The Future of Whiskey Final Report

Transcription

The Future
of Irish
Whiskey
About this report
This report has been produced in association
with The Futures Company and it will explore
the opportunities and challenges for the Irish
Whiskey category over the next two to five
years.
This report is based on our analysis of macro-, meso- and microlevel trends shaping consumer behaviour and the future of the Irish
Whiskey category. Our understanding of these trends has been
informed by expert interviews, consumer and market data and
qualitative insight.
Futures techniques have been used to identify and explore potential
opportunities as drivers of change, and to see how they combine to
influence the whiskey category in different ways.
This report focuses on emerging opportunities for the whiskey
category and distillers in Ireland specifically. However, given the
long-term nature of the category, we have also referenced other
longer term drivers of change that may disrupt or shift the category
in the next five to 10 years.
This report will refer to ‘whiskey’ when indicating produce made in
Ireland, and ‘whisky’ for all other varieties produced outside of
Ireland, as well as when referring to the category as a whole.
© 2013 Bord Bia, The Futures Company
Building on The Future of Alcoholic Drinks
The Future of Alcoholic Drinks, produced by The
Futures Company for Bord Bia in 2011, explored
how the alcoholic drinks industry could evolve to
2025, and emerging opportunities for Irish
manufacturers.
Eight forces of change were highlighted in this previous report, and
three of these forces are of particular relevance for the future of the
whiskey category: Competition for Provenance, Mainstreaming of
Connoisseurship and New Forces of Global Demand.
“Competition for Provenance” highlights how consumers have become
sceptical towards near identical stories of authenticity and copy-cat
provenance claims. Instead, they are looking for more local provenance rather
than national, to differentiate the local identity of products. This report will
demonstrate how a local anchoring of whiskey is crucial for developing overall
whiskey character and differentiation.
“Mainstreaming of Connoisseurship” illustrates how a more discerning
attitude towards alcoholic drinks will become mainstream. There will be an
emphasis on ingredients and production and the overall sensory profile of a
product will be much more important. This report will outline the vast range of
future opportunities within whiskey taste profiles.
“New Forces of Global Demand” outlines the future influence of emerging
markets in securing growth. It also highlights the potential for smaller
manufacturers to partner with larger players to enter new markets. This, we
will argue, will be an essential step to ensure future growth in the whiskey
category.
Competition
for Provenance
Mainstreaming
of
Connoisseurship
New Forces of
Global Demand
Setting the scene
The global success of spirits has continued despite the uncertain
economic times
Spirits have continued to outpace other
alcohol categories globally, proving
resilient in the face of on-going
economic uncertainty.
The stellar success of the whisky category
sits within the context of a broader boom in
spirits.
Despite the global economic crisis, the
spirits industry has demonstrated strong
growth in terms of volume and value.
Global brandy and whisky sales increased
in volume by 7.1% and 2.8%1 respectively
from 2011 to 2012 compared to global
beer consumption increasing by less than
2%2 and wine showing no change.3
There has been a mixture of positive and
more negative stories across dark and
white spirits, which is evident in the table
below.
Spirit
Consumption
% Chg 201120121
Whisky
+2.8
Gin
-3.5
Vodka
+0.3
Tequila
+4.8
Rum
-0.5
Brandy
+7.1
Global
Consumption
by product
category:
‘000s 9-litre
cases
Source: 1) IWSR Data 2013; 2) International Organisation of Vine and
Wine, 2013; 3) Canadean Consulting, 2013; 4) IWSR Data, 2013; 5)
Euromonitor International, 2013; 6) IWSR Data Volume 000s 9 LC,
2013
The success of spirits globally has been
underpinned by two key drivers. Firstly,
premiumisation, driving value as well as
volume growth and secondly, the rise of
the middle-class consumer in emerging
markets, increasing global demand for
spirits.
In mature spirits markets (and to a
lesser extent, emerging markets)
increasing consumer sophistication is
driving a trend towards premiumisation.
There is a rising trend amongst wealthier
consumers in established spirit markets to
seek out interesting and new premium
products and to trade up to drinks of a
niche variety (with high production value).
