CHAPTER ONE

The big picture

Asset 3
£2.35 billion

forecast overall sales 2019

scotch malts

value growth 17-18

+3.6%

As a whole, the whisky category has posted a small decline in terms of volume and value between 2017 and 2018 (dropping 3.1% in volume terms and by 1.4% in value terms). In 2018 the total value of whisky stood at £2.31 billion in total (from £2.34 billion in 2017).

Underlying this are major structural shifts in the market.

whisky sales

forecast growth 18-19

+1.9%

Scotch blends have been in long-term decline. This has been due to a combination of closures in on-trade heartland premises and multiple grocers cutting back their range to focus on core brands and more premium categories, such as American whiskey and Scottish single malts. This has been prompted – and is now compounded – by a declining consumer base.

Growth in American whiskey (alongside Scottish single malt) have historically more than made up for falling Scottish blend purchases to help grow whisky sales overall.

However, there has been lower growth in American whiskey volumes (up 0.7% between 2017 and 2018) and a slight fall in total value (down by 0.3%).

There is optimism, though, that as American whiskey consumers are showing patterns of trading-up to premium brands there are new opportunities for future value growth.

Against this picture, Scotch malts kept the market buoyant and saw 3.6% value growth – to £394 million (a rise of almost £14 million) – in 2018 compared to 2017. This came on the back of a 4.5% rise in volumes.

As we will come to see in later chapters, there is a new generation of single malt whisky brands appealing to consumers at a lower price point and recruiting drinkers into malts. As there is a general trend of consumers trading-up within Scotch single malt particularly this, again, bodes well for the future.

Sales in 2019

We forecast that sales of whisky in 2019 as a whole will return to the £2.35 billion that we saw in 2017, rising from the £2.31 billion value of 2018.

This would represent modest 1.9% growth year-on-year in one of the most established and mature spirits categories and reflects the dynamism and progressive approach that remains alive and well.

For Edrington-Beam Suntory UK, the sustained growth from a formidable existing base demonstrates that it is a category continuing to attract new consumers.

The levels of sales growth show that existing whisky drinkers are exploring within the category, seeking quality expressions from leading premium brands for which they are happy to pay more, and that this is driving growth.

Across the board the whisky category has premiumised.

As we will see in later chapters of this report, while sales of blended Scotch and American whiskies have slowed, growth is coming from the rest of the category – particularly in Scottish single malt, which has successfully attracted more affluent consumers eager to explore the category. Drinkers choosing to “drink less, but drink better” are also responsible for the booming interest in higher-priced whisky from Scotland and elsewhere around the globe.

In single malts, two things have driven growth. On the one hand, drinkers have been tempted to start to explore the category – as it has become more accessible due to lower prices across leading and newly introduced brands.

On the other, drinkers have started to explore older single malt whisky and to spend more on non-age statement premium expressions from leading brands. Distillers have given their whisky-makers more latitude to experiment and create small-batch special editions. And this, in turn, has created a greater awareness amongst consumers of the collectors’ market.

For those distilleries that have sufficient aged liquid in cellars, the opportunity to create ever-older whiskies has also driven value (if not volume).

The past twelve months have seen the release of whisky of 70 years and older and these super-premium editions are something we expect to see more of in the future from the heritage distilleries. At the same time, non-age statement editions are also offering single malt fans greater opportunity to try limited batches of exclusive liquid, often at more accessible prices.

The other major force at play has come from mass-market brands. Forward-thinking distillers in Scotland and the US – the major drivers of growth in the market – have embraced the opportunity to innovate.

In the US, this innovation is manifest in new flavoured ranges that have made the category more accessible to new consumers. Distillers have been able to innovate expressions to tap into new drinking occasions. And they been able to do so because they are confident that there is a strong base of existing fans eager for experimentation and adventure.

At the same time, this is also an example of how the discovery driver will bring non-spirits drinkers to the whisky category and hence continue to increase its value in the years to come.

Contemporary Scottish whisky brands (as we will see in Chapter 6), are bringing these customers in – with Monkey Shoulder, Haig Club and Naked Grouse typical of brands that are attracting image-led drinkers – while lower-priced single malts are likewise opening up the category.

For more traditional consumers, meanwhile, blended whisky has started to innovate with cask finishing available more widely than ever before – offering drinkers alternative flavour profiles from brands they know and love, as well as providing the opportunity to create premium expressions within their portfolios.

Overall sales 2018

£2.31b

Forecast overall sales 2019

£2.35b

Whisky volume

2022 forecast

+2.7%

up 200,000 cases

Looking further into the future

Forecasts (made pre-EU tariffs on US whiskey) suggest that in the next three years we will see continued growth, showing just what a vibrant category this is.

