September 11-15, 2017

Dram Right!

Whiskey volume gains have been ramping up steadily over the past decade. According to data from DISCUS, in conjunction with Beverage Information Group, the compound annual growth rate of whiskey case volume between 2000 and 2005 was a mostly flat 0.2 percent. It ticked up 1.1 percent between 2005 and 2010 and then quickly jumped from there: It grew 1.7 percent from 2010 to 2011, 3.8 percent between 2011 and 2012 and then finally, last year, the increase accelerated to 6.2 percent.

A total of about 52.8 million cases of whiskey across all types brought in revenue of just over $7 billion  in 2013. It’s really the reverse of a trend that had defined the period between the 1970s and the end of the last millennium when the once-dominant whiskeys declined steadily.

 “Last year, for the first time, we saw growth across all whiskey categories, and I have never seen that before,” says David Ozgo, chief economist at DISCUS. Those whiskey categories include blended whiskey, whose volume, according to DISCUS, was up 14.3 percent in 2013; Canadian, up 2.9 percent; bourbon and Tennessee whiskey, jumping 6.8 percent; blended Scotch, up 2 percent; single-malt Scotch increasing 11.6 percent and Irish whiskey, with a whopping 17.5 percent gain.

Growth of each style of whiskey outpaced that of the overall spirits category. “When we looked at the growth categories for 2013, American whiskey—straight American whiskey, specifically—is growing,” observes Donna Hood Crecca, senior director of Technomic. “Within that we see growth in rye and also in corn—your bourbons and Tennessee whiskeys, they’re doing well.”

Trading up clearly has been playing a role in consumer purchasing habits.
Value whiskey brands, the lowest-end price segment, were down about 0.4 percent last year, but the picture improves precipitously the more upscale the segments get. In the premium segment, volume increased by 7.9 percent in 2013, according to DISCUS. In the next tier, high-end, it jumped 10.2 percent. Finally in the highest-end super-premium segment, it grew by 12 percent.

“You saw that really classic growth pattern that we’ve seen in most non-recession years for the last 15 years or so where the super-premium category drives growth and in turn drives revenues as well,” Ozgo says.

But there’s more to it than premiumization, especially when you contrast whiskey with the other spirits.
“Whiskey, as a group, outperformed non-whiskey,” says Crecca. “And that’s the first time that that’s happened..And that’s says something about what’s happening with the consumer’s palate.”

The only spirits type whose percent increase was better than whiskey’s was tequila’s—but that was in volume alone. Tequila, according to DISCUS, grew its case volume by 6.6 percent to whiskey’s 6.2 percent, but when you look at dollar growth, whiskey’s exceeded tequila’s by 10.1 percent to 7.9 percent. And whiskey is growing off of a much larger base. 
Vodka still accounts for the greatest volume among spirits, with 65.9 million cases, or about 13 million more than whiskey. However, the two segments flip when revenue’s taken into account. Vodka’s 2013 revenue totaled about 5.6 billion, more than $1.4 billion less than whiskey brought in. “It’s a confluence of events,” says Ozgo. “Success really breeds success. We saw tremendous growth in vodka, really fast growth in rum and tequila, for a number of years. They were the real growth drivers. That was really the first step in bringing people back to the spirits category. That went on for 15 years and those categories are, in fact, still growing.”

The market may be experiencing a bit of what Technomic’s Crecca calls “flavor fatigue” with vodkas. The flavored segment really has been the vodka sector experiencing the fastest growth in recent years and there are signs that it may be heading toward a plateau.  

So what it is about whiskey that’s drawing so many consumers?

“To a certain extent everything that’s old becomes new again and I think that’s what you’re seeing,” says Ozgo. “Oftentimes things go in cycles and right now whiskey is on an upturn. It’s really captured the consumer’s imagination, particularly with American whiskey.”

In a sense, he adds, Americans are getting back to their roots when they drink whiskey. “It’s a good cultural story for a lot of folks, so they’re kind of enjoying a product that harkens back to the heritage of America.” And, Ozgo notes, you can’t ignore all of the innovation within whiskey—across price categories and traditional expressions.

“We’ve also seen a lot of growth in flavored whiskeys as well,” he points out, “and that’s brought some people into the category.”

Flavored whiskeys, according to DISCUS data, accounted for 45 percent of whiskey volume growth last year.

The rapidly growing craft distilling movement also has been a bit of a hotbed of innovation, though it’s still a fairly tiny slice of the overall spirits, market, between a half a percentage point and a full percentage point of total spirits. So, craft’s impact in moving the volumetric needle is very slight. “They’re not necessarily driving sales, but what they’re certainly doing is driving interest,” Ozgo observes. “A lot of these guys are very entrepreneurial and a lot of them have very good stories to tell.”  
One of the more prominent stories in the craft spirits space has been Tennessee’s Corsair Artisan Distillery, which has produced whiskeys with non-traditional grains like quinoa and has an entire range of offerings distilled with hops.  

“It’s very easy to be innovative in whiskey because whiskey has been so traditional and so similar,” says Corsair founder Darek Bell, who’s also the author of the book, “Alt Whiskeys.” “I think it gives you a lot of opportunity to be disruptive...We have a new generation of whiskey drinkers coming on line and now millennials are starting to get far along enough in their careers where they’re starting to afford nicer spirits and they don’t want to drink what their parents drank,” he notes. “They want something different; they want something that reflects their attitude.”

But all of whiskey’s eggs aren’t necessarily in the millennial basket—especially when it comes to that most American of whiskeys, bourbon. Simmons Market Research Bureau conducted a study measuring the number of Americans who described themselves as bourbon drinkers in 2004 and again in 2012. Across all 21-and-over age categories the number increased about equally, with the exception of those 65 and older. “That’s kind of an exciting statistic,” says Ozgo.
It’s also something any marketer in the industry would kill for: a beverage whose appeal is, as far as adult consumers go, virtually ageless. 

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