Last year was another good one for Irish whiskey in the US where sales grew by over 829,000 cases or by nearly 17% to 5.8 million according to the recently-published Drinks Ireland|Spirits annual report.
Interestingly, figures from the Distilled Spirits Council of the US show that 851,000 cases (over 10 million bottles) of Super-Premium Irish whiskey were sold in the US in 2021, representing 14% of all Irish whiskey sold there. Super-Premium sales have leapt 191% since 2015 when a trifling 292,000 cases found their way out of bars and off-licences across the US.
What’s more, Irish Whiskey now ranks among the Top Five Fastest-Growing Spirits by both revenue (up by 16.3% or $185 million to $1.3 billion last year) and volume in the Distilled Spirits Council of the US database.
“The Irish whiskey category has benefited from drinkers’ desire to ‘trade up’ from Premium to High-End and Super-Premium products” observes the DISCUS report.
“The Irish whiskey industry plays a very important role in the US consumer market,” agrees Chris Swonger, DISCUS’s Chairman and Chief Executive, “It’s the third-fastest-growing distilled spirits category behind Tequila and spirts-based RTDs.”
Chris, a native Texan, heads up the national trade association representing leading producers and marketers of distilled spirits products in the United States and he’s over in Dublin to attend the spiritsEUROPE Congress 2022, this year hosted by Drinks Ireland.
He tells me that with the opening up once again of the US on-premise, this ‘trading up’ trend has “very much” continued into 2022.
“It’s an affordable luxury,” says Chris who points out that one of the benefits of the on-premise market is the consumers’ ability to meet and socialise, so he’s very positive about the ongoing potential of US spirits sales in the US itself.
US consumers trading up
Early in the pandemic, when everyone was quarantined at home but had extra money, a trend of whiskey consumers trading up to Super- and Ultra-Premium developed which continues today.
Having Premium, Super- and Ultra-Premium categories works in distilled spirits’ favour, he says.
And contrary to expectations post-Covid, home purchasing has not ‘flatlined’ Stateside in the aftermath of the pandemic.
“In the early part of 2020 and 2021 off-premise sales would have skyrocketed as on-premises flatlined due to closure – or patrons just didn’t feel as comfortable going to them,” he says, “But with the transition back to on-premise post-pandemic we see a little bit of a reduction in off-sales as consumers gravitate back to on-premise consumption.
“The shakeout from the pandemic hasn’t fully crystalised yet but we’re bullish about ’22 sales,” he adds.
“But there’s no making light of the challenges we all struggled with personally in the pandemic, however in the US it also gave us a chance to modernise and innovate – for example, cocktails-to-go – and to modernise the beverage alcohol marketplace.
“The emergence of e-commerce shows the interest in getting spirits products online for consumers when, how and where they want. So it’s a building block in presenting a unique opportunity for the distilled spirits industry.
“This came to light in a big way during the pandemic and we continue to see those trends going forward in direct-to-consumer shipments.”
Whereas 47 US states allow direct-to-consumer shipments for wine, only 11 do so for spirits, “… so that’s one of the challenges and opportunities for the US spirits industry going forward”.
Bullish against the headwinds
The US, as with so many countries, faces many adverse headwinds such as high inflation and supply-chain challenges but the DISCUS Chairman emphasises that consumers are drinking “better”, not “more”.
2021 was another good year for domestic sales of US spirits. Since the year 2000 DISCUS has been measuring its share of the alcohol market overall. It had a 28.7% market share back then.
Last year the spirits category increased its share of the overall US beverage alcohol market to claim a 41.3% overall share. This represents the twelfth straight year of spirits’ gaining share overall. Chris sees this continuing.
“Last year we gained 1.7 percentage points more, so with all due respect to beer and wine, we’re seeing these sectors now investing in distilled spirits because consumers are gravitating towards spirits such as Tequila, the Number Two spirits-seller after spirits-based RTDs.”
Some 18 years ago there were about 60 distilleries in the US. Now 2,300 contribute to tourism and economic vitality all around the country. DISCUS recently launched ‘Destination Distillery’, a distillery platform website which locates every distillery in the US.
The emergence of Ready To Drink cocktails has created an opportunity to bring sprits-based cocktails to new occasions.
“It’s a very exciting time for the spirits industry in the US and DISCUS has a role to advocate and support marketplace modifications and advancements,” he explains.
One phenomenon of the pandemic’s early days was the ‘cocktails-to-go’ boom in the on-trade. By trying to change local legislation to permit cocktails-to-go in the US DISCUS demonstrated its ‘on-point’ support for enabling bars to utilise this revenue stream.
As a result of the Council’s efforts, 17 states made legislation permitting cocktails-to-go a permanent feature while 16 more extended their ‘permission’ to do this for an extra period.
“This has served as an economic lifeline for bars and outlets that are not yet at full capacity,” Chris explains.
He’s currently working with hospitality to get such c-t-g permissions made permanent – or at least extended further in the latter states.
Domestic taxing affairs
For DISCUS, levelling the pitch for the emergent line of spirits-based RTDs is proving challenging.
“In many states the tax rate on 5% ABV spirits-based RTDs is much higher where a malt-based RTD enjoys a much lower tax rate,” he explains.
For example in Arizona a 5% ABV can of spirits-based RTD cocktail has an excise tax of 28.5 cents per can where a malt-based RTD would be taxed at only 1.5 cents.
DISCUS enjoyed a big win in Vermont recently when the local governor signed a bill expanding market access for spirits-based RTDs from 81 outlets to over 1,000.
“That sets a great precedent,” he believes, “In states such as Texas, Vermont and North Carolina, where tax rates are very discriminatory or unfair, it offers us a big opportunity to improve access in those states and to reduce tax rates on spirits-based RTDs to make it more fair and balanced.”
Beyond the US the lie of the land has now changed for the better too.
“Let’s look back” he suggests, “Thank goodness tariffs have now gone. The trade war was horrific and I’m pleased that the UK has also now dropped tariffs on US whiskey from last June.”
Tariffs impacted distilled spirits on both sides but the US was hit hardest as tariffs were first imposed on it by the UK which resulted in a 52% decline in US spirits sales there and subsequently a 37% decline in the EU market until tariffs were dropped by the EU in October last year.
“That alone is a big deal on both sides,” he says, “DISCUS, spiritsEUROPE, the Irish Whiskey and the Irish Spirits Associations as well as the Scotch Association all worked in close collaboration with the Bureau National Interprofessionnel du Cognac to resolve those tariffs.”
In fact, DISCUS is currently involved in setting up a quasi-US/EU/UK Government Working Group for the distilled spirits sector to tackle issues of mutual interest in the hope of inoculating distilled spirits from further embroilment in any trade disputes not related to their industry.
Supply-chain disruption has also been a global problem across the board in all companies large and small.
“In navigating this and grappling with it, we’ve seen some products slow to get in through typical channels,” he says, “It’s definitely something our industry has to grapple with in getting access to glass and corks etc. So supply-chain challenges are something we’ll be struggling with over the next year-plus at least. But we’re no different in this than for any other manufactured good.”
All in all then, he’s pleased to be able to report that despite some of the economic woes which the US has experienced of late (slower economy, 8.6% inflation etc) the distilled spirits industry in the US remains not only resilient in overcoming the broad economic pressures, but bullish for the future against whatever headwinds there might be to come…