If the macroeconomic factors rebalance, we foresee a return to these levels of growth.

By 2022, forecasts suggest the value of whisky sales in the UK will reach £2.44 billion – growth of £138.4 million on the value of sales in 2018, and a 6% increase over the next three years (CAGR: 1.5%).

In the same period, the volume of sales will grow to 7.6 million cases – growth of over 200,000 cases on the volume of sales in 2018 or a 2.7% increase over three years (CAGR: 0.7%).

Leading nations show stable growth

Sales of whisky in the UK remain dominated by Scotch blended, Scotch single malt and American whiskey, which collectively account for 95% of volume and 93% of value in the category.

Scottish whiskies alone account for 73% of the volume sold in the UK and for 63% of the value in the market overall – the disparity explained by the pricing of blends in particular and continued discounting within retail especially.

Scotch single malt

Growth in Scotch single malt whisky will remain robust in the current year and will continue into the next decade.

With forecast 3.7% growth in volume into 2019, there is strong potential for continued growth. At the same time, value is forecast to grow by a similar level to make single malt a £408 million category in 2019.

Growth is expected to continue in this category and, by 2022, the number of cases sold is expected to reach 899,945, while value will increase to £439 million.

As has been observed, this is being driven in part by more accessible whisky on offer, attracting new drinkers to single malt and encouraging blended whisky drinkers to trade up.

There is a quest for greater adventure from the consumer – which brands and brand owners alongside retailers and on-trade outlets can help facilitate – that Edrington-Beam Suntory UK sees as the core driver behind this trend.

At the same time, the value growth ahead of volume growth is also indicative of premiumisation – as drinkers explore the sheer range of single malts on offer, becoming more willing to spend more to do so.

Scotch blended whisky

While Scotch single malt whisky is growing strongly, Scotch blended whisky will experience a fall in both value and volume terms through to 2022.

Scotch blends generally have an older consumer (generally 65+ years old) and, as a result, do not tend to attract new drinkers as quickly as US whiskey and Scottish single malt whisky.

Retailers – the heartland of the blends market – are focussing their ranging on better-invested and bigger brands such as The Famous Grouse. As a result, blends drinkers are being tempted to move out of the category to explore other options including premium blends, single malts and US options.

This is particularly the case in Scotland as a result of the introduction of Minimum Unit Pricing.

Compounding the challenge in blends as a standalone category, MUP has led to a lower price differential between blends and single malts.

Blends brands have introduced premium expressions at higher price points than their core products. At the same time we have seen the growth of accessibly-priced single malt whisky.

The combined effect has been that, as the price differential has narrowed, there is greater room to shop between blended and single malt whisky in retail.

The roll-out of MUP more widely across Great Britain (with Wales shortly to introduce MUP) could extend this impact.

As a result, forecasts are that Scotch blended whisky will fall by 1.2% annually over the next four years to 4.57 million cases. The value of Scotch blends will drop by £36.6 million in total value over the course of the next four years (on 2018 levels).

US whiskey

US whiskey was up by 13,000 cases during 2018 and saw slight decline in value terms to £688 million. This was largely driven by market leader, Jack Daniel’s, which experienced a steep decline in sales.

Relative to their Scottish counterparts, US whiskeys have historically tended to perform well at the entry level of the market and as a base spirit for cocktails (and ubiquitous with mixers).

However, these whiskies saw a dip in sales in 2018, as the market levelled-out and there were relatively fewer new drinkers to be recruited to the category. At the same time, the growth of gin may have taken some share from American whiskey.

That said, our forecasts are that decline will be arrested in 2019. At the same time, the falls in the market overall are in large part due to the performance of the market leader and we forecast that this will be turned around and that others in the category – particularly premium American whiskey (see Chapter six) will drive future growth.

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Beyond Scotland and the US

While Scotch and US whiskies are large, mature sub-categories within the overall market, the fastest growth is coming from elsewhere – fuelled in part by the fact that it is growth from a relatively small base.

Japanese supply drives growth

Japanese whisky volumes will grow by 15% year-on-year in 2019.

This growth level is indicative of an expected easing of supply of such whisky in the UK market – as more Japanese imports become available. This would make the market worth over
£9.2 million in the year to come (with growth of 13.6% over 2018).

Retailers are listing more Japanese whiskies, while the thirst for Japanese craft spirits in the on-trade will continue. The introduction of more accessibly-priced whisky from the Far East is further enabling growth in the category.

At the same time, there is also greater availability of premium Japanese marques – from brands such as Yamazaki – which has further fuelled growth in the value of the UK market.

