CHAPTER FOUR

off-trade

Asset 3

Japanese whisky

value growth

+58%

Canadian whisky

volume growth

+45%

The total value of whisky in the off-trade was flat in 2018 (relative to 2017) at £1.27 billion.

This came as a result of a fall in the value of blended Scottish whisky sold (made up for by growth elsewhere). This decline in blends has been a long-term trend across the market. In 2018, sales of blends totalled £692.6 million, a 4.8% fall from £727.6 million in 2017 as retailers focused their ranges and concentrated on higher-value, stronger brands (such as The Famous Grouse, for example), led by consumer demand.

In the recent past the gains in other quarters of the whisky market (particularly American whiskey) have countered falls in blends to ensure the category as a whole grew.

However the sales value of US brands was marginally lower than before in 2018 and, as a result, depressed volume growth in whisky overall. The value of American whiskey sales rose 1.9% from £276.2 million to £281.5 million year-on-year in 2018.

Scotch malt whisky rose by 5.9% in volume terms as new brands came into the market offering better value than ever. The rise in the number of accessibly priced single malt whiskies is having a profound impact on the category, attracting new drinkers.

The increase in the number of these “accessible malts” (priced at £20-25 per bottle) led to a 5.1% increase in the value of single malts sales (slightly behind the rise in value) to £217.8 million in 2018.

This is indicative of the increase in availability of accessible malts which has driven volume ahead of value.

The volume of Irish whiskey grew by 19.7% in 2018 – selling 226,923 cases – which is a marked increase in sales driven by strong positioning from the market-leader, Jamesons. As a result, £53.4 million of Irish whiskey was sold during the period (up from £45.0 million the previous year).

The biggest disruptor in the off-trade at a category level has been the growth of single grain whisky – led by brand leader, Haig Club. The category now accounts for 85,852 cases and sales of £17.5 million in 2018, a rise of 22.8%.

Meanwhile, the two smallest categories in the off-trade, Japanese and Canadian whiskies, posted the highest growth in percentage terms and interest in these showed no signs of abating.

Sales of Japanese whisky has historically remained limited by availability in the UK market, where demand continued to outstrip supply. However, 2018 was the year when this started to change and where we saw the volumes of Japanese whisky – led by brands such as House of Suntory’s Toki – rise.

This was reflected in sales during the year as volumes grew by 65.9% to 4,782 cases (from 2,881 in 2017) and value of sales rose 58.1% to reach £2.6 million in
the off-trade.

Sales of Canadian whiskey also surged in percentage terms. Sales were up 45.0% in volume and 50.2% in value year-on-year. This is in the context of Canadian accounting for a small percentage of the overall market, registering £1.4 million
in sales across the UK in 2018 (up from £928,787 a year ago).

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“Premium whisky, whether that be premium blends like Naked Grouse and Monkey Shoulder or malt whisky play a very important role within the spirits category for Waitrose & Partners. Due to our customer base we have a market share of over 10% in malt whisky and we disproportionally sell more whisky over £30 than most grocery retailers.

Waitrose continues to increase its position in the £30+ sector by encouraging trade-up, offering a point of difference and exclusive lines. We then back this up with a wider range on Waitrose.com and Waitrose Cellar to really offer an educated customer experience. This is the reinforced in store with Wine & Spirit specialists, Whisky Showcase and the Waitrose drinks list to enhance the overall experience.”

JOHN VINE

Spirits Buyer, Waitrose & Partners

The shifting market: Off-trade volume and value

While blended Scotch whisky remains dominant in volume terms, accounting for almost seven in every ten bottles sold in the UK, they account for just 54% of the total value of the off-trade.

By the same token, Scotch malt whisky continues to account for substantially more value in the market than they do volume. While malts make up 10% of the volume of whisky sold in the UK off-trade, they now make up over 17% of the value of the market.

In spite of the increasing numbers of accessible single malts, this demonstrates the shift towards premium choices and the continued growth of this higher-value category in the UK off-trade, driven by the quest for more adventure within whisky from existing consumers.

There is a similar (though less stark) trend in US whiskey which, making up 20% of the volume in the market, accounts for 22% of its value.

The shift towards premium spirits in the off-trade is a trend that is likely to last in the whisky category while blended Scotch will continue to decline overall.

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Impulse

Amongst symbol groups and independents, the overall value of whisky fell 4.2% on a year-on-year basis.

This was in large part driven by a 6.1% drop in the value of sales in the largest whisky category – Scotch blends, which lost £8.3 million in total value between 2017 and 2018 – dropping to £128.3 million.

There was also a small drop in the volume (down 4.3% year-on-year) and value of US whiskey sold (down 3.3% to £41.5 million). Single malt whisky, similarly, lost ground marginally, with sales falling by 4.7% in value terms.