As a result the volume of the premium
spirits category increased by 5.5% from
2011 to 2012, while standard spirits only
grew by 1.4%.4
Emerging middle-class consumers, with
rising incomes and burgeoning
aspirations, are fuelling the growth in
consumption of many spirit categories.
The global economic crisis has taken its
toll on certain markets more than others.
For those experiencing a positive
economic trajectory and a rapidly growing
emerging middle-class – such as China,
Taiwan, South Korea and Vietnam – the
social transformations emerging from rising
disposable incomes are significant.
Consumer expenditure on alcoholic drinks
is expected to increase from 2012-2013 by
16% in Vietnam and by 10% in both India
and China.5
Furthermore, although the consumption of
gin and vodka has decreased globally (see
table), there has been dramatic growth of
these white spirits in emerging markets,
such as China, South Korea, Indonesia
and Malaysia. Vodka and gin consumption
have grown 56% and 62%, respectively, in
South Korea from 2011 to 2012.6
In recent years whisky has been taking centre stage amongst spirits
globally
The hugely positive global outlook for
whisky is supported by the core drivers
underpinning the broader spirits boom.
Whisky has been winning against other
players in the sprit category globally. This
is a trend that is expected to continue, as
total whisky volume growth will outpace key
dark and white spirits such as rum, tequila
and gin to 2016.1
Indeed, amidst the markets worst affected
by the recent financial crisis, whisky has
gained an almost recession-proof status.
Global consumption of whisky grew 2.8%
CAGR from 2011 to 2012, compared to
-0. 5% for rum and 0.3% for vodka (‘000s
9-litre cases).2
The same forces of change underpinning
spirits combined with the increasing
accessibility of the category, are fuelling
whisky's strong growth.
Consumers have become more engaged
with an increasingly accessible
category.
Global brands like Jameson, well-known for
their smoothness on the palette, are
becoming a gateway into the category. In
addition to this, the portrayal of whisky in
popular culture has helped shift the image
Source: 1) IWSR Database, 2011; 2) IWSR Data, 2013; 3)
Ipsos, 2013; 4) Just Drinks, 2012
of the category away from an ‘old man’s
drink’ and opened it up to new audiences.
The category is being expanded in value
and volume terms, by premiumisation
and more sophisticated value offerings.
The category has expanded to meet the
needs of a more sophisticated and
demanding consumer. The top two
premium spirit brands, in terms of sales
value in 2012, were whiskies: Johnnie
Walker and Jack Daniels.3 New producers
from a wide variety of markets are
emerging, many from non-traditional
whisky markets, such as Wales, Croatia
and Taiwan, making whisky a truly ‘global
drink’.4
There is also an expansion of the category
at the value end of the spectrum. Own-label
offerings have improved their quality and
compete with established brands; and in
some cases perform better than them.
Aldi’s private label, Highland Earl Black
Label Scotch, was awarded Gold at the
International Wine and Spirits competition
in 2013.
The world economy is shifting to the
South and East; and with this, emerging
markets are becoming key drivers of
export growth.
Emerging consumers associate whisky with
aspirational value. The high social cachet
around Scotch single-malt has fuelled its
global demand to such an extent that
demand is now outstripping supply in some
markets.
“It seems to me like there is almost an
insatiable demand for high quality whisky
and I don’t see that changing in the next 5
or 10 years”
Steve Uri, US Whisky Expert
An increasingly sophisticated consumer is fuelling a long-term
premiumisation trend in established whisky markets
A more sophisticated and demanding
consumer is emerging in mature spirit
markets, as well as in established
whisky markets.
As consumers in established whisky
drinking markets become more
knowledgeable about the category, they
are demanding more complex and
sophisticated propositions and taste
profiles. For example, 88% of consumers
now consider spirits an affordable luxury.1
This is driving producers towards more
premium and super-premium offerings.
