Euromonitor International

Preview of the Year - 2013 - Part III: Spirits

By | 24 January 2013

In this, the third part of Euromonitor International's preview of the year ahead, senior alcoholic drinks analysts Jeremy Cunnington and Spiros Malandrakis turn their attention to the global spirits category. What trends can we expect to see in 2013?

Navy strength: Overproof allure

While lower abv offerings and nascent health and wellness trends have largely monopolised the alcoholic drinks industry debate over the past couple of years, 2013 will see irreverently potent brands and extensions providing the base for fiery cocktails and debates alike. Already revered in mixologist circles, while distinctly nodding to iconic and idealised pre-prohibition authenticity, higher abv gin and whisk(e)y will provide edginess and mystique to the premiumisation mantra.

Scotched Earth: First it takes the Highlands, then it takes Beijing 

Scotch production capacity will continue to boom at the same time that, once mothballed, distilleries go into overdrive to keep up with emerging markets’ seemingly insatiable thirst for the tipple. From the signing of free-trade agreements to the opening of luxury flagship stores, and from scarcity-driven limited editions to bespoke offerings, premium varietals will lead the race. A largely controversial approach underlining the story, flavour profile and colour will shift the focus away from once totemic age statements. Meanwhile, the Scotch industry’s enviable earnings will have to face fresh calls for minimum pricing, still lingering protectionist measures and the probability of the introduction of taxation in its native - and soon potentially independent - country of origin.

Mezcal steps into the limelight

Minute in relative size, artisanal in nature almost by definition and boasting a yet undiscovered plethora of expressions and small batch offerings, mezcal is perfectly positioned to capitalise on the blossoming micro trend and the advancing craft revolution. If hipster hotspots in London and New York are to provide any indication, 2013 will be the year that mezcal will eclipse Tequila’s omnipresence and enter the mainstream. A celebration of Mexican arts, culture, heritage and cuisine will mark the category’s transition from reserved adolescence to ostentatious adulthood.

Rye, white, experimental and alternative: Beyond Scotch

While Scotch and corn-based Bourbon will retain their momentum, American rye varietals, niche, tradition-infused and risqué white whiskey ventures, and unlikely places of origin - ranging from France to Sweden - will hold the proverbial angel’s share in terms of dynamism and experimentation. Micro distillers will, as ever, pioneer and experiment with everything from ingredients to wood finish and ageing methods until the trend gathers enough momentum to enter the mainstream. It soon will. 

Vodka and the finite nature of flavour sophistication

While the vodka-surfing wave of flavours has already spilled over into adjacent spirits categories, the famed neutral spirit itself is already drowning in a sea of saccharine and outrageous incarnations. 2013 will retain the focus on higher-end offerings but the overflowing innovation pipeline will have to be addressed. Heritage and tradition references on the back of a fresh focus on new and emerging markets will have to come to the fore sooner rather than later and before the entire category transcends into glorified alcopop territory.

Rum: Golden Brown

Rum’s mixability and versatile nature has been a major vehicle for the category’s growth over the past decade. The recent spate of spiced extensions will retain its momentum, but the time to leave the mixers aside is fast approaching. Aged, dark and golden varietals will push the drinking ritual in new directions, while premiumisation will bring signature expressions and rum’s rich history under the spotlight. In summary: A natural – and marketing driven – progression from rum and Coke to rum on the rocks. 

Gin: Clash of the botanicals

While mainstream, major gin brands will continue haemorrhaging sales in their key, recession-ravaged markets, small batch offerings will mischievously continue recruiting younger and more adventurous drinkers in search of a convincing narrative. Victoriana references will provide the setting for the category’s decidedly quirky persona at the same time that juniper will move to the back in favour of alternative, seasonal or region-specific botanicals and long lost recipes. Not all over-ambitious boutique start-ups will survive, but they will leave their mark on the evolving category regardless.

Liqueurs: The end of hibernation

Liqueurs are waking up from their decade-long slumber. Capitalising on the renewed interest in ‘mixology essentials’, premium offerings will leverage their superior ingredients and traditional credentials to cement growth. Iconic bitters like Jägermeister and Aperol will be joined by fresh, little-known regional specialties that will become synonymous with sophistication and exoticism overnight. Rebranding exercises will also gain traction at the same time that obviously counter-productive, female-focused campaigns will subside in favour of a more gender-neutral, ironic and post-modern positioning. 

