U.S. spirits enjoyed another banner year in 2019 with sales and volume growth, but the threat of retaliatory tariffs still worries the Distilled Spirits Council of the U.S. (DISCUS). The council laid out this positive/negative outlook during its annual economic briefing held Feb. 12 in New York for media and analysts.
“While it was another strong year for U.S. spirits sales, the tariffs imposed by the European Union are causing a significant slump in American Whiskey exports,” says DISCUS president/CEO Chris Swonger. “The data is clear. These 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 are struggling under the weight of the EU tariffs.”
Numbers were positive stateside. Supplier sales were up 5.3% in 2019, rising $1.5 billion to a record total of $29 billion, while volumes rose 3.3% to a record 239 million cases, increasing 7.6 million cases from the prior year.
Spirits gained market share vs. beer and wine in 2019, with sales rising half of a point to 37.8% of the total beverage alcohol market. This represents the 10th straight year of market share gains for spirits overall, where each point of market share is worth $770 million in supplier sales revenue.
Still, the specter of tariffs concerns DISCUS.
“We are now gravely concerned that the U.S. tariffs on EU spirits imports will have the same deleterious effect in the United States,” said Swonger. “If this trade dispute is not resolved soon, we will more than likely be reporting a similar drag on the U.S. spirits sector, jeopardizing American jobs and our record of solid growth in the U.S. market.”
Elsewhere in the findings report, DISCUS says that U.S. consumers continue to gravitate toward high-end and superpremium products. The revenue for those price points increased 7.6% and 7.9%, respectively, and by 8% and 7% in volume.
Due to the rapid growth in superpremium products over the past 10 years, the average supplier revenue per 9-liter case (12 bottles) is now more than $120.
Key spirits category drivers of sales growth in 2019 included:
- American whiskey, up 10.8% or $387 million to $4 billion; rye was an important component of the overall American whiskey category growth with sales up 14.7% or $30 million, reaching $235 million;
- Tequila/mezcal, up 12.4% or $372 million to $3.4 billion; mezcal surpassed $100 million in sales for the first time totaling $105 million;
- And premixed cocktails, up 7.5% or $25 million to $351 million.
Irish whiskey had another strong year, with revenue up 5.6% to $1.1 billion, as did single malt Scotch, up 9.6% or $81 million to $925 million.
Vodka remains the spirits sector’s largest category, representing 31% of all volume. Vodka revenue increased 2.9% in 2019, 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,” says DISCUS Chief Economist David Ozgo. “A strong U.S. economy coupled with market modernizations that provide greater access to spirits, has put wind in the sails of the superpremium 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.
In the public policy arena, DISCUS secured a one-year extension of the Craft Beverage Modernization and Tax Reform Act, which equalizes the federal excise tax (FET) on spirits, beer and wine for the first 100,000 gallons for all producers.
“The one-year extension of the Craft Beverage Modernization and Tax Reform Act was a big win for craft distillers, but our job is not done,” says Swonger, noting that the spirits sector supports 1.64 million hospitality jobs and $190 billion in economic activity. “Making this tax cut permanent will provide craft distillers with the stability and certainty needed to continue to invest in their businesses, generate new jobs and support their local communities. This is a top legislative priority for DISCUS in 2020.”
Swonger highlighted other policy victories in 2019 including:
- Spirits tax threats defeated in 17 out of 18 states;
- Sunday sales ban lifted in West Virginia, the 43rd state to repeal this blue law, generating an estimated $1 million annually;
- Spirits tastings passed in North Carolina, and the limit on distillery sales was repealed;
- A historic new law in Texas increased the license cap on package store ownership from five to 250 improving spirits access for Texas consumers;
- Law passed in Virginia requiring localities to opt-out of alcohol sales, allowing spirits sales across the state.
Swonger, who is also the president/CEO of Responsibility.org, also reported that significant progress was made in 2019 in reducing underage drinking and alcohol-impaired driving. According to U.S. government data, underage drinking and college binge drinking have fallen to historic lows, and alcohol-impaired driving fatalities as a percent of total vehicle traffic fatalities is at its lowest level since 1982.
“For nearly 30 years, Responsibility.org has been at the forefront of combatting underage drinking and impaired driving through the development of evidence-based programs and the support for comprehensive anti-drunk driving legislation,” Swonger says. “While there is more work to be done, we are pleased that these numbers are trending in the right direction.”