South Korea is the world’s top consumer of
super-premium whisky (aged 17 years or
over) and it has repeatedly ranked in poll
position for 11 consecutive years.2 In the
US, super and ultra-premium whisky
brands increased Brown-Forman’s net
sales by 11% throughout the 2013 fiscal
year and future growth is predicted to
continue from the premium elements of its
portfolio.3
There has also been strong growth for
distillers who have been extending their
portfolio through super-premium varieties.
Isle of Arran Distillers has promoted fastselling limited-edition labels from singleSource: 1) Ipsos & Neilsen 2009-Present, 2013; 2) The
Marmot’s Hole Blog, 2012; 3) Kentucky.com, 2013; 4) Just
Drinks,
2012
©
2013
Bord Bia, The Futures Company
cask varieties4, such as their Devil’s Punch
offering (see box), which is driving interest
into the company.
In the established vodka belt countries of
Central and Eastern Europe there has
been an emerging shift from white to dark
spirits. This is partly due to a fatigue with
white spirits and partly due to the
excitement around discovering something
new and interesting, with a more
masculine feel and distinctive flavour;
whether that be rum, cognac or whisky.
In other markets, the micro trend of craft
distilling and artisanal varieties, particularly
in the US, is driving the demand for unique
and bespoke varieties. Their local roots
and niche scale makes these products
appealing to consumers who are looking
for something nobody else has a more
premium variety (see box).
“
[Consumers] want
something to show to their
friends that is unique and
not available in every
supermarket in the world
Euan Mitchell, Isle of Arran MD
”
Isle of Arran’s
second edition,
Devil’s Punch
Bowl, had already
allocated it’s 6,000
bottles a month
after release.
The Brora single
malt Scotch
distillery closed in
1983, adding to
the rarity value of
the whisky and
creating a ‘cult
status’ amongst
connoisseurs.
The world’s focus is still shifting to the South and East, and their
aspirational middle-class consumers continue to trade-up
Emerging middle-class consumers in
the markets least affected by the
financial crisis are increasingly able to
afford more premium whisky products.
As disposable incomes continue to
increase on a relative scale not seen
before, the aspirational middle-class
segment is looking to trade up and
purchase better quality products that were
not previously affordable. This is
specifically relevant to the younger
demographic who have relatively more
income than their parents did at the same
age, especially in urban areas.1
The social cachet surrounding the heritage
and tradition of whisky, especially Scotch
single malt, is extremely strong in markets
such as China, South Korea and Taiwan. In
Latin America and Eastern Europe it is the
blended Scotch brands which are seen as a
significant trade up from local spirits.2
These aspirational perceptions are fuelled
through the exclusivity of whisky clubs and
festivals, as well as increased visibility in
specific types of on-trade venues.
Single malt Scotch dominates in emerging
markets and category dynamics are
working to increase its cachet even further.
Source: 1) BBC News Online, 2012; 2) Euromonitor Report,
2012
The shortage of malt and long lead times
are causing malt producers to hold on to
stocks rather than use them in blended malt
Scotch products. This is because there is a
high value market for the single malt
Scotch. As a result, the blended malt
Scotch category has been perceived as
less premium than single malt Scotch and
the category is slowly declining. Diageo, for
example, has withdrawn its blended malt
Scotch, Johnnie Walker Green label, from
the US and Taiwan (see box).
As a result, demand exceeding supply is
actually increasing the perceptions of rarity
in certain parts of the category.
“
Scotch symbolises the
international Western
style spirit and the whole
lifestyle that goes with it.
If you ask a Chinese
consumer to choose an
international spirit, they
will choose Scotch
Eric Benoist, Chivas Brothers MD
”
Johnnie Walker
Green label is being
discontinued as the
blended malt Scotch
category is in decline.
Heavily demanded
single malts are being
prioritised over
blended malts.
The appeal and accessibility of whisky is expanding its reach
The whisky category has opened its
doors to new audiences, occasions and
rituals. The established stereotypes of
typical whisky drinkers are shifting.
Whisky was once nicknamed the ‘old
man’s’ drink, but a number of factors have
been disrupting this dated stereotype.
