Whiskies - UK - August 2010

About this report

At £3.6 billion whisky is worth more than any other spirits market in the UK. However, the continued decline of blended whisky, which accounts for 72% of the category’s volume sales, means that in the next five years it will see an 11% decline in real value sales.

* While the total whisky market is worth £3.6billion, in reality it is three markets rather than one with each distinct segment attracting a different type of drinker.
* Imported whisky (mostly Bourbon/Tennessee) will be the main driver of growth (up 12%) over the next five years benefiting from its appeal to young drinkers. Heavy brand investment from the likes of Jack Daniel’s has helped demystify the drink and promote its consumption with a mixer.
* Malt whisky has great potential, but will see slower growth (4%) in volume sales over the next five years. Viewed by consumers as better quality, malt is also seen as more intimidating, and this combined with being a fragmented market has led to confusion among consumers and a failure to attract 35-54 year-olds looking for a more aspirational choice and sophisticated taste.
* Blended whisky represents almost three quarters of the market but has been in long-term decline in the UK, fuelled by increasing commoditisation in the off-trade. This is in stark contrast to emerging global markets where blended brands such as Johnnie Walker are seen as highly aspirational.
* Heavy taxation on spirits continues to stifle growth in the category. Unlike most countries, UK taxation is based on Alcohol By Volume (ABV) rather than retail sales price, meaning that premiumisation is crucial for generating sufficient profit margins, something which malt and imported whiskies are better positioned to deliver.
* Pub revenues continue to decrease and make up only 22% of total whisky sales, meaning the category is over-reliant on the major multiples. Tax-enforced high prices and strict limits on measure sizes are the major barriers of purchase. However, greater availability of quality malts and more emphasis on the ‘theatre of the serve’ would give customers more incentive to choose whisky over another drink type.

Table of contents

Issues in the Market
Definition
Abbreviations
Market in Brief
Not one but three markets
A failure to premiumise
The problem of taxation
The danger of targeting too young
Overcoming barriers to entry
Internal Market Environment
Key points
Drinking in decline
Figure 1: Trends for UK drinking habits, overall, in home and out of home, 2005-09
Older consumers are being undervalued
Figure 2: Value of different age groups to the alcohol industry, 2009
Blanket targeting of youth may be missing the point
Figure 3: Index of number of different alcohol brands drunk in the past 12 months, by age, 2009
As UK demand declines, global exports go from strength to strength
Figure 4: Trends for value of Scottish whisky exports, 2000-09
The importance of local provenance
Proving premiumisation
Broader Market Environment
Key points
The burden of taxation on spirits
Figure 5: Latest exercise duty, by major alcohol category, 2010
Figure 6: A breakdown of taxation on a 75cl bottle of whisky from 2011 onwards
A new government, but same old story for taxation?
Labelling legislation protects Scotch brand
High on-trade prices a turn-off
The good and the bad of tackling below-cost drinking
Economy remains fragile
Changes in UK demographic structure can work to whisky’s advantage
Competitive Context
Key points
Few winners in declining alcohol market
Figure 7: Trends for types of alcohol drunk in past 12 months, 2005-09
Spirits market currently outperforming wine and beer
Figure 8: Trends for constant (2005) household final expenditure – spirits, wine and beer, 2005-09
Strengths and Weaknesses
Strengths
Weaknesses
Market Size Forecast and Segmentation
Key points
Whisky market is steadily contracting
Figure 9: Volume and value sales of the total whisky/whiskey market, 2004-15
Figure 10: Volume and value sales of the whisky/whiskey market, by sector, 2004-15
Forecast growth for imported and malt
Limited gains from investing in UK blended sector
Figure 11: Volume share of the whisky/whiskey market, by sector, 2004-15
Figure 12: Retail sale prices (excluding discounting) of key brands for each whisky segment in Tesco online, August 2010
Market Share
Key points
Bell’s consolidates position as number one
Fierce competition within the blended sector
Jack Daniel’s continues its ascent
Glenfiddich leapfrogs Glenmorangie
Figure 13: Trends for brand value sales of off-trade whiskies, 2007-09
Companies and Products
Key points
Brown-Forman
Gruppo Campari
Diageo
Edrington Group
LVMH
Maxxium
Pernod Ricard
Whyte & Mackay
Brand Communication and Promotion
Key points
Whisky outspends vodka on advertising
Figure 14: Spend per year on above-the-line advertising for the whisky category, 2005-09
Brown-Forman investing heavily in growing the market for US whiskey
Figure 15: Total above-the-line spend in the whisky category – Jack Daniel’s and Southern Comfort, 2007-09
Jack Daniel’s and Southern Comfort targeting youth
Blended brands battle it out on TV
Channels to Market
Key points
On-trade plays a secondary role
Figure 29: Trends for segmentation of value and volume sales between off-trade and on-trade, 2007-09
Whisky is an important product for supermarkets, particularly at Xmas
Figure 30: Trends for volume sales of whisky, by distribution channel, 2007 and 2009
Consumer Attitudes – Barriers to Whisky Consumption
Strong taste more of a barrier to entry than ‘old man’ perception
Figure 37: Perceptions of whisky – those who have drunk it in the past year versus those who have not, May 2010
A lack of product appreciation even among whisky drinkers
Figure 38: Perceptions of whisky, by drinkers of each type, May 2010
Moving away from ‘neat whisky’ snobbery
Figure 39: Net difference between perceptions of whisky – under-45s versus over-45s, May 2010
Figure 40: Net difference between perceptions of whisky – under-45s versus over-45s, May 2010
Appendix
Consumer research
Advertising data
Focus groups
Appendix – Internal Market Environment
Figure 41: Trends in the age structure of the UK population, 2005-15
Figure 42: Brand repertoire of alcoholic drinks, 2005-09
Figure 43: Brand repertoire of alcoholic drinks, by age, 2009
Figure 44: Trends for agreement with ‘I buy goods produced in my own country whenever I can’, 2005-09
Appendix – Broader Market Environment
Figure 45: Total adult population trends, by age, 2004-14
Figure 46: GDP, PDI, consumer expenditure and savings, at constant 2010 prices, 2005-15
Figure 47: Forecast adult population trends, by socio-economic group, 2005-15
Appendix – Competitive Context
Figure 48: Types of alcohol drunk, by demographics, 2009
Figure 49: Types of alcohol drunk, by demographics, 2009
Figure 50: Types of alcohol drunk, by demographics, 2009
Appendix – Barriers to Whisky Consumption
Figure 60: Most popular attitudes towards whisky, by demographics, May 2010
Figure 61: Next most popular attitudes towards whisky, by demographics, May 2010
Figure 62: Net difference between perceptions of whisky, by gender, May 2010

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