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The Grapevine

The WSTA's views, distilled.

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More than 300 distilleries are now online in the UK.

It’s almost as if these turbulent political times don’t matter to the world of spirit making in the UK, such is the rise in distillery registrations in the UK. 49 new ones opened in 2017 alone, with numbers doubling in the last five years.

Firstly, let’s get the numbers right; 49 is the new number of distilleries registered with HMRC to produce in the UK in 2017. However, 7 operators deregistered so the UK actually boasts 42 additional players to the spirit market for 2017. The number registered in England was 22, which means it tops the list for number of new entrants with 20 opening in Scotland but, with 5 deregistrations in England and 2 in Scotland, the number of new players for each is 17 and 18 respectively. Readers can decide who wins that particular battle. Wales gained 4 new distilleries bringing its total to 17 and Northern Ireland are up to 14, up 3 on 2016. 

In total the UK now has 315 distilleries online (see above), up 172% from 116 since 2010 when the WSTA first started collecting the data, so 199 in just 7 years. The graph above shows very well the acceleration of growth in the last 5 years, where percentage growth hasn’t even threatened to be lower than double digits since 2013 and total growth has been more than double since then (127%) compared to the 21% between 2010 and 2013. Compelling numbers.

149 distilleries are now online in Scotland compared to 90 in 2010, so even the land most famous for distilled products has grown by nearly 2/3s. Northern Ireland had only 2 when Clegg and Cameron were canoodling in the Rose Garden, but has increased its distilleries 6-fold since and Wales has added 16 more from its 1 in 2010. The most curious region of the UK, though, is England who in 2010 has only 23 but as of 2017 now has 135, meaning of the 199 registered since 2010, England alone accounts for 56% of them. To add further context, London alone now has more than the whole of England did in 2010.

It is easy to point to the gin explosion as the reason for this boom in online distilleries and undoubtedly this will be a factor. In 2010 there were estimated to be around 40 UK gin brands in the UK, as of 2016 the best guess is around 75 (though another 20 exist on the UK market) and the majority of these will be UK based brands, though part of this may be also down to improvements over time in data collection. Add to this the wealth of impressive UK sales and export numbers and you have a compelling case. But there is more: the same data states that since 2010 the number of Scotch brands in the UK market has more than doubled to 246 from 119. UK vodka brands went from 20 to 32 in the same time frame. The fact that the overall market for the latter two is fairly flat in recent times suggests that any new entrants are merely eating market share of others but, with gin’s exponential UK sales and exports, new entrants appear be adding to the pie.

While no one should assume that there are many who are out solely to make great gin and lots of it, there are incidents of gin producers making gin but also biding their time until the brown stuff is ready for sale. This means that it can’t be taken for granted that all new distilleries are solely for the purposes of growing the gin category, though it has clearly helped, nor does it mean that as new whisk(e)y brands come on to the market, that growth in gin will slow. But it does imply that more brands in other categories will become available in the not-so-distant future, something that has already been happening in all spirit categories for a number of years. The question then is: will new whisk(e)y eat into existing market share, or will it increase the pie?

 

All this shows the UK spirits markets is in rude health, the latest HMRC figures show this at grassroots level, and remains an exciting industry to be in. It will be interesting to see how all spirit categories develop over the next few years, as there are some potential market disruptors in barrels,  and signs are all categories will witness some movement in one way or another.

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Briefing: Latest ONS inflation figures released

The ONS have today released new inflation figures which show some good and bad news for wine and spirit consumers and businesses. The wine and spirit industry is a big player in the FMCG sector and as such inflation figures matter greatly. What is more, every year the Budget – now in November – means the industry faces the very real possibility of price changes that are outside of the control of the market in which we operate. Let’s keep this brief, inflation is hardly the West Wing and we’ve only just had a Budget.

CPI inflation was down 0.1% in November to a flat 3% in December 2017, which is good news for consumers. CPI for beer declined 0.6% to 3.8% in that time, spirits declined a massive 2.2% to 1.5% but wine increased 0.3% to 3%. The decline in the overall CPI rate, albeit about as small as it can get, could be the first signs that the effects of the devaluation of the sterling in 2016 are slowly stabilising, but this is little solace to wine and spirit importers whose prices continue to rise, contrary to most other goods.

Conversely, RPI has increased 0.2% to 4.1% in December 2017, the highest rate for the entire year. There are two things to note here: firstly, alcohol duty increases during the Budget are linked to a projected rate of RPI inflation, not CPI, by the OBR who base their projections on previous data. Should RPI continue to increase in to 2018, it will not be welcome news to the industry in November. Secondly, that RPI has increased when CPI has decreased only supports the notion that RPI is an outdated metric, now rarely used in policymaking and something we campaigned on during November’s Budget. How the ONS treats RPI data, which isn’t as detailed as other measures of inflation, is also an indication and they have openly stated they recommend people do not use it. For example, wine and spirits are measured together and register a 0.5% decline to 2.7%. This might represent something of median between CPI’s decline in spirit prices and increase in wine’s, but it is impossible to know for sure.

