Ben Cooper

Research - Super-premium options could hold key to non-Scotch growth

By | 5 March 2010

To say that Scotch whisky holds sway in the super-premium whisky sector would be a supreme understatement. Sales in the upper price tiers among whisky distillers in the US, Canada and Ireland are dwarfed by those from Scotland. But a new IWSR/just-drinks report suggests that this is beginning to change.
 
While whisky is not synonymous with Scotch, there is no doubting that Scotland’s version of the spirit is the best known and the most successful internationally. But a new just-drinks/IWSR report shows that products from Ireland and North America are making some headway.
 
In fact, according to Global Market Review of World Whiskies – Forecasts to 2014, the long-term growth trend in non-Scotch whiskies has even accelerated in recent years. According to the report, volumes of non-Scotch whiskies reached 161.8m nine-litre cases in 2008, representing an increase of 10.6% on 2007, against the 6.1% compound annual growth rate (CAGR) recorded between 2003 and 2008.
 
However, while there has been growth, the report points out that sales of non-Scotch whiskies tend to be concentrated in a limited number of markets. For example, American whiskey sells more than a million cases in just four markets, namely the US, Germany, Australia and the UK, while the only million-plus market for Irish whiskey is the US. Canadian whisky only sells more than a million cases in two markets, Canada and the US, while Japanese whisky has only Japan as a million-case market.
 
To put this in context, Scotch whisky has some 22 markets where it sells more than 1m cases, including travel retail.
 
This has much to do with industry structure and the way in which international companies have focused on their Scotch brands, though that is not to downplay the early pioneering international work of many of Scotland’s fine brand names. “The US, Irish, Canadian, Japanese and Indian categories contain relatively fewer companies focused on exports, or are controlled by companies more interested in promoting Scotch,” the report says. “These categories simply did not possess the critical mass of investment in export markets enjoyed by other categories such as Scotch or vodka.”
 
Another factor identified in the report as holding back other whiskies is the lack of a strong super-premium category.
 
“One of the relative disadvantages of these non-Scotch whiskies is that, on the whole, they have relatively underdeveloped premium and super-premium segments – at least compared with other categories such as Scotch, brandy or vodka,” the report states. “This tends to limit their appeal in markets such as north-east Asia and travel retail, where purchasing for prestige, status and gifting is a key motivation.”
 
Once again, the comparison with Scotch is telling. Sales of super-premium-and-above Scotch whisky reached to 2.6m cases in 2008, against 392,000 cases for US whiskey, 127,000 cases for Canadian and just 13,000 cases for Irish.
 
Whisky producers from these countries have historically not “built the same story” around age or single distilleries as Scotch whisky companies have. However, the report notes that this is changing. It points out that American whiskey producers have enjoyed some success in the US recently with super-premium ‘small batch’ whiskies, with sales even continuing in 2009 in spite of the recession. So far, the growth and increasing consumer interest has been focused in the US but US whiskey marketers are confident they can foster the same interest in international markets, the report states.
 
Irish whiskey is also relatively under-represented at the super-premium end but there are also signs of super-premium development there.
 
The critical challenge for Ireland’s distillers is that Irish whiskey was traditionally pot-still blends, while the single malt tradition is less established. Irish whiskey “missed out” on much of the premiumisation associated with the consumer move toward single malt whisky. One exception is Cooley which produces the peated single malts brands, Connemara and Kilbeggan, among others, and has sought to create the concept of Irish malt. Cooley has enjoyed strong growth from a small base, while both Jameson and Bushmills have been expanding their premium ranges.
 
The fact that most Irish whiskey is unpeated may be a disadvantage in terms of super-premium aspirations, but it speaks to one advantage that non-Scotch whiskies tend to have over the market leader when it comes to another important trend in the spirits sector.
 
“Because they are unpeated, they tend to be more mixable,” the report points out. Bourbon, in particular, has a sweeter product profile and tends to mix well with cola, which is important given the increasing popularity of cocktails around the world.
 
While clearly the expansion of the super-premium tiers in the US, Canadian and Irish whisky sectors is key from the point of view of competing with Scotch whisky, it should be borne in mind that all whiskies are competing with white spirits, and most of all vodka, particularly when it comes to appealing to younger drinkers.
 
As the report states: “Irish and Canadian whiskies tend to be smoother, and thus less challenging for entry-level drinkers. This seems to be one of the secrets to Irish whiskey’s success in the traditional vodka markets of Central and Eastern Europe. It could also potentially be an advantage for Canadian whisky, if the investment in international markets were forthcoming.”
 
And there possibly is the rub. It is clear that there are super-premium products available, with the potential for more, and that non-Scotch whiskies have a taste profile well suited to key target drinkers. The key is the amount of investment other whiskies will receive from international spirits companies which already have proven winners in the form of their Scotch whisky brands.

Expert analysis

Global market review of world whiskies – forecasts to 2014

The non-Scotch whisk(e)y market – chiefly comprising Irish, American, Canadian, Indian and Japanese whiskies – is one of the largest growth areas of the global wine and spirits industry. With over 70 data tables providing brand consumption volumes across all major markets, plus interviews with the leading brand owners, this report is essential reading for anyone involved in this developing sector of the international spirits industry.

Sectors: Spirits

Companies: Cooley, Jameson

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