How will Scotch whisky perform in the next five years? - Research in Focus

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After a tough period since 2012, the global Scotch whisky market is facing a brighter future over the next five years – but there are still concerns about the category's lack of dynamism compared to its rivals.

The latest just-drinks/The IWSR Scotch whisky report is published this week

The latest just-drinks/The IWSR Scotch whisky report is published this week

The headline forecast figures contained in the joint just-drinks/IWSR Global Scotch Whisky Insights report, published on just-drinks this week, make for upbeat reading: The category as a whole is predicted to add more than 10m cases in volumes to 2021. Break this down and - for the first time in a few years - there is a positive prognosis for both blended and malt Scotch. The former - still the engine room of the category with almost 90% of total volumes - is set to add nearly 8m cases, reaching 90m cases in 2021.

While the established markets of France and the US are expected to continue their recent declines, blends will flourish once again in the emerging markets that have done so much to create problems for them in the past few years.

Specifically, the BRICM markets - Brazil, Russia, India, China and Mexico - are all poised to outstrip category growth over the next five years, with India and Mexico becoming top five markets in that timescale. However, for three of these markets - Brazil, Russia and China - this 'growth' represents a regaining of ground lost amid the macroeconomic problems of the past few years.

Meanwhile, malt Scotch is continuing its recent surge, with only restrictions on supply hindering its growth curve in many global markets. The report predicts that the sub-category will break through the 10m-case barrier in 2017, growing rapidly to top 12m cases by 2021.

While the crucial US market will spearhead this movement, India will become a top ten malts market by 2021, and strong growth (albeit off a small base) will be recorded by China, Poland and Mexico.

This brighter prognosis, however, comes after a difficult time for global Scotch sales, with four successive years of volume declines culminating in volumes of 92m cases in 2016. While malt Scotch has surged over that timescale, growing by 23% to 9.57m cases between 2012 and 2016, blends have fallen back by 6.3% to 82.4m cases, with volume declines in 29 out of their top 50 markets.

This poor performance has coincided with a difficult period for most of blended Scotch's important emerging markets, as the report notes: "Blended Scotch is, in a sense, a victim of its success in penetrating the emerging markets.

"Mexico, Brazil, India, South Africa and Russia now all rank as top ten markets for Scotch. Global Travel Retail, the third-largest market for blended Scotch if viewed as a single entity, also derives a large proportion of sales from emerging-market consumers.

"These emerging markets accounted for enormous new volume over the past 20 years, but they have also opened the category up to greater volatility."

However, there are also concerns that rival whisky categories - US, Irish and, when supplies allow, Japanese - are typically growing much faster than Scotch in established Western markets. To an extent, this is explained by Scotch's domination of the broader whisky category - it has more to lose than its rivals, and their growth is coming off a smaller base - but it could be that Scotch has been too conservative and reactive in defending its market position.

"Now could be the time to go on the attack, marketing blended Scotch more aggressively in a way that will resonate with a new generation," the report suggests. "One way of doing this could be to adopt a more educational approach, explaining what blended Scotch is and the immense craft and art that goes into constructing a good blend."

One strength of Scotch is the sheer breadth of the category, which spans price points from value-priced blends to rare single malts fetching thousands of dollars a bottle. This means that Scotch can play in the increasingly-important luxury space (both with high-net-worth individuals and in the growing 'affordable luxury' segment), but also target the mainstream opportunity.

The latter is particularly important in markets such as Brazil, South Africa and Russia, where disposable incomes are under pressure and consumers are typically trading down. These consumers could migrate out of Scotch altogether if the industry does not provide them with a lower-cost option.

As an established spirits category, Scotch can sometimes appear to have been outflanked by the innovative spirit of the 'craft' movement, but a number of new distilleries across Scotland look set to transform that perception - with bigger operators responding in kind.

"The reality is that Scotch whisky producers have been experimenting and pursuing innovative techniques and flavour creation for years," the report notes. "But, in the case of a limited-edition single malt, it could take a decade or more for a product to come to market.

"The key to Scotch's future will be the transfer of this spirit of innovation and creativity across to the mighty blends sector. If companies can innovate successfully in this marketplace – and without sacrificing Scotch's credibility and aspirational status – it will be a great help to the revival of blends."

For full details on this joint report from just-drinks and The IWSR, click here

Sectors: Spirits

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