Other spirits: Significant other

Localisation, the rising focus on traditional credentials and a resurgence in nostalgia-inspired brands will continue highlighting the rising interest in all things retro. Absinthe’s irreverent backstory, bohemian associations and rich historical references make the category a perfect fit for capitalising on the nascent but rapidly-accelerating retro trend. 

Meanwhile, emerging nations are becoming more important on the realigning global economic stage, and their local specialties will also see increased interest from jaded westerners eager to experiment with more 'exotic' products. From obscure, unpronounceable spirits to cachaça, pisco and baiju, the flow of drinking trends, fads and launches will rapidly shift away from the one-directional developed-to-emerging markets model of past decades to become an increasingly interactive affair. 

Spirits: The corporate angle

2013 is expected to be another busy year for corporate activity in the spirits world. First up is the break-up of the bankrupt French company Belvédère. The decision about 'who has got what' is still to be made, but it is unlikely to involve major players. The French company’s key assets are its Sobieski vodka and Scotch brands, although the latter loses a certain appeal due to its lack of distilling assets. 

With no-one bidding outright for the company, there will be a number of winners, likely to be regional or possibly emerging market companies, looking to expand.   

Indeed, there could be a number of opportunities for companies to move into or develop their Scotch portfolios. In addition to Belvédère’s brands, upon Diageo’s completion of its acquisition of a majority stake in United Spirits, it will almost certainly have to sell the Indian company’s Scotch operations, Whyte & Mackay, due to anti-trust issues.

Less likely but also a possibility is that CL Financial may be willing to sell off more of its alcoholic stable, which includes its Scotch firm Burn Stewart and Hine Cognac, after selling of its Wray and Nephew rum operations to Campari in 2012.

These possibilities give a number of opportunities for under-represented companies in the Scotch category to strengthen their positions. In no particular order, these include Bacardi, La Martiniquaise, Rémy Cointreau Thai Beverage and Suntory. Whyte & Mackay, Angus Dundee and Beam’s assets (more of the latter, later) are the most appealing, as they provide production assets as well as brands. 

More of an outside bet could be Pernod Ricard, where the purchase of a company such as Whyte & Mackay or Angus Dundee would be in line with its current bolt-on acquisition policy, and would help it catch up in production capacity terms with Diageo, where it is a distant second. In terms of malt whisky production, it only has just over half that of the British-based company. 

However, Pernod Ricard’s main focus could be on putting together a bid for Beam’s key assets.

Beam Inc – the elephant in the room

Whether it happens in 2013 is open to doubt. Pernod remains the front runner for the US company’s major brands (Jim Beam and Sauza). Between it and Diageo, it has the most to gain in both geographic and category terms from an acquisition. With Pernod’s debt level still high, although coming down, it is likely to wait until 2014, but if its hand is forced by a bid by Diageo, it could still mount a counter bid. 

The chances of Diageo going for Sauza have increased marginally since the break-up of its discussions with Grupo Cuervo, but there are still major factors making such a move unlikely. Firstly, it would go against its emerging market strategy and make its target of attaining 50% of revenues from emerging markets harder to achieve; secondly, its executive team is going to be focused on integrating its two most recent acquisitions - United Spirits and Ypioca, Finally, Diageo would face anti-trust issues in both whiskies and RTDs in Australia with the Jim Beam brand. 

Nor is Diageo’s interest in Grupo Cuervo likely to be over, with its breaking off of negotiations seeming more of a negotiating tactic to push the Mexican company into a more favourable position. Indeed, this saga could even run beyond 2013.

Expert analysis

Growth for International Spirits Companies in Difficult Times

Although the global economy still faces many difficulties, there is still huge potential for international spirits companies to see growth. This briefing looks at the vital aspects needed for growth, both organic and inorganic. It also looks at what those leading players should be doing continue to, or start growing in the future.

Sectors: Emerging markets – BRIC, Spirits

Companies: Diageo, Whyte & Mackay, Coke, Pernod, Ricard, United Spirits, Campari, Bacardi, Cointreau, Thai Beverage, Suntory, Beam Inc

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