The “pandemic and tariffs have been crushing to the hospitality industry,” said Chris Swonger, president/ceo, Distilled Spirits Council of the U.S., during the association’s annual economic briefing today.
Still, revenue for U.S. distilled spirits was up 7.7%, volume was up 5.3%. And for the 11th consecutive year, U.S. distillers experienced market share gains.
But tariffs did curtail U.S. export growth and and is putting jobs at risk. he said.
Swonger also said he believes some marketplace modernizations. such as cocktails to go, can be made permanent, help craft distillers to recover.
Christine LoCascio, chief of public policy, noted that from 1997 through June of 2018 there weren’t any tariffs on distilled spirits between the U.S and Europe. But in June 2018, the EU imposed a 25% tariff on American whiskey, and the U.S. retaliated with a 25% on some EU products. That was followed by an expansion by the EU of the 25% tariffs to additional U.S. products earlier this year and the U.S. then imposed additional tariffs on European products.
She noted the EU’s 25% tariff on American whiskey will double to 50% in June.
These tariffs have had a real impact she said, noting Spirits exports increased 26.7% over the past 10 years. But following the EU’s tariffs, total U.S. exports declined 28.9%.
This an important issue, since the EU accounted for 52% of all U.S. spirits exports, with the UK representing one-fifth of shipments to the EU. Since imposition of retaliatory tariffs, U.S. American whiskey exports to the UK plunged 53% and fell 38% to the EU.
Some 31 states exported American spirits last year, and 38% exported American whiskey, so tariff relief is a widespread issue, she said. .
Imports of Scotch whiskey increased 94% from 2010 to 2018. From 2019 to 2020 imports fell 29%.
“We’re hopeful that the Biden administration is looking to solve some of these disputes,” she said.
Legislative priorities are an immediate suspension of all distilled spirits tariffs, further relief for the hospitality industry in any new Federal Covid relief bill, and any spirits-based RTDs treated fairly relatively to other RTD she said, adding DISCUS also wants to expand market access.
Thirty-three states and Washington, D.C., now allow cocktails-to-go, helping craft distillers and restaurants to stay afloat. Direct-to-consumer is also becoming and economic lifeline. And this past year shows that consumers are demanding more market expansion and convenience.
Dr. Sonat Birnecker-Hart, owner of Koval Distillery, the first legal distillery in Chicago since the 1800s, said the woman-owned distillery relies on on-premise visits to promote its products, to have bartenders tell consumers to try its products. “We also depend on people coming into our distillery,” she said, adding that from March 17 through Monday, Koval’stasting room has been closed.
Craft distillers rely upon a tasting room model, she said, adding Koval “invested $1.5 million in a bar and tasting room that has never opened since the pandemic. Over 50% of people who tour our distillery come from outside of Illinois,” she added.
In addition to problems from the pandemic, we have been hard hit by tariffs. Koval’s exports to 55 markets have decreased 60% because of tariffs.
“American budgets and especially craft brands will have a difficult time without the tariff problem being solved,” she said.
Small craft distilleries are spread out all over the U.S. providing jobs in the local market, buying local grains, etc., she said, adding, “While we have been a real force in local manufacturing, right now craft distillers are really suffering.
Some 850 craft distillers “were there to make hand sanitizer for our local economies, This shows the power of local manufacturing,” she noted.
David Ozgo, chief economic, said supplier revenues from U.S.-based shipments rose 7.7% to $31.2 billion, the fastest revenue growth in 40 years. Volume was up 5.3 points. In terms of market share also grew to 37.2%$ from 36.3%. But growth slowed rapidly to 6.6% in the four weeks ended Dec. 27, down from 16.3% for the 52 weeks.
Super premium spirits accounted for 40% of revenue growth. Value brands were flat, Ozgo said.
On premise sales were down 44% across entire year. Employment in the restaurant industry is down 2.3 million jobs. Thirty-six percent of craft distillers said their total sales were down 25% last year.
“Having bars and restaurants closed meant consumers had an additional $20 billion to spend off-premise. A lot of people stocked up their in-home bars, buying brands they might not otherwise have purchased,” Ozgo said, adding he expects some the bottles purchased last year “will be around a long, long time.”
Total American whiskey volume was up 7% to 28.4 million cases and revenue was up 8.2%. Rye volume was up 16.3% and revenue was up[ 16.9%.
Cognac has grown 18.7% to nearly 7.9 million cases and revenue advanced 21.3% to $2.4 billion. Almost all cognacs are high end.
Tequila/Mezcal volume up 10.2% and revenue grew 1.4%. Single malt Scotch imports were down 6.5% to 2.4 million case, revenue down 2.1%. previous 10 years volume grew an average of 7.8% and volume 10.7%, so the impact of tariffs showed in a really big way.
Premixed cocktail volume 35.1% volume growth and revenue up 39.1%. They account for only 2.6% of volume but 17.3 of growth.
Turning to spirits-based RTDs, Ozgo noted traditional spirits continue to show volume growth in Canada. But they are now exceeded by spirits-based RTDs, after Canada, cut taxes on spirits with 7.7% or less, giving the spirits-based products a level playing field with malt-based RTDs. That helped spirit-based RTD products actually exceed traditional spirits. He projects 280 million cases of RTD U.S. spirits if the U.S. cuts their excise taxes to get the same rates as they have in Canada.
Fastest growing category was premixed cocktails, which benefited from bars/restaurants being closed, Ozgo added.
Swonger noted there hasn’t been a rise in total bev/al sales during the pandemic.
Turning to the Biden Administration, Swonger said DISCUS is “really excited about Biden’s comments about resetting the relationship with the EU.”