The U.S. spirits industry enjoyed another strong year of growth in 2017, according to data presented this morning at the annual Distilled Spirits Council (DISCUS) economic briefing in Manhattan.
Supplier sales rose 4% — a $1-billion increase for a total of $26.2 billion. The volume of 9-liter cases shipped grew 2.6%, or 5.8 million cases, for a total of 226 million cases.
Much of the growth owed to booming interest in premium and super-premium spirits. This industry trend across all categories reflects a shift in consumer behavior from a decade ago. In 2007, “value” spirits priced $12 or less represented about 40% of overall U.S. spirits revenue. By 2017, those value products dropped to 33%. All those consumer dollars transferred over to spirits priced $20 or more, which grew from 24.6% in overall spirits revenue share in 2007 to 31.8% in 2017.
“The volume has really shifted to the more-expensive categories,” explained Dave Ozgo, DISCUS chief economist. “The consumer has really traded up to higher-priced products.”
This change in buying behavior, from value to premium, alone accounted for an additional $2.4 billion in revenue for the U.S. spirits sector since 2007.
Millennials are a driving factor. “The Millennial consumer is looking for an experience, they’re looking for an individualized product,” Ozgo said. “And this dovetails perfectly with all the producers right now who are putting out new innovations and line extensions.”
The U.S. spirits industry gained seventh-tenths of a point in the overall American alcohol market share, finishing at 36.6%. That’s a sales gain of about $500 million, mostly at the cost of U.S. beer, which is slipping.
Last year was the eighth straight that spirits picked up gains in overall market share. All categories benefited.
American whiskey (including bourbon) was up 6.4% in volume to 23.2 million cases — a gain of 1.4 million cases. Revenue-wise, the subcategory grew 8.1% last year, a $252 million increase for a total of $3.4 billion. Bourbon alone was up 6.7% in volume for 20 million cases. Flavored whiskey added 300,000 cases, while white whiskey was the rare loser last year, down 0.5% in volume to 2.3 million cases.
American rye continued its recent explosion by jumping 16.2% in volume to 900,000 cases and $175 million total revenue. “That’s really spectacular when you look back at 2009 when rye was only 100,000 cases,” Ozgo said. “The explosion of bourbon has allowed for niche players like rye to grow as well. It’s the natural extension of the consumer who wants more variety after trying bourbon.”
Canadian whiskey was up 2.4% in volume for 17.5 million cases in total, with $2 billion in revenue (+2%). Growth came mostly from bottles price $30 and above, which increased 4.9% to 6.4 million cases.
Luck remained with Irish whiskey, which continued its recent climb with +11.3% in volume to 4.2 million cases. Premium products were again a significant factor, helping Irish Whiskey revenue jump 12.8% to $879 million overall.
The combined category of tequila and mezcal grew 8.5% to 17.2 million cases, and +9.9% in revenue to 2.7$ billion. Mezcal’s moment is now: it surpassed 350,000 cases after counting just 140,000 as recently as 2015.
Cognac expanded 11.6% in volume to 5.7 million cases, with +13.8% in revenue to $1.6 billion.
Vodka was up 2.2% in volume to 71.3 million cases, and +3% to $6.2 billion. Premium vodka is catching on: high-end bottles grew 14.5% in volume to 18.1 million cases, and +15.4% in revenues to $1.6 billion.
Ozgo forecast more good news in 2018, especially with brown spirits, premium products, and continued innovation from suppliers.
While Ozgo foresaw growth for digital delivery services like Drizly, how much was “difficult to determine.” Nevertheless, he reminded the audience that consumers crave convenience. Drizly and similar services are also a positive for spirits, Ozgo said, because they level the retail playing field with just one online store: in most states, there are 3 beer outlets for every one that sells spirits.
The rise of recreational cannabis does not pose a major threat to spirits, Ozgo believed. “We haven’t seen a negative economic impact in the states where cannabis has been legalized,” he said.
Last year was noteworthy for spirits for legal victories. Most importantly, explained Discus President & CEO Kraig Naasz, was the federal financial relief from the two-year Craft Beverage Modernization and Tax Reform Act. This amendment in the tax law passed late in 2017 equalizes the federal excise tax on spirits to similar reductions already enjoyed by beer and wine producers.
“This is the first federal excise tax reduction on U.S. spirits since the civil war,” Naasz said. “That’s money going back into the industry that will allow it to grow.”