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Slower growth, higher quality

IWSR chief operating officer Humphrey Serjeantson looks at how the global alcoholic drinks market is set to develop from 2014 to 2019

Humphrey Serjeantson IWSR

How will the next five years in global consumption of alcoholic drinks differ from the last five? Will current trends continue or can we expect to see significant changes? Every year – in order to answer this question – the IWSR produces detailed global forecasts across all categories of alcoholic drinks, tapping into the expertise of our extensive network of contacts among brand owners and distributors around the world.

A very quick summary of the last five years will give some background and help understand what is likely to happen over the next five. Between 2008 and 2013 global alcohol consumption increased at a compound annual growth rate (CAGR) of 1.6%.  Much of this growth was driven by beer, and rice-based wines in China, but as far as major international categories are concerned the major gainers were whisky, which added nearly 100m nine-litre cases,  and brandy, which added just over 60m cases. Rum grew by just under 12m cases while cane fell by the same amount. Vodka declined by 28m cases and gin by 3.6m.

2008-2013’s growth in overall consumption is not set to continue to 2019 – in fact forecast growth is set to fall to just 0.9% CAGR. All categories are set to slow down, with beer and cider suffering the least.

In terms of absolute volume, whisky will see by far the largest growth to 2019, adding 96m cases. India (already the largest market) will be the largest growth driver thanks to a rapidly expanding consumer base, and while most growth will be in Indian whisky, Scotch will also see continued growth. Poland, Mexico and Duty Free will all see significant increases in Scotch and US whiskey. The United States, the leading market in standard and above whisk(e)y will add a total of 10.5m cases, with 7m of these being home-grown; but nearly 3m will be Irish whiskey. Much of the growth in the US is being driven by flavoured whiskies. 2013 saw US whiskey overtake Scotch in Germany and this trend is set to continue to 2019 with US whiskey adding a further 400,000 cases while Scotch adds 100,000.

Brandy will add 12m cases to 2019; much of the growth will come from local products in the Philippines and India. Cognac, however, is set to increase by 1.9m cases, with the US and China each adding over 700,000 cases. Duty Free and Russia are also key growth markets, and both South Africa and Nigeria are expected to see strong growth in demand for Cognac as economic growth opens the door for a new range of consumers to this key status symbol. Cognac in the US looks positive with consumers drifting back to the category; the VSOP segment will benefit particularly from the growing influence of Asian-American consumers and more widespread trading up in the category. A recovery in China is expected, with a refocus on the VS and VSOP qualities to target the young and expanding middle class.

Gin will decline by 3.2m cases to 2019 (but if one removed the Philippines from the calculation overall consumption would increase by 1.7m cases). The US will continue its gradual decline, losing 430,000 cases, but by contrast Spain will continue its growth in gin, adding not far short of a million cases. Is gin becoming the new whisky for Spanish drinkers? To a degree this is true but what is also heartening against the backdrop of a really challenging economic situation is that Spanish drinkers are really looking for quality in their gin; despite the crisis and Spain’s much smaller population, Spain is the number two global market for super-premium gin after the US despite being only a tenth of the size in terms of overall spirits consumption. The UK is becoming more polarised; while overall volumes are set to decline, premium and above brands are set to grow thanks to renewed interest in the gin and tonic.

While overall vodka consumption will increase between 2013 and 2019, it is set to grow to 2016 and then decline slightly to 2019 as continued declines in the vodka belt (Russia, Ukraine and Poland notably) begin to outpace growth in international markets. From being a key growth market over the past five years, the US is set for slower growth over the next five, as are Brazil, India, Germany and Vietnam. For brand owners and drinkers too, there is good news: while the low-price and value segments will lose a combined 10m cases, standard will increase by 7.4m, premium by half that and super-premium by 2.3m: the trading up in vodka is set to continue. New trendy categories such as flavoured whisky will temper growth in vodka in the US, but craft vodka is set to continue to have an impact on the premium end of the market.

Rum will decline by nearly 13m cases globally but the Americas and Europe will both grow by over 1.6m cases, with Venezuela, the US and the Dominican Republic leading the charge in the former and the Czech Republic, Germany and France driving the latter. Standard rum will increase by over 4.25m cases, premium by over 1.8m and super-premium by 200,000 over the next six years. In the US, white and gold rum are both facing mounting pressure from competing categories such as white tequila and flavoured whiskies but there is good growth potential at the top end as rum becomes more of a sipping drink. Spiced rum is likely to continue to drive growth in many markets.

Beer is set to continue growth at a CAGR of 0.9% to 2019 with Asia and South America showing the strongest potential while annual consumption in mature markets such as the US, the UK and Russia will gradually diminish. The US market is struggling against increasing competition from cider, wine, spirits and beer mixers and volumes are set to decline.

Despite the overall slowdown in growth expected, there is good news for producers: the premiumisation trend is set to continue, with the higher quality brands having a better time of it than the cheaper ones. In spirits all quality segments are expected to see growth, with value adding 58m cases, standard 55.5m and premium 21.5m. The strong growth across all segments will slow, but importantly the slowdown will be felt hardest at the lowest levels (low-price and value) while premium and standard will only slow slightly, from 3.6% to 3.2% and from 2.2% to 1.9% respectively. So for owners of standard and above brands, the prospects look good.

Click here to find out more about the IWSR Forecast Report

3 November 2014