Having been the case throughout 2017, the UK continues to outpace the EU as a single bloc, who are at 2% (measured by the EU’s Harmonised Index, which measures UK inflation at a slightly higher 3.2%), with Germany at 1.6% and France at 1.2%.

 

A decline in inflation will likely only happen slowly and it will be important to keep an eye on ONS releases, either through this blog or directly with the ONS, whose excellent dashboard gives a brief overview of the UK’s economy.

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Market report blog – 3 numbers that sum up 2017 for wine and spirits

In some ways the wine and spirit industry isn’t in a dissimilar place to last year, with a few areas of growth underneath some static topline numbers. In other ways it feels like it is on the cusp of change – undoubtedly a sign of the times - as external forces start to show in data. Here a three numbers to represent wine and spirits in 2017.

29% - the number of people have drink gin ‘nowadays’, making it the most popular spirit amongst British drinkers. This is according to our most recent work with YouGov, the popularity of the spirit of the moment is finally being reflected in the polls with an 8% increase from 2016. With total sales growth of 18% by volume and 21% by value over the last 12 months to September – and perhaps more pertinently, a respective 44% and 85% increase since 2013 - the only surprise to come of this polling is that it didn’t happen sooner.

Looking back over the past five years of market report data, there’s a noticeable increase in growth percentages, which have culminated in this quarter’s lofty numbers such as a 34% increase in off trade value sales in the last three months. This is unprecedented for any category of gin’s size. Add to this consistent growth in exports and we have a growing and global industry that is sure to pass £2bn by 2020, you heard it here first… probably.

 
 

 

 

 

Question asked: Which, if any, of the following types of alcoholic drink do you ever drink nowadays? (Please select all that apply)

 

2016

2017

chg

Whisky/ Whiskey

21%

25%

+5

Gin

21%

29%

+8

Vodka

26%

23%

-3

Rum

17%

18%

+1

Cream liqueur

16%

17%

+1

Non-cream liqueur

7%

7%

0

YouGov, 4th-5th December 2017 (lists only spirits

 
 

 

 

 

89% - the increase of sparkling wine yearly volume sales (on and off trade) since 2013. More impressive than that, value sales for the industry have trebled (+206%) in that time to £1.3bn in yearly sales and, if you add Champagne, the sparkling wine industry in the UK is now worth more than £2bn in 2017. Such is the meteoric rise of sparkling wine over the last five years there has always been as suspicion that it is a bubble waiting to burst, no pun intended.

It’s safe to say there is no bursting of any bubbles here but there are signs that sales growth maintain rude health but are not quite as lofty as they once were: growth for total industry volume sales of sparkling wine were about 15% in 2015, 10% in 2016 and it’s looking like mid-single digits for this year. Value sales are also not what they were, but they are starting outpace volume sales, which, inflation notwithstanding, hasn’t always been the case. This points towards the category slowly but surely stabilising at a new and higher level. Premiumisation klaxon alert: inflation withstanding however, anyone jumping to suggest consumers are trading up should think again, but more on that in a moment.

Reports of lower yields from the slopes of Northern Italy, inflation and all the complications that come with Brexit, volumes of sparkling wine are one to watch in 2018.

3.1% - the current rate of CPI inflation and the reason behind my new favourite thing; the afore-mentioned premiumisation klaxon. Between January 2015 and May 2016 the CPI rate of inflation fluctuated between 0.3% and -0.1% but since the Summer 2016, it has been steadily rising and now stands above 3%. This presents a problem for a common theme for the wine and spirit industry over the last few years: premiumisation. With such low inflation in 2015 and 2016, it is easy to understand why people were talking about it; value sales outpace volume sales with no inflation surely equals consumers trading up to premium products.

Probably. But now we have 3.1% CPI inflation (4% RPI!) and is forecast to remain at around 2% each year until 2023 (inevitably, RPI is higher at around 3%), so caution is required. It could be that inflation accounts for three quarters of that increase, leaving a 0.9% left for what is consumers trading up, but this disregards other upward pressures on UK businesses, not to mention duty increases earlier in the year, meaning this is surely a lesson in false positives.

 
 

 

 

 

CPI inflation rate since 2000

ONS [https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/d7g7/mm23], 2017

 
 

 

 

 

So, 2017 is a mix of the same old story – gin and sparkling wine – and a new twist – inflation – but both should be instructive for 2018. The latter is not easy to predict, but it does now mean we need to think differently about premiumisation. Gin has much headroom and momentum going in to 2018, which is exciting, and sparkling wine faces many pressures but its growth over the last few years has it well-placed to weather them.

A very Merry Christmas to you all.

 

@optawine

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