The Barrels Are Still Rolling

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American whiskey continued to be a major growth driver across all major spirits categories in 2016 and, as far as the Distilled Spirits Council is concerned, that’s likely to be a recurring theme through the rest of 2017 and beyond.

The council, which represents spirits producers and marketers, reported at its annual media and analyst briefing in early February that American-made whiskey volume, which includes bourbon, rye, Tennessee and white/unaged products, grew 6.8 percent in calendar year 2016 to about 21.8 million 9-liter cases – representing more than 35 percent of total U.S. whiskey volume and nearly 10 percent of the market’s total spirits volume. Revenue-wise, American-produced whiskey surged 7.7 percent, to about $3.1 billion in total supplier dollars – roughly 36 percent of all whiskey revenue and 12.4 percent of all spirits dollars in the U.S.

“Today’s consumer has a demand for products that they deem authentic,” noted Distilled Spirits Council chief economist David Ozgo. “The whiskey category really provides that kind of authenticity, when you think of the production process. You really can’t fake barrel aging.”

That applies especially to super-premium whiskey, the most upscale of the four price tiers that the Distilled Spirits Council measures. The other tiers include value (the budget brands), premium and high-end. Super-premium American whiskey volume grew nearly 12 percent in 2016.

Within American whiskeys, bourbon and Tennessee whiskey volume, which the council measures as a single segment, grew 6.9 percent to a total of 18.7 million cases, while white/unaged whiskey rose 3.9 percent to 2.3 million cases. That’s an improvement over 2015, when the segment actually saw a modest decrease, mainly due to the fact that distillers, who had been focusing on unaged products to get their spirits to the market as quickly as possible, shifted to mature whiskeys when enough of their stocks came of age.

But the biggest growth story within American whiskeys has been rye, which jumped 17 percent – albeit off of a much smaller base – to 785,000 cases. Rye has been on a tear for most of the past decade, enjoying low to mid-double-digit growth each year.

Total whiskey volume, including U.S-produced and import products, increased 4.1 percent to 61.8 million cases. That’s a slightly slower growth rate than 2015’s tally, when overall whiskey volume increased 4.9 percent. Revenue growth was a bit more modest as well, at 6.4 percent versus 8.0 percent in 2015. It’s still significant, considering the size of the whiskey category. Volumetrically, it’s the second-largest spirit category, whose 61.8 million cases is closing the gap with vodka’s 69.8 million cases. But when you take revenue into account, the two categories flip, with whiskey bringing in $8.7 billion and vodka accounting for $6.0 billion in sales.

American-born brands didn’t corner the market on positive news for 2016, as there were a couple of import segments that did their fair share of the heavy lifting. Irish whiskey continued to impress, maintaining its double-digit year-on-year surge with an 18.7 percent bump in case volume and a 19.8 percent revenue boost. In past years, the caveat had been “Keep in mind, Irish is growing off of a very small base,” but eventually, that analysis will be irrelevant. Irish imports totaled 3.8 million cases or about 6 percent of all whiskey volume in the U.S.; revenue reached $795 million or about 9.2 percent of total U.S. whiskey dollars.

Canadian whisky – whose producers prefer the Scottish spelling, sans the letter ‘e’ – has become quite the turnaround story, repeating the low-single-digit volume it enjoyed in 2015. The 2.4 percent increase may not sound like a lot, but when you look at the 17.1 million cases sold in the U.S. last year – nearly 28 percent of all whisk(e)y in the country – it becomes much more significant. Dollar sales jumped nearly 6 percent, thanks to the strong performance of the higher-priced super-premium tier.

Scotch whisky volume didn’t fare as well last year. Blended Scotch, which makes up the lion’s share of the Scotch segment – about a 12 percent share of overall whiskey – fell about half a percentage point to 7.4 million cases, though its revenue ticked up a bit; supplier dollars rose 1.7 percent to $1.4 billion. Volume for single malt Scotch, a considerably smaller segment, rose a modest 0.4 percent to 2.1 million cases. Single malt Scotch revenue, aided by high retail prices for super-premium expressions, rose a more robust 4.3 percent to $763 million in U.S. supplier sales.

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The real question for the entire whiskey category, include American-made brands and imports – is whether the recent boom will continue into the foreseeable future.

“Since 2010, we’ve added nearly 12 million cases in the North American whiskey market,” Ozgo noted. “We’ve added $2 billion to the market since 2010….How much longer can this trend go on?”

For the answer, Ozgo suggested looking at the U.S. volume trend for North American whiskey (including Canadian) stretching back as far as the 1970s. Volume peaked at just under 80 million cases in 1970 and declined steadily until the early 2000s. Volume flattened again around 2008 at the height of the recession, but resumed its climb shortly thereafter. With volume just under 60 million cases at the moment, there’s quite a gulf between current figures and the 1970 high – a number that seems much more reachable when you factor in the population of legal-drinking-age (LDA) adults today versus 1970. In 1970 there were only 122 million LDA consumers in the U.S.; today there are 233 million. “So,” Ozgo concluded, “there’s a long way to go.”

While whiskey has attracted most of the attention in recent years, it’s important to point out another, relatively smaller, category whose growth continues to accelerate. Tequila volume – which also includes mezcal cases – jumped more than 7 percent to 15.9 million cases, as consumers have been discovering more premium offerings within a category once dismissed as a beverage for inebriated spring breakers. The high-end price tier experienced particularly noteworthy gains, surging 16 percent.

Outside the U.S., consumers have developed an intense thirst for American spirits, especially whiskey, and export volume continued to grow last year, jumping 6.8 percent for all spirits and 10.2 percent for whiskey. Despite that, exports struggled financially – down 9.3 percent for all spirits and 8.7 percent for whiskey. “Exports are facing headwinds on a stronger dollar,” explained Christine LoCascio, senior vice president of international trade at the Distilled Spirits Council. “[International consumers] still want our products, they just may be trading down to less expensive products. There is this global fascination with American products.”