Signs of growth and decline in spirits industry

THE US market for spirits is on an upward trend, with value overtaking volume, according to a new report by global financial services leader Rabobank.

"The US market is currently experiencing its slowest rate of volume growth since the recession," said Ross Colbert, global strategist for beverages. "While the overall trends in the U.S. market remain positive, it should be noted that the ongoing premiumization trends (particularly in whiskey), and the success of several new key product innovations which have helped drive the success of the market, have masked some of the underlying challenges. Volume growth remains positive, but there has been a marked slowdown in the rate of growth in 2014."

In the past months, Europe has been inching toward stabilization, but major producers like Campari and Pernod are still showing mixed financial results. Scotch producers in particular experienced a slowing in exports in 2014, whilst high-quality aged sipping rum have caught on in the UK, Benelux, France, the Nordics and Eastern Europe.

The story is different in China where e-commerce growth and consumer migration away from the luxury segment of the Chinese spirits market have triggered heavier discounting, according to the report. Baijiu companies are expected to slow their shipments to preserve the stability of prices of their leading premium, given continuing weak performances. E-commerce continues to increase, supported in part by aggressive pricing, forcing traditional channels to change.

The Indian spirits market is doing well (i.e., Diageo-owned United Spirits: 5.8% total volume increase) whilst also seeing the structural shift from a volume-based to a value-based business model. On the margin front, the operational environment remains challenging mainly due to regulatory changes and price hikes.

Brazil shows growth as brands diversify and innovate. Cachaca sales were also buoyed by good weather and the World Cup in 2014. But Rabobank points out that a weaker economy may cause weaker consumption through the holiday and Carnival season compared to last year, and weather conditions and new policy changes will play a huge role in 2015.