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The Grapevine

The WSTA's views, distilled.

@optawine – Market Report: A cracking start to the year thanks to spirits and what’s happening with RTDs?

The second market report of the year brings some surprises in that the first quarter was probably the best 3 month period for some time, a realisation that spirits is carrying increasing weight in the industry, and, something I definitely did not expect this time last year, the return of the RTD. See below for a little more detail to supplement the latest WSTA market report.

A good start to the year

It’s good to start on a positive note for overall sales with the welcome news is that the off trade has had a good start to the year. Particularly given the same period last year was littered with negative growth, rising prices and things generally looking gloomy, it is welcome that there is positive growth in both quarterly volume sales (+2%) and value sales (+5%).Though the volume growth isn’t reflected in the yearly sales (yet), it is also welcome that over a slightly longer term, value sales have also growth, adding more than £700m over the last 12 months to the end of March. Spirits were a key contributor to this, adding 38% of it, or £281m, and no prizes for guessing where much of that came from. More on this below.

But wine also got in on the action: all wines contributed £217m of growth (which would have been had Champagne not been going through a tough time), 30% of value added in the first quarter of 2018, with still wine alone contributing more than £160m. Sadly, volume is still a sore subject for all wines with the exception of sparkling. But there are areas of encouragement, including usual suspects New Zealand and Argentina, but also Spain, Chile and Italy. We may want to keep an eye on these newcomers. With a lot of trade press buzz around Spanish and Chilean imports, and Prosecco still flying high, there is a base on which to hope for stability in wine and maybe even some future growth.

The on trade hasn’t fared as well, particularly in volume terms, but value sales in the first quarter of the year are just about keeping pace with inflation, though this has yet to filter fully into longer term sales. With inflation still somewhere around 3%, it’s difficult to describe this as genuine growth.

Spirits is where it’s at

The spirit category can be pleased as punch (aha) about its work over the last few years. In the year to the end of March, total yearly alcohol sales grew by 3%, or £1.063bn and of that £1bn, £578m came from the spirit category, representing 54% of all growth, and is now worth £10.5bn in yearly sales. The trade in general is becoming increasingly dependent on gin for growth; in the 12 months to the end of March, the gin category across both trades grew by £369m, representing 64% of growth in spirits and, remarkably, 35% of all growth in alcohol sales in both the on and off trade. In the first quarter of this year, gin also grew by more than £100m.

It’s also a very bright spot for the on trade. For the foreseeable future, volume sales in the on trade will be largely dictated by how beer is performing (accounting for nearly 80% of sales) but in terms of value sales, spirits alone account for 25% and adding in all wines and RTDs, that number increases to 43%. In terms of growth, spirits added £297m over the last 12 months, accounting for 89% of all growth in the on trade. With the gin boom, an emphasis on exports in the coming years, growing concerns over the rate of pub closures and rum achieving £1bn a year sales (and by the way, I think there’s more to come from imported whiskies), even more attention needs to be paid to spirits – not just gin - as it becomes increasingly important to the UK alcohol industry and in particular to the on trade.

Return of the RTDs?

Last quarter, my esteemed Comms colleague Lucy rightly pointed out something that I had overlooked; RTDs appear to be enjoying something of a renaissance. In the last market report RTDs recorded very reasonable yearly growth of 3% by volume and 5% by value in off trade sales, recording the 2nd quarter in a row of volume growth and 7th in value. If current trends continue, yearly sales could reach 500,000hls for the first time since 2014 and £250m for the first time ever by the end of the year, particularly if you factor in the growth figures posted in the first quarter of 2018 (+7% for volume and +8% for value). All this leads me to wonder if the success of spirits over the last few years is filtering into RTDs as, for example, single measure spirit mixers in cans become more popular.

Unfortunately, RTDs is another category where the on trade can’t live up to the recent fortunes of the off trade, with declining growth across the board continuing a downward trend where sales in both volume and value are half what they were in 2012. It remains to be seen whether the success of spirits can filter through to RTDs as it may have in the off trade, or whether there are extra barriers (cocktails maybe?) in the on trade for such a knock effect.

Sources: Thanks as always to Nielsen (Scantrack WE 24.03.18) and CGA (WE 24.03.18).

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