Looking back, 2020 was a spectacularly “lopsided” year for the spirits industry, according to data released by Distilled Spirits Council of the United States (DISCUS).
Spirits sales were strong but uneven, thanks to the effects of the novel coronavirus pandemic and tariffs. Large conglomerates advanced, while craft distilleries suffered. Off-premise sales at retailers soared as consumers stocked up on bottles for home bars; meanwhile, on-premise sales crashed when bars, restaurants and other hospitality venues closed or reduced occupancy.
And the fastest-growing spirits category last year wasn’t even a straight spirit: ready-to-drink cocktails outperformed all.
Here, four other insights gleaned from a tumultuous year.
Spirits Gain Market Share For 11th Straight Year
For the 11th consecutive year, spirits gained market share over beer and wine, with sales rising 1.3 points to 39.1% percent of the total beverage alcohol market. Supplier sales in the U.S. grew 7.7% to a total of $31.2 billion in 2020, while volumes rose 5.3% to 251 million, 9-liter cases.
Among the key categories driving sales were American whiskey, which rose 8.2% to $4.3 billion (that includes rye whiskey, up 16.9% to $275 million); Tequila/mezcal sales gained 17.4% to $4.0 billion (mezcal alone was up 17.7% to $124 million); and Cognac sales surged 21.3% to $2.4 billion.
Growth was particularly pronounced at the pricier side of the spectrum. High-end premium and superpremium categories showed 7.3% and 12.7% year-over-year revenue growth, respectively. Value spirits showed a slight, 0.3% decline.
“Family distilleries have been holding on by a thread throughout the pandemic.”—Sonat Birnecker Hart, Koval Distillery
DISCUS attributed the shift to “stuck-at-home” consumers choosing to splurge on high-end spirits as “affordable luxuries.”
“The increase in spirits sales revenue reflects consumers’ willingness to spend a little extra on superpremium spirits during the past year since they were not traveling, going on vacations or dining out as often,” says DISCUS Chief Economist David Ozgo.
A Boom in Ready-to-Drink and To-Go Cocktails
With bars, restaurants, hotels and clubs largely shuttered for the majority of the year, thirsty consumers found other ways to get a cocktail fix.
Many turned to pre-mixed (ready-to-drink or RTD) cocktails sold by retailers (off-premise) in bottles, cans or other commercial packages. In 2020, the category skyrocketed 39.1% to $489 million, growth that outpaced all straight spirits categories, though it represents just a small fraction of overall sales.
“We think there’s huge potential for spirits-based RTD market in the U.S.,” says Ozgo.
Interestingly, that uptick in RTDs didn’t detract from sales of other spirits, he noted. Instead, these single-serve cocktails directly competed with single-serve beer, including hard seltzer and flavored malt liquor.
The growth in RTDs was driven by at-home entertaining as well as the rapid expansion of RTD products. To keep that growth bubbling, DISCUS says it will advocate to secure “an even playing field” by lobbying for tax parity for these drinks. Currently, spirits-based RTDs are taxed at a higher rate than their wine- or beer-based equivalents.
Elsewhere, to-go cocktails sold by bars and restaurants (on-premise) saw brisk business, representing “a lifeline during the pandemic” for many venues.
“We’re urging measures to make that permanent as soon as possible,” says DISCUS President and CEO Chris Swonger.
During the pandemic, 33 states relaxed laws to allow on-premise venues to sell to-go cocktails, DISCUS estimates, and 18 states have filed bills to extend those permissions. Iowa and Ohio have already passed laws that permit cocktails to-go permanently.
U.S. Exports Stunted By Tariffs
The European Union’s 25% retaliatory tariff on American whiskey continues to have a chilling effect on exports to the European Union, the U.S. spirit’s largest export market, reported Christine LoCascio, DISCUS Chief of Public Policy.
Between 2018, when the EU first imposed that tariff, and 2020, exports of American whiskey have dropped sharply, by 28.9% to $845 million. Total exports of U.S. spirits declined 22.8% to $1.4 billion.
Of note, in June 2021, the EU tariffs on American whiskey will automatically increase to 50%.
Meanwhile, retaliatory tariffs imposed by the U.S. on single malt Scotch has resulted a 37% decrease in imports of the spirit, “a significant impact,” LoCascio said. A similar tariff on liqueurs and cordials from Germany, Ireland, Italy, Spain and the UK resulted in a 40% decrease in imports of those spirits over the past year.
“Hospitality businesses on both sides of the Atlantic have been decimated by the global pandemic, and these tariffs are a significant and unnecessary drag on their recovery,” says LoCascio. “We urge the U.S., EU and UK to make it a priority to immediately suspend these tariffs.”
Craft distilleries: “We are definitely suffering”
While larger conglomerates benefited from the boom in retail sales for home bars, craft distilleries languished.
In a new survey of Covid-19 impacts on craft distilleries by DISCUS and the American Distilling Institute, 36% of craft distilleries reported a total revenue decline of 25% or more in 2020.
For example, when 2020 began, Chicago craft distillery Koval was putting the finishing touches on a $1.5 million tasting room and visitor center. The business had a thriving export market for its grain-to-bottle whiskeys and ambitious plans to expand its tourist traffic. Then, 2021 hit. The tasting room still has not yet opened.
“As an industry, we are definitely suffering,” says Sonat Birnecker Hart, owner and president of Koval Distillery. Tasting room sales can account for 20% to 80% of sales for craft distilleries, she estimates. But for those unable to open during the pandemic, that means no sales.
“Family distilleries have been holding on by a thread throughout the pandemic,” she says.
As a result of the pandemic, distilleries have clamored for direct-to-consumer sales, and DISCUS says that will be one of their priorities in 2021. Currently, many states restrict distilleries from shipping bottles directly to consumers.
“Many distilleries were cut off from consumers as a result of Covid-19,” Swonger notes. “We know direct-to-consumer is becoming an economic lifeline to craft producers and other producers in the industry.”
In addition, consumers are flocking to digital platforms to order wine and spirits, so this is a natural extension.
“Consumers are demanding more convenience,” says Swonger. “They are pushing for this as part of a modernization.”