Industry

US spirits - 2015 DISCUS industry review

By Ian Shackleton - NIplc February 3, 2016
Nomura
2015 - US spirits industry growth still robust
DISCUS spirits data shows a continued robust trend, with US industry revenues +4.1% (vs 2014 +4.0%, 2013 +4.4%, 2012 +4.5%). With several high profile companies not members of DISCUS (e.g., Heaven Hill and Sazerac), we think that DISCUS data could understate industry growth. Industry volume growth accelerated in 2015 +2.3% vs 2014 (+2.2%), with some price/mix unchanged at +1.8%. With scope for premiumization and innovation, we continue to see robust growth in spirits industry revenues in 2016.

2015 - premiumization trend continues
We attended the annual presentation in New York by DISCUS, the spirits industry trade body in the US, yesterday. DISCUS data shows 2015 industry volume accelerating to +2.3% (vs 2014 +2.2%, and 2013 +1.9%). We believe industry growth could be understated as only 60% of industry volume is represented by DISCUS members (DISCUS collects data via survey for another c15% of the industry). Industry supplier revenues grew +4.1% (vs 2014 +4.0%, and 2013 +4.4%), as price/mix remained unchanged at +1.8% (vs 2013 2.5%, 2012 +1.5%). Volume within the high end segment accelerated to 7.1% in 2015 (vs 2014 +5.8%), while super premium volume accelerated to +6.5%in 2015 (vs 2014 +5.1%).  Super premium vodka volumes declined 13.2%, partly offsetting the strong growth in the super premium price point.

Trend to watch in 2016 - evolving distribution structure
The presentation flagged some trends to watch, including grocery stores interest in selling spirits (27 states currently permit this), modernization of stores in control states, privatization in control states, and wholesaler realignment and consolidation.  On wholesaler realignment, DISCUS sees consolidation improving the access to consumers. In our report dated 26 January, Wholesaler landscape on the move, we noted consolidation could lead to the development of two more aligned systems in US wine and spirit wholesaling, which could create efficiency gains for the industry. 

Regulation reducing
The number of states allowing Sunday purchases of spirits remains 39 (it has moved up from 38 in 2012). Modernization trends continue, with Texas a focus state for liberalizing sale of alcohol (26 out of 27 wet-dry alcohol elections were passed during the year in Texas). In 2014, major hospitality tax threats were defeated in 18 of 18 states. The number of states allowing some form of spirits tasting laws, was unchanged at 46 (this helps with premiumization of spirits), although some states saw expansions in spirits tasting (e.g., Wisconsin passed bill to offer samples in grocery stores).

Spirits continues to gain market share of total alcohol
US spirits continued to gain market share of overall alcohol revenues, with US spirits accounting for 35.4% of total alcohol supplier revenue (vs 2014 35.2%, 2013 34.7%, and 2012 34.3%). Volume share on a drink equivalent basis was 33.5% (vs 2014 33.0%, 2013 32.5%, and 2012 31.9%).

Volume growth by price segment - acceleration in super premium
Value brands grew 0.1% (vs 2014 -1.3%, 2013 -1.2%), premium +1.0% (vs 2014 +3.1%, 2013 +1.6%), high end accelerated to +7.1% (2014 +5.8%, 2013 7.2%) and super premium also accelerated to +6.5% (2014 +5.1%, 2013 +6.3%). Within the super-premium price point, vodka was down 13.2%.  Growth in super premium was driven by Bourbon and Tennessee whiskey (+25.2%), Canadian whiskey (+17.8%).

Craft spirits
The presentation indicated the number of craft distilleries has increased from 92 in 2010 to "over 750" in 2015 (vs 2014 it was "over 700"). DISCUS did not quantify the size of the craft spirits industry; however, it was indicated total volume of craft spirits is roughly 1-2% of industry.  In the 2015 presentation, it was mentioned that craft volume is 3.5 million cases, up from 700k in 2010. We believe growth in craft spirits reflects consumer interest in heritage and premiumization; however, given spirits' lower fixed cost base, we believe that this "small is beautiful" trend can be captured by both large and small distillers.

Major categories
Vodka - (c32% industry volume, still the largest category). Volume growth accelerated to +1.8% (vs 2014 +1.6%, 2013 +1.1%, 2012 +4.0%) with price/mix -1.3% (vs 2014 +1.7%, 2013 +1.1%, 2012 +1.1%). This was due to decline in super premium vodka down 13.4% vs 2014 +2.9%).  High end vodka was up 11.1% (vs 2014 +5.4%). Traditional vodka grew +2.5%, while flavored vodka once again declined in 2015.

Bourbon/Tennessee Whiskey - 2015 volumes were up 5.2% (vs 2014 +7.4%, 2013 +6.8%, 2012 +5.2%) and price/mix +2.6% (vs 2014 2.2%, 2013 +3.4%, 2012 +2.1%). Within this, premium volumes declined 2.6% (vs 2014 +8.8%), high end was up 6.8%(vs 2014 +5.7%) and super premium volumes accelerated to +25.2% (vs 2014 +19.2%.) Blended Scotch was the only whiskey category to decline in volume.

Whiskey category - 56% of industry volume growth was driven by whiskey category (vs 85% of volume growth in 2014).  Overall, whiskey category grew volumes at +4.9% (vs 2014 +7.2%, 2013 +6.2%, and 2012 +3.8%.

Tequila - volumes accelerated to +7.4% (2014 +5.0%, 2013 +6.6%, 2012 +2.9%) with price/mix +2.0% (2014 -1.0%, 2013 +1.3%, 2012 +1.7%) mainly due to faster growth in super premium and high end.