With supply continuing to ease in the coming years, the Japanese whisky category will experience fast-paced increases in both value and volume in the UK. Japanese distillers have recognised the opportunity in the UK consumer’s demand for their products and are investing at a higher level than historically has been the case.

As a result, Japanese whisky in the UK will grow by 11.8% annually for the next three years in volume terms – the category becoming 48.8% bigger than it was in 2018. Their value will also rise – growing 10.8% a year on average between 2018 and 2022 to create a category that could be worth over £11.7 million annually.

Irish whiskey grows

Irish whiskey will grow in 2019, with a large part of this accounted for by the leading role that the biggest brand in the category (Jameson) has played in making Irish whiskey an attractive proposition for consumers.

Historically, supply has been challenging, as the small number of distilleries in Ireland has limited the nation’s ability to create sufficient liquid to build a market in the UK – restricting potential.

However, with more supply, the prospects are positive, and forecasts suggest that volumes will rise as much as 5.1% annually between 2018 and 2022 to 366,412 cases (a 20.4% increase overall).

At the same time as availability has increased, so too has accessibility, as Irish whiskey has increased its perception as a mixable spirit – appearing on bar menus in highball serves and greater numbers of cocktails than ever.

The leading brand (Jameson) has posted substantial growth, which has driven the category overall (as it makes up in the region of 75% of Irish whiskey sales in the UK). At the same time, the greater range and quality of Irish whiskey will drive even greater value growth, delivering a further 5.3% annually in UK sales between 2018 and 2022, making this a market worth £163.9 million in 2022
(up from £135.4 million in 2018).

Single grain continues to make an impact

Over the last four years we have seen the growth of a new “category” within the category: The relentless growth of single grain whisky – led by brand leader, Haig Club.

The category now accounts for 89,178 cases and sales of £21.5 million in 2018, a rise of 24.7% from 2017.

What is more, this growth is forecast to continue. We forecast that sales will reach 179,783 cases in 2022, which would represent an increase of 101.6% in just four years – faster growth than the gin category (though from a smaller base). In the same time period, we can see the value of single grain rising to £42.1 million, representing a 95.9% increase on 2018 levels.

As has been the case with our investment in Japanese single grain whisky, The Chita, we foresee other brands entering the single grain category in a meaningful way which will further drive future prospects.

The drivers of this growth have been the fact that brands in the single grain category have learned how best to position themselves from the premium American
and “contemporary whiskies” categories (their accessibility first and foremost), alongside references to Scotch single malt presentation (with its focus on the aspirational market).

While in the grand scheme of things this is still a new category, it is one that points to the way that whiskies will ensure growth – becoming more accessible to a wider and younger audience while at the same time staying true to aspirational image-making.

Canadian whisky grows

Canadian whisky is also likely to post substantial growth – although it accounts for a small proportion of the market as a whole. This growth has been driven in particular by Canadian Club, which dominates with 78% of all Canadian sales.

Sales volumes will grow 9.0% annually until 2022 to 14,202 cases (from 10,520 in 2018). Forecasts also suggest there will be annual growth of 9.4% to 2022 in value terms, as we see the development of a premium Canadian category. We predict that Canadian whisky will be worth £9 million.

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The ultimate collectable

A single bottle of The Macallan 1926 60-year-old hand-painted by the Irish artist Michael Dillon sold at Christie’s in November 2018 for a new world record of £1.2 million. This follows previous world records, for The Macallan 1926 60-year-old, with other bottles painted by Valerio Adami and Sir Peter Blake selling at auction for £848,750 and £751,703 respectively. Throughout 2018, The Macallan has repeatedly broken auction records demonstrating the importance – and growth – of the super-prestige market globally.

A new wave of Japanese whiskies

The House of Suntory launched its Toki brand in the UK in mid-2018. A blend of grain and malt whiskies from the iconic Hakushu, Yamazaki and Chita distilleries, it has been made with cocktails in mind. With a more accessible price point than many other Japanese whiskies in the UK, Toki will bring the joy of Eastern whiskies to a wider range of drinkers and offers bartenders new ways of serving Japanese whiskies to their customers.

Innovation in blends

The Famous Grouse released the first of its Cask Series during the first half of 2018, pointing to a fresh wave of innovation amongst Scotland’s biggest-selling blended whisky.The first of these was The Famous Grouse Bourbon Cask, quickly followed by The Famous Grouse Ruby Cask.These innovations are creating an “everyday premium” category for Scotch blended whiskies and the approach is demonstrative of the approach being taken by blended brands that are bringing fresh opportunities for growth within an otherwise shrinking category.

Whisky sales

2022 forecast

+6%

growth of £138m

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