“Rum is also growing outside of the super-premium category, with Diageo’s president in Europe dubbing Captain Morgan as the growth driver in Europe on a recent call,” write Francois Sonneville and Elena Saputo, EU analysts on Rabobank’s Food & Agribusiness Research and Advisory Beverages team, in the company’s recent Spirits Quarterly Q1 2015 report.
“With brands like Kraken, Sailor Jerry and Bacardi Oakhart becoming increasingly popular, Europe is all set to face some more dark ‘n’ stormy winter weather,” they add.
The first calendar quarter of 2015 saw the major spirits companies giving out mixed messages on their European performance. For instance, Pernod Ricard sales fell 1% in Europe in its fiscal Q1 2014/15, driven by declines Poland and Germany, but the company returned to growth in Spain for the first time since 2008.
Spirits sales finally stabilize in Southern Europe?
This indicated a stabilizing spirits market in Southern Europe, Sonneville and Saputo said, as Gruppo Campari also reported 4.2% growth in Italy in fiscal Q3, driven Campari Soda and Crodina sales. Group sales in Germany were significantly down, but Central and Eastern European sales were solid.
Zoning-in on Scotch in particular, Rabobank’s analysts said producers are facing difficult times, with export figures for 2014 showing signs of a slowdown.
Despite CAGR of almost 7% in value terms from 2008-2013, Scotch suffered an 8.6% year-on-year drop in the first three quarters of 2014, driven by subdued demand in core markets.
Seven out of the Top 10 export markets declines versus 2013, Sonneville and Saputo wrote, most notably in the US and Signapore – the latter being the main entry port for imports into China.
“While the recent slowdown in Scotch exports does not yet represent a long-term trend and may well still turn around, declining shipments to the US and other markets are a concern and could be an indication that the Scotch industry is battling structural challenges,” the analysts wrote.
Strong pound, slowdown and Chinese modesty strike Scotch
“Besides the strong British pound, Chinese anti-extravagance measures and the lingering effects of the global economic slowdown – Scotch seems to be losing share to other, more innovative spirits categories, including bourbon, Irish whiskey, rum and gin,” they added.
While Diageo’s recent decision to Scottish capacity expansion plans on ice suggested an industry view that the slowdown was more structural than temporal, Rabobank said, it wasn’t all bad news.
France, the number one market for Scotch in volume terms, grew 2.2.% from January to October 2014, while Scotch exports to India – a hard market to crack due to punitive taxes –were up 20%+.
“Furthermore, exports of single malt Scotch were up 17% year-on-year in Q3 2014, indicating that consumers are still trading up in the Scotch category,” Sonneville and Saputo wrote.