Research in Focus - Malt Whisky Sales Suffer in Downturn, But Outlook is Positive
Malt whisky sales suffered during the downturn, but a new just-drinks/IWSR report forecasts a rapid recovery for the sector and suggests the long-term prognosis remains positive.
It is little surprise to find that the malt whisky sector suffered a decline in 2009 as the effects of the global downturn bit. But a new report from just-drinks and IWSR suggests a relatively rapid recovery for malt could be on the cards.
Total malt Scotch sales fell by 4.8% in 2009 to 6.1m nine-litre cases, according to IWSR data, reversing a five-year run of 2% CAGR growth.
That malt sales are heavily skewed towards Europe and North America, the two economically hardest-hit regions, was a further negative factor for the category, with premium-priced variants most severely affected.
Although malt sales are not as focused on the on-trade channel as some other categories, the shift from on- to off-trade consumption seen in the recession did have some impact on volumes. Trading down and heavy discounting in the retail market impacted on sales values, while destocking was also a factor in the first half of 2009, the report states. The all-important travel retail channel, malt's third-largest market, was also hard hit as global travel declined.
However, just-drinks and IWSR believe the long-term outlook is "very positive", forecasting that total malt sales will rise by 14.7% between 2009 and 2015 to reach 7m cases. Indeed, the recovery is expected to be fairly immediate with growth expected for 2010 and 2011.
Suppliers point to the recovery in travel retail in 2010 and economic growth in Asia Pacific markets as grounds for optimism, although a more sluggish recovery is anticipated in Europe and the US.
Another reason for optimism identified in the report is the long-term growth potential for malt. As the report points out, the category has significant scope for raising its share of the wider Scotch whisky market.
“Malts today comprise about 7.1% of total Scotch sales, up from 6% a decade ago," the reports states. "While total Scotch whisky grows, malts are taking share of the total Scotch category. The big opportunity is to raise penetration in existing and developing Scotch markets alike. In some markets the headroom for growth seems enormous given the relatively low share currently held by malts.”
In addition, there is scope to expand the single malt sector beyond its current strongholds in Europe and the US into the rapidly-growing Scotch markets as Asia, Latin America and Eastern Europe.
Ultimately, the report suggests that developing markets are central to malt’s growth prospects. “As with blended Scotch, the future of single malt probably lies in the developing markets. The middle class in the emerging economies is set to double over the next 20 years. Many of these newly-wealthy consumers, particularly in the rapidly-growing urban centres, are seeking out products that convey status and which reflect their newly-acquired status. Malt could potentially play a significant role in this.”
Malt whisky producers have talked about the potential in Asia for many years but the report suggests that the potential may now be starting to be fulfilled, citing the opinions of experienced Scotch whisky marketers such as Chivas Brothers' brand director for malts, Neil Macdonald. “Asia is finally happening for single malt," he says. "It has been going on for the past two years or so, although Taiwan really started a decade ago. But, more recently, it has really started to pick up within Korea and, to a certain extent, China.”
IWSR forecasts 199% growth in malt sales in India over the five-year period between 2009 and 2015 and growth of 114% in China over the same period. Sales to Vietnam are forecast to rise by 51.3% in the five years to 2015, while South Korean shipments will rise by 34%. Overall, shipments to Asia will increase by 34.6% in the five years to 2015.
The quality of wine retailing and wine distribution in Asia has established fertile ground for single malt whiskies to enter, while many Asians are also exposed to malt whiskies when travelling to the West. “They see what trends are happening in Western retail, and they also see it in travel retail,” the report states. “These markets, as with Latin America, are also predisposed towards drinking premium-and-above-quality Scotch. It is just a case of migrating these consumers from blended Scotch to malt.”
However, the assumption that consumers typically enter the Scotch market through blends and then automatically graduate to malts has led to complacency, the report warns. “That ‘wait and see’ marketing approach may be flawed,” it states. “In some markets, such as the US, consumers tend to bypass blends and head directly into malts, if they do at all.”
There is certainly no room for such complacency. As the report states, malt marketers have to work harder today because of heightened competition from other drinks. Malts traditionally competed against Cognac and other high-end after-dinner drinks, but today they are fighting products such as super-premium vodkas, Tequilas and Bourbons. Moreover, modern consumers are much more promiscuous and tend to drink from a range of products.
However, the difficult economic climate has led consumers in many markets to seek out products with greater authenticity, heritage and quality, and malts like other aged brown spirits should benefit from this trend.
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