Distillers’ sales in the U.S. rose a record 5.3% last year to a record $29 billion, volumes rose 3.3% to a record 239 million cases, and market share advanced to 37.8% of the total alcohol beverage market, the Distilled Spirits Council of the U.S. said in its annual “State of Spirits” briefing.
But DISCUS CEO Chris Swonger warned that retaliatory tariffs “are chipping away at American Whiskey’s brand equity in our top export markets. These great American Whiskey products that have been the toast of the global cocktail scene struggling under the weight of the EU tariffs.”
| New data released this week by the U.S. International Trade Commission shows that the EU’s 25% percent retaliatory tariff on American Whiskey caused exports to the EU, the U.S. spirits industry’s largest export market, to tumble 27% last year compared to 2018. Global exports of American Whiskey have declined 16% and global spirits exports are down 14.3% over the same timeframe.
Further, the data shows major export declines in top individual EU countries such as the UK (down 32.7%), France (down 19.9%), Germany (down 18.2%) and Spain (down 43.8%). Important Economic Driver Swonger noted the spirits industry represents $190 billion in economic activity with 1.64 million jobs dependent upon it. The industry pays nearly $32 billion in federal, state and local taxes, he said. He cited some key policy victories, including a one-year extension of the federal tax cut, successfully defeating tax hikes in 17 of 18 states, the lifting of Sunday sales ban in West Virginia, the repeal of limits on distillery sales and legislation allowing spirits tasting in North Carolina, a proposed increase in Texas on the number of stores any one entity could own to 250 from 5, and Virginia’s passage of a bill permitting spirits sales statewide. The Virginia legislation allows localities to opt-out by referendum. He touted progress with Spirits United, the DISCUS-initiated grassroots platform and noted some 17,000 persons have signed up as Spirits United advocates. There were more than 65,000 communications to Congress in support of the Craft Beverage Modernization & Tax Reform Act. Drunk Driving Continues Decline Turning to the responsibility front, Swonger, who also is CEO of Responsibility.org, noted a continued decline in American teens who reported drinking in the past month to 18% last year from 19% the year before. Since 1991, there has been a 54% decline in teen drinking, he said. Binge drinking among college students has decreased 24% proportionally since 2009 falling to 28% in 2017 from 37% in 2009 and 33% in 2017. Despite a larger population, more cars on the road and more miles driven, Swonger noted that drunk driving fatalities have plunged 50% from 21,113 to 10,497 in 2016. Under 21 drunk driving fatalities have decreased 80% since 1982, he said. Top Priorities for 2020 Christine LoCascio, DISCUS’s chief public policy officer, discussed the trade group’s 2020 legislative priorities. Not surprisingly prevent tax increases tops the list. DISCUS also wants to secure Sunday sales for spirits in South and North Carolina; spirits tasting laws in Georgia, Washington and Idaho; retail expansion of spirits sales in Pennsylvania; passage of a West Virginia bill to allow off-premise sales across the state; ensuring the tax rate in the Craft Beverage Modernization & Tax Reform Act is made permanent, and an end to the EU’s retaliatory tariffs on spirits products. The tariffs on American whiskey exports to the EU are particularly disturbing because American whiskey accounts for 37% of total U.S. spirits, and of all American whiskey exports, the EU accounts for fully 48% of exports. The top 10 markets for U.S. spirits saw exports decline 16.6%. Of those top 10 markets, five were in the EU, and four of those showed declines. The two non-EU markets to post a decline was Canada, which was down 14.6%, and Australia, down 15.9%. Meanwhile, Japan was up 17.7%’ Mexico, 18%, and Vietnam was up 0.8%. The only EU member country to post an increase in imports of American spirits was Latvia, up 19.5%. In response, the U.S. has imposed a 25% tariff on Single Malt Scotch Whisky, Single Malt Irish Whiskey from Northern Ireland and liquors and cordials from Germany, Ireland, Italy, Spain and the UK. Only one of the countries exporting spirits to the U.S. – the Netherlands – showed a decline. That was the Netherlands, which was down 5.1%. LoCascio noted that distillers in 45 states exported U.S. spirits last year. Only Alaska, North and South Dakota, Oklahoma and Mississippi failed to export any spirits at all. Thirty-nine states exported American whiskey last year, she said. How Tariffs Hurt a Craft Distiller Tom Potter, co-founder of New York Distilling Co., in Brooklyn, N.Y., said exports accounted for 15% of company revenue in 2017, and the company had projected exports would account for 25% of sales in 2018, primarily to the EU and China. The introduction of tariffs in mid-2018 from all foreign sales, he said, which now account for less than 7% of sales, a number that is continuing to erode. If tariffs hadn’t been introduced, Potter said, New York Distilling’s revenue likely would have been $100,000 higher last year. Premium Brands Largest Since Sales Category David Ozgo, senior vp-economic and strategic analysis, said value brands (those selling for less than $12 a bottle) represented 31% of sales; premium, selling for $12-20 a bottle; 34%, high-end, selling for $20-35 a bottle,24%, and super-premium bottles selling for more than $25 a bottle, 11%. |
In terms of revenue, value brands accounted for $54 gross revenue per case, premium for $100, high-end for $170 and super-premium for $277 per case. All those cases together represent $4 billion, or 14% of total supplier revenue from value brands, $8.1 million (28%) from premium brands, $9.9 billion (34%) from high-end brands, and $7 billion (24%) from super-premium.
In terms of volume growth, most of the action last year was in premium and high-end premium brands. Super-premium was about even, and value brands declined, but at a lesser pace than in 2018.
What led to this growth? Ozgo cited eight factors:
- The strong U.S. economy and rising employment;
- Federal excise tax cuts that support the growth of craft distillers;
- The growth of spirits tourism and experiential distillery tours driving consumer interest and loyalty;
- Fascination with rare spirits and collectible investments’
- Consumer preference for premium products, prestige bottles and unique experiences;
- The authenticity of spirits and their rich heritable;
- Innovation, from new mash bills to aging techniques, and
- “Marketplace innovation” increasing consumer convenience and access to spirits.
Categories Driving Growth
Key spirits category drivers of sales growth in 2019 included:
- American Whiskey, up 10.8 percent or $387 million to $4 billion; Rye was an important component of the overall American Whiskey category growth with sales up 14.7 percent or $30 million, reaching $235 million;
- Tequila/Mezcal, up 12.4 percent or $372 million to $3.4 billion; Mezcal surpassed $100 million in sales for the first time totaling $105 million;
- And pre-mixed cocktails, up 7.5 percent or $25 million to $351 million.
Ozgo stated Irish Whiskey had another strong year with revenues up 5.6 percent to $1.1 billion as did Single Malt Scotch, up 9.6 percent or $81 million to $925 million. He stressed, however, that these popular spirits categories are threatened the longer the U.S. tariffs remain in place.
Vodka remains the spirits sector’s largest category, representing 31 percent of all volume. In 2019, vodka revenues were up 2.9 percent to $6.6 billion driven by strong growth in high-end premium products.
“Sophisticated consumers, with their preference for prestige bottles and unique experiences, are the key drivers of growth in the spirits industry,” said Ozgo. “A strong U.S. economy coupled with market modernizations that provide greater access to spirits, has put wind in the sails of the super-premium spirits category.”
Ozgo highlighted a number of spirits trends for 2020, including an increase in spirits tourism; emphasis on sustainability in the cocktail craft; expanded cocktail menus featuring more flavorful low ABV or non-alcohol drink options; and the creation of cocktails with less sweet flavor profiles like savory and sour drinks.