The news cycle of the past few years has been relentless. From the political intrigue surrounding Brexit, Trump and the revolving door of UK Prime Ministers, to the devastating global impact of Covid-19 and war returning to Europe with the Russian invasion of Ukraine. While the pandemic temporarily laid waste to the on-premise and travel retail, aged spirits have displayed remarkable resilience over the past few years, as brand owners have pivoted successfully to discover new routes to the consumer.
E-commerce and the increasing sophistication of at-home consumption trends – encompassing everything from amateur cocktail-making to TV streaming and on-demand delivery services – have ridden to the spirits industry’s rescue. And, even as the on-trade continues its recovery, they’re here to stay.
But the challenges keep on coming. The fallout from Putin’s unwanted war has seen energy prices spike, inflation spiral and consumer confidence in many markets – especially western Europe – plummet. A tricky time beckons in 2023, but tricky for whom?
Beware the squeezed middle
As interest rates rise and gloomy Covid-related news continues to emanate from China, fears of a global recession are mounting. We’ve been here before and we can be fairly confident of a couple of things: not every region will be equally impacted and the biggest damage is likely to be inflicted on mid-market products.
In terms of consumer confidence, the runes are grim in China and western Europe, but North America remains buoyant – at least for the moment – and the brown spirits colossus that is India is simmering with demand for aspirational, higher-priced products.
If I were a Scotch whisky producer of any scale right now, I’d be simultaneously pursuing two strategic priorities: targeting value-conscious consumers looking to save a few pounds/dollars/yen with competitively-priced and mainstream products; and redoubling my efforts in the luxury space.
High-end whisky may undergo a small correction during 2023 – auction data from the past few months certainly suggests this – but such is the imbalance between supply and demand that the medium- and long-term direction of travel is clear. There’s an ever-growing global audience chasing a naturally scarce product – and the wealthy don’t stop being wealthy during an economic downturn.
That leaves the squeezed middle – the lower-priced premium products that are the volume lifeblood of many developed markets. Trends here are harder to call but brand owners are likely to have to endure some short-term pain as cash-strapped consumers trim their discretionary spending.
Whisky, whiskey, whisk(e)y
There has always been a huge and diverse world of whisky beyond Scotch but the so-called ‘world whisky’ scene has never been as diverse and exciting to the consumer as it is today.
Witness the ceaseless tide of investment in alternative origins from Scotch’s biggest players, from Pernod Ricard’s growing presence in American whiskey (including the recent announcement of US$250m of investment in Kentucky) to Diageo’s acquisition of Balcones in Texas and, via its Distil Ventures fund, a stake in The Oxford Artisan Distillery in the UK.
Pernod is also investing hugely in its established Scottish and Irish operations, an indication that, for all the increasing diversity of its whisky activities, the company retains confidence in the old guard of Jameson, Ballantine’s, Chivas and The Glenlivet.
It’s an increasingly competitive and fragmented landscape, in which single malts from Taiwan and New Zealand go head-to-head, and ryes from the Nordic nations take on the might of America.
And then there is the fast-expanding whisky industry in China, in which both Diageo and Pernod have a stake. There will inevitably be winners and losers, but such is the dynamism of the global whisky category that the positive should easily outweigh the negative in the year ahead.
Cognac’s China conundrum
Cognac has had its collective fingers burned by China before. The anti-extravagance crackdown of a decade ago led to eye-watering losses for the likes of Moët Hennessy and Rémy Cointreau – and the signs from the Far East are far from promising again right now.
Continued Covid lockdowns, fresh talk of a quasi-puritanical crackdown on excess by the Communist government, less than positive news on the economy and employment prospects for the urban young – the dawn of the Year of the Rabbit in early 2023 could herald a difficult time for spirits brand owners.
If they look to pivot to alternative markets, destinations in south-east Asia could prove attractive – but I wonder if a strategic shift in western countries could also help. Cognac’s longstanding luxury lifestyle positioning has stood it in good stead for decades but a fresh emphasis on millennial-friendly cues around provenance and production is well overdue for the larger operators. That’s a largely untold story for the multinationals in particular, who have long relied purely on the power of the brand for success.
Rum’s moment in the sun?
Brown-Forman’s acquisition of Venezuelan rum brand Diplomático this year raised eyebrows across the industry. A whisky specialist moving into a category that has been touted as the next big thing in spirits for about 20 years? Curious.
But premium-aged rum is in an increasingly good place now. Beyond the key US market, there are promising trends across western Europe, including the UK and France, where a market previously dominated by cheaper rhums agricoles (effectively subsidised by tax breaks) is morphing into something more diverse and premium-focused.
Rum’s big weakness in the past was its identity crisis: party spirit, or seriously sippable luxury product? This situation was scarcely helped by the fiendishly complex and contradictory production regulations prevalent in its many destinations.
But viewed through a different prism, that very diversity can provide fertile ground for the curious consumer to explore and the brand owner to exploit, in terms of the provenance and production processes of different origins and brands.
What is more, increasing numbers of rums from relatively unexplored origins only add interest. These are hailing not only from less obvious tropical destinations – the Philippines and Indonesia being two prime examples – but also from territories not known for their palm-fringed beaches, such as Scotland.
With a growing movement behind, and consumer interest in, premium white rum to supplement dark rum’s move into luxury sipping territory – pioneered by the likes of Diplomático and Dictador – 2023 could just be rum’s year.
But then we’ve said that before…