Last week, the United States received their annual SOTU address, but in the alcohol world, we’ve been waiting for an update on the State of the Spirits. On Tuesday (2.12), press and analysts braved the snow for the annual Distilled Spirits Economic Briefing from Distilled Spirits Council US (DSCUS) at NYC’s Alexandria Center. Not surprisingly, growth on the premium end, millennials, legal marijuana, and tariffs dominated the talk of the trade. Check out our rundown of the big speech below…
11: 02 — Council CEO Chris Swonger takes the podium to polite applause. After a quick rundown of points to come, he provides quick intros of the other speakers: Chief Economist David Ozgo, SVP Christine LoCascio, and Catoctin Creek co-founder Scott Harris are all to come.
11:09 — But first, Swonger offers some key points about the past year. (It was good.) “2018 marked the ninth straight year of market gains for the industry,” he states. Swonger also notes that the demand is continuing to rise for premium products. Craft distilleries, in particular, have grown. Supplier sales were up over 5.1 percent, rising $1.3bn to a total of $27.5bn, while volumes rose 2.2 percent to 231mn cases, up 5.0mn cases from the prior year.
11:10 — It’s all about the kids! “These robust results show adult consumers are continuing to favor spirits over beer and wine, particularly among millennials. The spirits sector is benefiting from millennials who demand diverse and authentic experiences, and desire innovative and higher-end products.”
11:11 — One major victory was defeating tax hikes. Swonger says that these wins saved the industry $540.4m.
11:12 — Other major wins include defeating Blue Laws or Sundays liquor sales bans in Indiana and Tennessee as well as allowing earlier Sundays sales on premise on Georgia.
11:13 — Lots of progress has been achieved on the social responsibility front. Underage drinking is down and so are drunk driving fatalities.
11:15 — Now, Swonger is focused on the future. His first talking point is an urge to end the retaliatory tariff that are hurting American liquor exports. He also teases praise of the Craft Beverage Modernization and Tax Reform Act and TTB rule changes. Finally, he touches on plans to continue changing laws about tastings and more lobbying to eliminate Blue Laws.
11:18 — It’s time for DSCUS’ Chief Economist David Ozgo to take the mic. He basically explains that he’s an economist and slew of numbers are about to follow.
11:20 — After some explanation of methodology, Ozgo declares that spirits sales are continuing to increase in America. For example, in 2018 Supplier Gross increased over $1.3bn to a total of $27.5bn, while volumes rose 2.2 percent to 231mn cases, up 5.0mn cases from 2017.
11:24 — Ozgo is now breaking down sales categorically: Value, Premium, High End Premium, and Super Premium. The first two categories dropped, but there was massive growth in High End and Super Premium. “We’ve seen this pattern before, but I’ve done this for 18 years now, this is the first time the growth is so segmented. This screams ‘millennial buying patterns.’”
11:28 — Next, a detailed description of millennial buying ensues. In short, millennial want a personalized experience, something special. The ultra-luxe, craft brands have authenticity and heritage which plays well into this market.
11:30 — American Whiskey sales volume is up 5.4% and revenues are 6.6%. (So, the Whiskey Boom is still continuing.)
11:31 — A really big trend is the growth of American Rye which broke the 1mn case mark for the first time ever. Total sales were 1.1M Cases, $205M revenue.
11:32 — Scotch rebounded in 2018; single malt revenue was up 9.4% to $843m to $3.6bn, blended Scotch increased 4.6% to $1.5B. Irish Whiskey continued to grow; in 2018, revenues jumped 12.0% to $1.0B.
11:33 — Tequila also continued to pick up market share. 2018 saw an increase of 10.2% to $3.0B (+$279M).
11:34 — The rumors of the Rum Renaissance and Gin Jump were slightly exaggerated. Both spirits dropped in sales and revenues last year. (Although, both saw upticks in the Super Premium sector.)
11:36 — Vodka still pays the bills! The Council reports that the spirit accounts for 31% of total volume, and category specific volume is up 1.6% to 72M cases (1.1M new cases). Of note, flavored vodka sales were down.
11:36 — Now, the focus is shifting to marijuana legalization. First off, DSCUS wants to emphasize that they are not taking on legal weed. However, to gauge the effects of pot on the spirits market, the Council indexed spirits sales in three legal states (Oregon, Washington, and Colorado) and then cross-referenced those sales with the legalization timeline. According to DSCUS’ data, spirit sales have actually increased in the four years since weed legalization (in these three test states).
11:40 — Ozgo moves on to make some predictions about the future. Unique, bespoke, beverages are trending hard, as are bitters. He also predicts that rare spirits as an investment will continue to gain popularity. Pivoting back to millennials, he touches on “brands with a cause” which he describes as a “a lifestyle unto itself.”
11:45 — SVP Christine LoCascio takes the podium to discuss exports.
11:46 — Retaliatory tariffs, a side-effect of the trade wars, are clobbering whiskey exports. (Whiskey tariffs are 25% in the EU and 10% in Canada.) From January-June 2018, US whiskey exports were up 28%; in the six months after the tariffs were imposed, exports reversed course and dropped to -8.2%.
11:50 — The rise of the craft movement spread spirt production across America. 42 states export spirits, and 37 states export whiskey. These are largely craft distillers and they are all being hurt by the tariffs.
11:51 — Catoctin Creek co-founder Scott Harris is now going to speak further to the effects of tariffs on small, craft distillers in America.
11:53 — Harris says that CC lost over $100k in exports sales due to EU retaliatory tariffs (i.e., cancelled contracts) and was forced to postpone plans for a $1mn expansion (new fermenters, mash tanks, and pot stills).
11:56 — Harris is now discussing how his European distributors “ghosted” after tariffs kicked in. He adds that CC projected 25% of 2018 revenue from the EU, but now estimates that figure will only come in at 1%. “We’re worried about not just losing market share, but also mind-share… with American spirits ‘sitting it out,’ other spirits are going to fill that void.”
11:58 — “That’s our story and unfortunately it’s not a good one.”
12:00 — After some technical difficulties, Swonger recaps and begins the Q&A.
12:01 — Swonger is asked, “What type of discussion is happening between the Council and the administration?” DSCUS rep is careful not to insult the administration, but stresses the negative impact of the trade wars and rattles off a list of federal agencies that they are lobbying. “We’re somewhat dependent on broader trade negotiations to come in-line.”
12:06 — A question is posed about the rise of no-proof drinks. So far, DSCUS’ empirical data does not reflect any significant changes due to the trend.
12:09 — The next question is about regulating marijuana (impaired driving, minimum age, three tier system.) The Council is paying close attention. The impaired driving issue (where they have experience with alcohol) is one of great interest, but they are not heavily involved in the other issues right now.
12:11 — Now, a whiskey reporter is noting that the Scotch whisky numbers came out today and exports to developing markets like India are booming. The journalist questions whether Scotch will start to encroach on American whiskey’s market share. LoCasio answers that this is a concern, but the answer really varies from market to market.
12:14 — No additional questions so Swonger closes the session.