The fact that shopper visits tend to be frequent but are less likely to feature high-value purchases, and that smaller shop formats compete less well with the range and discounts on offer at larger retail outlets, has been in part responsible for this. So too has the over-representation of blended whisky in this area of the off-trade – a category which is shrinking overall.

However, and as elsewhere in the market, there were strong performances from Irish, Canadian and Japanese whiskies, which point to potential growth in impulse in future years.

Sales of Irish whiskey in particular rose to £8.7 million in 2018 representing growth of 19.6% on 2017. The growth came as supply has eased as new distilleries have opened their doors and as Jameson (the category leader) has continued to grow.

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Minimum Unit Pricing

There has been much debate and discussion about the impact of Minimum Unit Pricing in Scotland – reignited by its proposed introduction to Wales.

At present, the research shows that it is too early to tell what the impact of this has been on the whisky market in Scotland because there is a range of data that is yet to give a clear or definitive picture – and with other trends impacting the market (both positively and negatively), isolating the impact of MUP is impossible at this point.

As a result, we, alongside the rest of the whisky and drinks industry, will await more formal evaluation of MUP’s impact rather than comment in this year’s Whisky Yearbook.

Asset 3

The rise of e-commerce

Between online grocery and delivery services such as Uber Eats and Deliveroo it’s clear that e-commerce is dramatically changing the food and beverage world. However, there’s one vertical that has been slow to catch up to these standards: Beer, wine and spirits.

For many reasons, this industry is lagging behind rising consumer expectations. Consumers want food and beverage providers that can anticipate their needs and personalise experiences, but they aren’t getting that from retailers when it comes to spirits.

The spirits industry has some catching up to do relative to those sectors that have capitalised on the e-commerce opportunities to date.

It’s easy to see why wine and spirits brands have adapted less quickly to e-commerce. Alcohol regulations, fulfilment, logistics of shipping high-value liquid and temperature-control requirements all create barriers. Of course, chief amongst these barriers is ID verification.

However, these challenges are far from insurmountable.

We know that a consumer’s whisky purchase is a deeply involved process. And that, unlike many other online purchases, it is filled with uncertainty
for consumers.

While choosing a dress online might appear to be an emotionally invested purchase, consumers know they can send their £100 purchase back the next day for free if they don’t like it. Not so a £100 (or indeed £1,000) bottle of whisky.

If we treat whisky as a commodity or traditional “grocery” purchase – focussing solely on mainstream offerings f rom brands – we will under-realise its potential.

  • We have to take advantage of our ability to use digital estate to guide and educate consumers if we are to get spirits right online – looking to the whisky specialists that have blazed a trail.
  • We need to acknowledge and cater for those consumers who we know f rom research use online to research and plan offline purchases. We cannot afford to see high street and online purchases taking place in isolation, but rather use the digital estate at our disposal to cater for consumers’ thirst for knowledge that may result in a sale in-store.
  • We need to ensure that ranging is right. Nielsen and Edrington-Beam Suntory research shows the average spend per bottle on single malt whisky is £30 online (even in mainstream retailers) – on average £5 more per bottle than in physical stores. It is clear that online shoppers are valuable customers who we need to work to attract and retain online.
  • And we need to ensure that we address the barriers to online shopping. One of the biggest barriers to gifting, for example, is that packaging will be damaged in transit. Adopting a “white glove” approach not just to the sale but to the whole experience – as we see prevalent in premium fashion retail for example – is vital to convince our premium customers to embrace online service.Above all, as an industry we should be concentrating on working in partnership (whisky makers and retailers together) to grow a premium market in online sales. We need to make whisky more accessible to those seeking education and we need to make purchase and fulfilment convenient. But, at the same time, we need to recognise that real value will be unlocked if we can drive discovery, adventure and gifting sales opportunities in whisky on the web.

Above all, as an industry we should be concentrating on working in partnership (whisky makers and retailers together) to grow a premium market in online sales. We need to make whisky more accessible to those seeking education and we need to make purchase and fulfilment convenient.

But, at the same time, we need to recognise that real value will be unlocked if we can drive discovery, adventure and gifting sales opportunities in whisky on the web.

Average online spend

single malt whisky

£30

per bottle

“The continuing rise in digital sales of whisky is showing no signs of slowing down. As brands become more global and market releases become sought after everywhere, we are seeing e-commerce play a vital role for consumers to get hold of their whisky. Not only does e-commerce provide an immediate return for brands investing in influencer marketing, PR, SEO and digital advertising, but it also fulfils a very functional and rewarding role too. Where previously consumers had to visit a whisky shop to get their hands on a new expression, hoping the whole time that their bottle was in stock, they can now check in at the click of a button or even set up alerts for when it becomes available. It’s common place now for expressions to sell out in minutes purely from the number of people subscribed to alerts on it. This will only continue, especially as more platforms like Instagram integrate e-commerce into their functionality.”

SUKHINDER SINGH

Director, Speciality Drinks Ltd