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The Grapevine

The WSTA's views, distilled.

Gin, wine and whiskies all a key feature of the first market report of 2018

The new market report shows some old themes by now are so expected that it’s like light snow causing train services to be cancelled; you’d be a fool to expect otherwise. For example, we are now so accustomed to seeing growth in gin that the only surprise left how big the growth is. There are worse surprises out there. The price of wine in the last 18 months, for example, has much the same problem as gin growth, but it is far from a good thing. New themes can and do appear also, just to keep us on our toes and it is imported whiskies, as well as flavoured spirits we find something new to talk about and some possible indicators that point towards current consumers trends.

Gin (again!)

This time last year gin was plodding along very nicely; low double-digits, but double digits nonetheless. 12 months later that has all changed having added 9.5m bottles (+23%) sold in 2017 compared to the year before worth an extra £295m (+27%), enough to pay the entire civil service for a month (you’re welcome Sir Jeremy).

The equivalent of over 50m bottles were sold for the first time with a value of £1.4bn, add on 2017’s exports value and it’s £1.925bn, perilously close to £2bn. Three more quarters of similar value growth and gin may well be a £2bn industry based on domestic sales. Two more quarters of similar growth in the on trade and it’ll be worth £1bn to pubs, bars and restaurants alone.

Quarterly value sales over the Christmas period were the real star, with 29% growth in the on trade and an incredible 38% in the off trade, adding an extra £104m to the market overall. Polling conducted late last year also stated that 38% of people would consider giving and 33% would be happy to receive gin as a Christmas gift, surely proof that gin is the tonic for all seasons, not just the summer.

Wine prices: premiumisation or polarisation?

Wine prices continue to be a cause for concern, not just with the dramatic increase since the referendum, currency devaluation and ensuing inflation - all of which means it costs more to supply the market - but it also may have adverse effects on demand. The average yearly price of wine has again risen in the off trade to £5.64, up 8p on last quarter. Since 2014, the average price rose 28p from £5.36, 23p of that occurred from 2016 onwards. It’s an excellent example of inflation starting to bite but it also presents other issues when analysing market data. On the graph below I have overlaid average wine prices and CPI inflation because it shows neatly fits relationship with prices, particularly for imported products.

But it also forces us to recalibrate what we consider when looking at the data and discussing premiumisation. Inflation is disrupting the price points data (p.6) so much that it is increasingly difficult to point to premiumisation, at least as a general trend, rather than simply saying prices are going up which is pushing all products up the price brackets. Last year at the Research and Insights Group a valued member suggested that in fact premiumisation isn’t really happening to any large extent in the wine market, and that it’s more accurate to suggest that polarisation is occurring, where some consumers are opting for more expensive wines and others opting for cheaper ones, which wouldn’t necessarily affect the average price. It could also be suggested that, if CPI is 2.7% (for 2017), then any % increase above that could represent premiumisation. Maybe, but industry specific issues such as increased import costs and duty rates, as well as more industry wide issues such as changes in business models as Brexit looms over the horizon may be more applicable than inflation.

Tell me what’s your flavour

Imported whiskies is a category that is rarely talked about, and unjustly so. It’s the best-selling whisk(e)y in the on trade and is worth nearly £800m to the UK spirit market, about 7.5% market share. But it also represents an opportunity for consumers to do what they currently do best in the UK: experiment. This means new flavours and new experiences with products from offshore and imported whiskies gives them that opportunity as well as a new take on something familiar.

Imported whiskies

 

000hls

£m

2016

138

738

2017

150

787

% chg

9%

7%

 

Japanese whiskies have certainly made waves in the UK in the recent past, with volumes having more than doubled in the last 5 years or so. According to the IWSR, global sales of US whiskey increased by about 6% between 2010-15, 5.56% in Europe and in the UK it’s about 6% in the last year alone. All this could change, though, depending on what side of the bed Mr. President gets out of and chooses to continue with his trade war (also, one of the finest headlines you’ll see this year). Back on planet Earth, Irish whiskies are also faring well, backed up by a consistent stream of news about new distilleries opening up across the country. Global sales are up nearly 10% between 2010-15 and are projected to add another 7.16% to 2020. European volume sales of Irish whiskey are smaller at 3.7% and a projected 2.6% to 2020. UK volume sales increased 5.2% between 2014-15.

Other categories also suggest that (new) flavours are on the rise. Flavoured vodkas and flavour/spiced rums are all in growth in both the on and off trade, and CGA have consistently suggested that golden rum is the next big thing in the on trade. Also, the WSTA receive a lot of questions about this from the trade press who, keen to find the next big trend, are featuring ever more interesting flavours of spirits including vodkas and rums, but also flavoured gins. While flavoured gins in the UK currently account for less than 0.5% of the market, it’s likely that start-up distilleries are, rightly, trying to find their USP so any claim to the ‘next big thing’ for any new flavoured gin is probably premature. That said, gin can currently do no wrong, so it would come as no surprise if one of them rocked the boat with a revolutionary new gin flavour.

So a mix of good and bad news, and also food for thought.

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