CHAPTER TWO

On-trade

Asset 3

Premium American whiskey was buoyant and saw 2.5% volume and 6.5% value increases.

The overall picture in whisky is a mixed one. As a category overall, sales volumes and the value of those sales have both declined.

This has largely been driven by the long-term decline in traditional outlets for Scotch blended whisky as we have seen closures in traditional, drinks-led pubs and an increased focus on food, as well as increased costs through taxation.

At the same time, the remaining on-trade outlets have focused on a smaller range of bigger brands at the cost of the blends category as a whole. This, in turn, has been driven by the blends’ traditional demographic shrinking and a simultaneous lack of recruitment into the category.

Less expected in 2018 was the drop-off in American whiskey. While this category has shown robust growth in the past, the category has seen growth driven by recruitment tail-off as it has matured – best evidenced by falls in sales of Jack Daniel’s, the market leader.

The compensating positive news here has been that while the mass-market brands have shrunk, premium American whiskey (as we will explore further later in this report) was buoyant and saw 2.5% volume and 6.5% value increases.

Growth in American whiskey had been off-setting the on-trade declines in blended whisky, meaning whiskies overall were in growth but this was not the case in 2018. Moreover, while there was growth in Scottish single malts (by value if not volume), Irish, Canadian and Japanese whiskies in 2018 (relative to 2017), these gains could not make up for the drop in volume and value elsewhere.

As a result, during 2018 (which will henceforth be the principle focus of this review), sales dropped to £1.03 billion in British on-trade (from £1.06 billion during 2017), with the bulk of this drop coming as a result of blends losing ground.

Premium American

whiskey value growth 17-18

+6.5%

2.5% volume

On-trade whisky sales (2017 to 2018)

While volumes sold fell (from 1.1 million cases in 2017 to 987,165 in 2018), this was again a reflection of the falling volumes in both Scotch blends and US whiskeys.

However, the market is one in which consumers are opting for quality over quantity and the on-trade has embraced the opportunity to offer a wider range of premium whiskies. As has been the case in other spirits categories, premium and super-premium segments have grown at the expense of the mainstream.

As has been the case in other spirits categories, premium and super-premium segments have grown at the expense of the mainstream.

As more consumers embrace whisky-based cocktails, as well as drinking the spirit neat, the longer-term trend for the premium end of the blends and American categories remains positive while Scotch single malts (again, by value), Irish and Japanese whiskies are all in robust growth.

00

On-trade

sales in 2018

£1.03b

£1.06b in 2017

The lowdown on highballs

Bourbon brand Jim Beam has never been afraid to mix it up.

In the last twelve months, the brand has refocussed its energies behind its key serve – the highball.

Making bourbon accessible to a new audience of fans, this serve, which has been popularised by Japanese drinkers, has opened new occasions for the brand and is typical of the way that whisky brands – led by US whiskeys – have embraced the cocktail in recent years.

Expect more variations on the highball theme to emerge as the serve continues to capture bartenders’ and the public’s imaginations.

“The future of whisky is about modernisation; like all spirit categories, it has a fascinating and rich heritage, and although this provides a brilliant basis, it’s also about reimaging and adapting the category to ensure it resonates with the modern consumer. As we have seen with gin, consumers are increasingly looking for elevated and differentiated serves and this should be a focus for whiskey as well. In addition, consumers are increasingly driven by new and interesting flavours and whisky presents an opportunity to widen the appeal of the cocktail menu by utilising the different flavour profiles the spirit provides.”

MARTIN LOCKLEY

Category Manager, Mitchells & Butlers

The stars and stripes

Demand for Bourbon – mixed, in cocktails and straight – has grown in recent years. However, in 2018, sales of American whiskey across the on-trade as a whole dropped 1.8% – to £406 million in 2018.

Beneath the headline numbers, the picture is one of two opposing trends. As has been observed, the premium American category grew substantially in 2018 relative to 2017.

However, this growth was more than offset by falls in value and volumes of sales of the market leader – Jack Daniel’s. Without noteworthy gains by premium brands including Maker’s Mark, Bulleit and Gentleman Jack, amongst others, the picture for the American category as a whole could have been far bleaker.

The march of the malts

The on-trade accounts for a third of sales of Scotch single malt whisky and they are at an all-time high, rising 1.9% to £176.1 million in 2018 (up from £172.8 million in 2017).

During the same period, the volume of sales fell by 2.9% (to 124,461 cases), indicating that the value of sales has come principally from the premiumisation of the malts category as consumers trade-up to more expensive brands or expressions in the on-trade.

