2020 has been a volatile year in the adult beverage market. Trends that have been in motion for years, like online wine and spirits sales, suddenly accelerated in the wake of the COVID-19 induced lockdowns; compressing into a few months changes that were expected to play out over a decade.
The trend toward premiumization also saw a dramatic increase as consumers, deprived of many traditional luxuries, opted to splurge on high-end spirits and wines. Strong categories like Tequila, Bourbon and Irish whiskey saw a marked spurt in demand while new categories like canned wines, ready to drink (RTD) cocktails and malt liquor-based beverages, often referred to as alcopops, saw demand soar and became important new adult beverage categories. Many ultra-premium brands struggled to meet demand.
Traditional distribution channels saw significant disruption. On premise sales were hard hit by the lockdowns of bars and restaurants. Online sales soared as did direct to home deliveries. Low priced, under $10 wines, that relied primarily on grocery and convenient store distribution were seemingly little affected by the lockdowns, whereas high-end wines that traditionally saw a significant portion of their sales flow through high-end, so called white tablecloth, restaurants were much more significantly impacted.
Wineries and distilleries that relied on tasting room sales had mixed results depending on the lockdown rules of the states in which they were based. Those that could operate could rely on higher margin, direct to consumer sales to offset the lower margin distributor sales that they had lost. Those that didn’t have or could not operate tasting rooms and on-premise gift stores saw a significant chunk, typically one-third to one-half of their sales, simply vaporize.
The pandemic induced dislocations also occurred against a backdrop of a rapidly shifting tariff environment imposed on U.S. imports of wines and spirits. Those tariffs often seemed arbitrary. Single malt Scotch whisky was subject to a 25% tariff, while blended Scotch whisky was not. French Cognac was subject to a 25% tariff, as was German brandy, but Spanish brandy was exempt.
French, British, German and Spanish still wines under 14% ABV were also subject to a 25% tax, but sparkling wines and fortified wines were exempt as were wines from Italy and other EU countries.
The tariffs produced significant declines in the value of US imports of European spirits. Scotch whisky imports were down by 39%, while imports of still wines from the four targeted countries were down 54%.
According to Lisa Hawkins, Senior Vice President, Public Affairs at the Distillers Council of the U.S. (DISCUS):
Since 2018, wine and spirits producers on both sides of the Atlantic have been slammed with retaliatory tariffs as result of trade disputes that are completely unrelated to our industry. These tariffs have done great harm to the U.S. and EU hospitality sectors, which are also reeling from the closings of restaurants, bars and distillery tasting rooms due to the COVID-19 pandemic. In the U.S., the hospitality industry lost 372k restaurant and bar jobs in the last month alone. These struggling businesses need support from their government, not debilitating tariffs.
Here’s a brief summary of how the key adult beverage categories performed in 2020. Sales information is based on Nielsen data.
Spirits sales were up 25.1% by revenue and 20% by volumes for the year ended December 26. Every major spirit category showed growth in 2020, specifically:
RTD cocktails grew just under 80% for the year, while volumes increased just over 86%
Sales of Tequila grew by almost 54% revenue wise, while volumes increased by 38%, underscoring the pronounced premiumization trend within the category.
Cognac sales grew 41.8%, while volumes increased by 36.3%. These numbers do not reflect the future impact on sales of the 25% tariff announced by the Trump Administration on December 30, 2020. The tariffs went into effect on January 12. It’s unclear if the incoming Biden Administration will continue them.
Sales of American whiskey grew by around 28%, while volumes increased by around 21%. The continued strength in American whiskey underscores both the continued expansion of the craft distilling category in the U.S., as well the revival of rye whiskey as a category and the emergence of American single malt whiskey as a new category of American whiskey.
Irish whiskey sales grew by more than 25%. Volumes increased by 24.8%. Irish whiskey from Northern Ireland, technically part of the United Kingdom, was subject to the same 25% tariff as Scotch whisky but distillers in the Republic of Ireland were not.
Gin sales grew by 25.1%, with volumes up 16.3% underscoring both the ongoing premiumization of that sector and that the ongoing strength in the gin category still has room to run.
Canadian whisky sales were up 18.3%, while volumes were up 14.3%. Both the production level and the scope of Canadian whisky sales have shown solid growth as Canada experiences its own craft distillery boom.
Rum sales were up 16.6%, while volumes were up 14.1%. Overall, the rum market is showing strength with growth in the sales of brown rums more than offsetting the weakness in white rums.
Vodka sales were up 14%, while volumes grew by 11.8%. Vodka, like other spirit categories, is also experiencing a premiumization trend.
Scotch whisky sales, both single malts and blended whisky sales grew by 13.3%, with volumes up by 7.6%. Producers and importers stockpiled inventory in the U.S. in anticipation of the Trump Administration tariffs so consumer demand was not as immediately affected as imports were by the new tariffs.
Brandy sales, with the exception of Cognac, continue to be one of the weaker spirit categories in the U.S. market. Sales of grape brandy were up 5%, while volumes were up 4.3%.
In terms of market share by revenue gains, Tequila was the biggest winner, gaining 2 points to a 10.8% share. The RTD category was the next best performer, increasing its revenue share by point to 3.3%.
Revenue market share is a zero-sum game, so one category’s gain is another category’s loss. Vodka, down 2.3 points to a 23.9% share, and Scotch, down 0.7 points to a 6.5% share, were the two biggest losers.
Sales of wine were up 17.2% for the year by revenue and up 12.3% by volume; up significantly over the 1.5% increase in revenue and the 1.4% decline in volume experienced in 2019.
Wine-based cocktails showed the most dramatic increase. Sales increased 121.3% by revenue, while volumes increased by 115%.
Elsewhere in the wine category, the trend toward premiumization continued with revenues increases outpacing volume increases. Sparkling wine sales grew 22.4% by revenue, while volumes increased by 17.3%. Table wine sales experienced a 14.6% increase, while volumes grew 10%.
Vermouth showed a dramatic increase. Sales were up almost 34%, while volumes increased by 25%. Vermouth is finding increasing demand as a cocktail ingredient, especially in wine-based cocktails, as well as an aperitif.
Overall wine imports grew 21.2% by revenue and 15.4% by volume. The leading suppliers of wine to the U.S. were Italy, up 28.7%, France, up 26%, New Zealand, up 24.2% and Portugal, up 22.7%.
Imports continued to represent a majority of U.S. wine consumption.
While the impact of the COVID-19 pandemic and the Trump Administration’s tariffs may diminish in 2021, most of these trends are expected to continue, and in some cases, even accelerate, in the year ahead.