The U.S. spirits industry enjoyed another boom year in 2016, and enters the New Year with favorable trends.
Revenue on the supplier side in 2016 grew 4.5% over 2015: up $1.1 billion to a total of $25.2 billion. Volume increased 2.4%, gaining 5.2 million 9-liter cases to 220 million total cases. The spirit category’s market share of the overall alcohol industry grew from 35.4% in 2015 to 35.9% in 2016 — an increase worth $700 million.
The U.S. spirits industry also upped its market share versus beer for the seventh consecutive year. So reports Kraig Naasz, president and CEO of the Distilled Spirits Council Of The United States (DISCUS). Naasz and his colleagues presented these and other research findings in Manhattan last week during the annual DISCUS 2016 Economic Briefing.
Here were 7 takeaways from that briefing that show what will help drive spirits sales in 2017:
1) Vodka Rebounded In 2016
Vodka comprises nearly one-third of total U.S. spirits volume, but has declined in recent years during the rise of brown spirits. Last year, though, may signal better times ahead for this category.
Just one year after a nominal 0.5% increase in total — which included a decrease of 1.1 million cases for flavored variants — both the overall category and flavored vodkas rebounded in 2016.
Volume was up 2.4% to 69.8 million cases. Revenues climbed 4.1% to $6 billion. The greatest growth was in super-premium, which increased 13.4% to 6.3 million cases, and grew 13.1% in revenue to $1.3 billion.
Even flavored vodka, much maligned in recent years as sales slipped, reversed course and posted positive numbers. This subcategory gained 800,000 cases last year. “This is not like the growth flavored vodka saw several years ago, but the fact that flavored vodka grew at all really helped the overall industry,” says David Ozgo, DISCUS senior vice president of economic and strategic analysis.
2) President Trump Could Help
America faces an uncertain path forward under its new president. But one thing President Trump seems resolute about is growing business and reducing taxes. DISCUS representatives believe this focus could result in the first reduction in the federal excise tax on spirits since the Civil War.
“We’re excited about working with the White House and the new Congress,” Naasz says. “This gives us a good opportunity to advance our many spirits-based objectives at a federal level”
Still, concerns remain that Trump’s confrontational global attitude, and his call for a Mexican wall and import tax, could roil the spirits industry. Naasz remains hopeful that this market shakeup will not occur.
“We are well positioned and have been for a long time to make sure our views and positions are heard by the people who make these decisions,” he says. “The potential change for us that’s getting the most attention now in Washington D.C. is reducing the federal excise tax.”
DISCUS speakers did not want to discuss the “worst case scenario” for their industry under Trump. They said it was still too early, just three weeks into the new administration, to plot out such long-term economic models.
3) Spirits Fit Into Millennial Trends
Millennials drink plenty of spirits. The category appeals to them for a number of reasons, including a sense of realness and heritage.
“Today’s consumer really values products that are ‘authentic’,” says Ozgo. “The whiskey category provides that authenticity. After all, you can’t fake barrel-aging.”
Spirits also have found their way into the lives of younger drinkers through the ongoing craft cocktail movement. This trend plays into the Millennial desire to always drink something unique.
“Cocktails are uniquely positioned to meet the demand for personalization that Millennials want when they go out for drinks,” says Ozgo.
Spirits appeal so much to this age group that Ozgo foresees future growth, as more Millennials choose this category over others. “As long as Millennials continue substituting spirits drinking-occasions for beer drinking-occasions, there will be room for growth.”
4) Premium Spirits Remain Hot
The greatest growth in spirits since 2008 has occurred in “premium” (bottles priced $12-$20) “high end premium” ($20-$30) and “super premium” ($30+).
As portrayed in the DISCUS briefing slide below, sales for these three categories have grown each year since 2008, especially for the two highest price tiers:
Ozgo also pointed out that while high end and super premium combined for 30.6% of total spirits sales in 2016, they accounted for a whopping 53.5% of revenue. “Clearly, the more you can move a consumer up the price chain, the more you can generate revenue.”
5) Whiskey Continues To Rock
It’s hardly news that whiskey is driving market growth. It enjoyed another strong year in 2016. The North American whiskey category increased 1.8 million cases versus 2015, up to 48.4 million. That means North American whiskey (which includes Canadian and blended) has gained 11.7 million cases since 2010.
In terms of revenue, the category increased $2 billion since 2010. The gains over 2015 were $300 million, for a total of $5.7 billion in revenue in 2016.
Bourbon and Tennessee whiskey was up 6.9% to 18.7 million cases. Rye volumes grew 17% to 785,000 cases. White/corn whiskey increased 3.9% to 2.3 million cases.
Canadian volume was up 2.4% to 17.1 million cases, while its revenue grew 5.8%. Irish whiskey volume grew 18.7% to 3.8 million cases, with its revenue jumping 19.8% to $795 million. Volume increases for both styles were big in the high-end and super-premium price tiers.
6) Whiskey Has Room For Even More Growth
Are sales of brown spirits approaching a saturation point? Ozgo does not think so. “We believe that this trend has a lot longer to go, just by looking at what historical volumes have been.”
In 1970, the North American whiskey category reached an all-time high of just about 80 million cases sold. In that same year the North American LDA population was just 122 million. Today, that population is up to 233 million, while whiskey sold “only” 48.4 million cases in 2016.
Simple math with the figures above shows that brown spirits should have plenty more room for growth.
7) Tequila And Cognac Also Increase
A rising tide of spirits lifts all ships. Tequila had success again last year. Volume was up 7.1% to 15.9 million cases. Revenue increased 7.5% to $2.5 billion. Strong growth occurred across all categories, with high-end volume up 14.9% and super-premium up 7.2%.
Cognac was also a winner in 2016. Its volume rose 12.9% to 5.1 million cases. Revenues were up 15.3% to $1.5 billion. Super-premium volumes grew by 16%, for a revenue gain of 18.1%.