barriers. In 2017, he said, the Brooklyn distillery’s fastest growing segment was exports and they projected that exports would be 25 per cent of sales in 2018. Then came the tariffs; in 2019, exports declined by 40 per cent.

The briefing leaves a lot of issues hanging in the air. Whether the tariffs will be repealed and free trade reinstated remains to be seen.

Whether America will continue to see economic fortunes, allowing for widespread premiumisation, is contingent on countless factors. What of the hard seltzer craze, which took off like a rocket and, with new brands hitting the market this year, could give spirits a small battle for their market share? Then there’s the growing legalisation of recreational marijuana. Questioned on whether pot could be a threat to spirits sales, Ozgo said that as of now, it’s still a nascent industry. It’s just too soon to tell how high those sales may go.
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