This has, in turn, two underpinning trends:

  • More on-trade outlets are offering a wider range of aged single malts and rarer liquids for customers to try, giving them the opportunity to explore flavour profiles across the category as they become more engaged. While non-specialist bars might have stocked just two or three single malts five years ago, there are now wider selections, and whiskey up to 20 years old is a more frequent sight, alongside limited edition releases from leading distilleries. With the opportunity to try a dram rather than purchase a bottle of these expressions, the on-trade is catering to sophisticated drinkers with
    rarer and newer single malts.
  • Bartenders are starting to use single malt whisky in cocktail-making as whisky-makers spend more time on education and advocacy programmes, recognising that single malts have a place on cocktail menus, which creates an accessible way of introducing people to the world of malts. Bartenders are also experimenting with what are sometimes seen as more challenging malts – particularly the peated malts – and developing cocktail serves that make use of the smoky flavours such malts deliver when used as a base spirit.
Blends fall back

Blended whisky sales have fallen over the last year, indicative of a longer-term decline in the largest on-trade whiskies category in volume terms (and second largest by sales value).

Demographic shifts have had an impact as a new generation of drinkers have embraced single malt whisky and American whiskey, rather than their blended counterpart.

Simultaneously, heartland outlets (particularly out of town) have been closed and new on-trade openings have been focussed on cities where the outlets’ target are younger consumers.

Combined, this has led to decline in consumption of blends.

Sales of blends in 2018 fell by 10% in volume terms and by 8% in value terms, according to the latest data, relative to sales in 2017.

The cost of Scotch blended whisky was hit by Government tax increases in previous years, and volumes have failed to recover from this.

In the on-trade, Scotch blended whisky has been further impacted by the growth in popularity of single malt whisky and of American whiskey (which have both taken share).

At the same time, the gin revival has seen the white spirit take share from blended Scotch in particular – as it seen as a more “gender neutral” spirit and one that caters to a wider range of occasions.

The rest of the world

Irish, Canadian and Japanese whiskies posted impressive performance across the on-trade in the first half of 2018.

Ireland accounts for the fourth largest share in the UK on-trade whiskies market – after American whiskey, Scotch blends and the single malts. However, there is considerable growth in the Irish whiskey category, up 5.6% in value
terms in 2018.

The accessibility of Irish whiskey and the competitive pricing of these liquids has enabled a resurgence in the category and, while they lag considerably behind their Scotch and American counterparts, there
is considerable headroom for growth.

Canadian whisky also enjoyed growth in the on-trade in 2018. Sales rose 9.9% in value terms ahead of volume growth at 2.7%.

While they may not command the same price per bottle as their Japanese counterparts, there are indications that makers of Canadian whisky are turning their attention to the UK market and that the future may see another nation start to compete for the attention of British consumers.

In value terms, Japan may be the smallest of the major whisky-producing nations, but it is the fastest growing by some margin and also commands the greatest premium.

There was an increase of 17.9% year-on-year in the volumes sold across British on-trade outlets – rising to 2,406 cases in total in 2018 – while the value of sales rose by 31.1% to £5.5 million over the same period.

This is a clear demonstration of the buoyant demand for whisky from Japan (not least because research in their heartland premium outlets tends to under-report both scale and growth) and the trend is for outlets to charge a higher price for what remain relatively limited stocks of the finest liquid from the Far East, even as lower-priced brands enter the market.

A new single on the market

The single grain category (largely thanks to Scottish single grain, although we are now seeing new brands entering this category such as House of Suntory’s Chita) has been a remarkable success story.

The impact of single grain growth has been most marked in the off-trade and its success – and the significance of that success – will be discussed in Chapter four. But nevertheless, a market that barely existed three years ago is now delivering 3,326 cases annually in volume terms (a rise of 33% year-on-year) and £3.97 million in value (annual growth of 33.5%).

It remains a category to watch for the future.

The new home of luxury whisky

During the first half of 2018, The Macallan unveiled its new distillery and visitor’s centre, which marked a £140million investment in the brand’s future.

As much as the new distillery is an investment in whisky-making, it is also a recognition of the international demand for whisky-related travel.

Whisky tourism was reported to have contributed £380million to Scotland’s economy in 2017 as there were 1.9 million visits to Scotch whisky centres – a rise of 45% since 2010.

Single grain

volume growth 17-18

+33%

Sales of blends

fell in 2018 by

-10%