Media and popular culture have been key
influencers. Mad Men and Boardwalk
Empire have made an ‘old-fashioned’
attractive again and celebrities like Lady
Gaga have endorsed whisky brands across
all types of media globally.1
A number of whisky producers have
demonstrated dynamism through
embracing new formats, flavours and
occasions. From Japanese highballs to
cherry flavoured Bourbon, the accessibility
of the category is attracting consumer
attention. However, the premium end of the
category is likely to be wary of eroding
brand equity or quality perceptions through
these types of format.
The competitive set is also widening and
although new varieties are still niche, they
are beginning to challenge the premium
offerings of established global brands. New
Source: 1) Euromonitor Report, 2012
whisky producers are emerging all over the
world in Japan, Croatia, Spain, Sweden,
Taiwan, Romania, New Zealand and China.
These new competitors are also stretching
the value spectrum. As a result, the
increasing number of varieties are
appealing to a wider range of palettes (see
box).
“
[We] have seen a
democratisation of whisky
– it has had an image shift
from being seen as an ‘old
man’s drink and it has
recruited many younger
drinkers. Implicit
sophistication, which was
once off-putting, is now
quite appealing
”
Brendan Buckley, Innovation and Category
Development, Pernod Ricard
Swedish Mackmyra
whisky casks are
saturated with
cloudberry wine,
appealing to different
palettes.
Long-term trends
Despite a positive outlook, there are some long-term trends that may
impact the ability to realise new opportunities
Despite the overwhelmingly positive
outlook for whisky globally, there are a
number of emerging social,
environmental and political macro
forces which could influence the
category over the next five to 10 years.
Given the forward-facing nature of the
category and the need to make decisions
today that will impact production in the next
10 to 15 years, it is important to bear in
mind these shifts when taking a longer term
view.
“
It's the foresight of my great-grandfather,
grandfather and father that means we can
now sell a 70-year-old malt… At the time,
everyone else thought it was absurd. But it
does feel odd to think that some of what we're
doing now may not see the light of day until
after I've retired
Neil Urquhart, Gordon & MacPhail, Whisky Specialist
”
Long-term health concerns could impact alcohol consumption and
accessibility
Although pure alcohol consumption
levels have remained stable worldwide,
in some markets consumers are
choosing to drink less, mainly for health
reasons.
Increased health concerns mean that
consumers are more conscious about their
drinking behaviours. The long-term trend
will focus on both governments and
consumers increasingly clamping down on
the health and social impacts of excessive
alcohol consumption. There may also be a
renewed interest on the part of consumers
to pair food with whisky in order to reduce
the negative effects of alcohol.
There is increasing awareness of the social
costs of alcohol misuse to individuals,
communities and governments. These
include costs for healthcare associated with
binge drinking, associated social work,
public safety (fire and rescue), motor
accidents, criminal justice and employment
absenteeism. The Irish Department of
Health estimated the cost of alcohol-related
harm to society at €3.7 billion annually.1
Alcohol control policy is firmly on the WHO
agenda.
negative impacts of excessive alcohol
consumption in certain markets. In Russia
the government is raising taxes on beer
and making efforts to limit venues where it
can be sold3 and minimum alcohol pricing4
has been set in Scotland.
Another key concern for governments is the
rising cost of lifestyle diseases, such as
obesity. There is an increasing focus on
legislation around calorie labelling on food
and drink and the Irish government recently
took a decision to prepare legislation
requiring the inclusion of calorie content on
alcohol labels.
“
New legislation is restricting alcohol
consumption in order to negate the
Source: 1)
http://www.dohc.ie/publications/pdf/Steering_Group_Report_NSMS.pdf?dir
ect=1
People are lobbying around alcohol
globally because of health risks associated
with it… It will become more of an issue
with regards to labelling and taxing on
spirits. It has to be concern for our 40%
bottle of whisky or full fat cream liquor. It
will definitely be more of an issue in the
next 5, 10, 20+ years
Jack Teeling, The Teeling Whiskey Company
”
The slowing BRIC economies could reduce the global demand for
whisky
The BRIC markets are beginning to
experience a slow down in their
economies. Home to a large population
of aspiring middle-class consumers,
lower GDP growth could lead to a
reduction in the export demand for
whisky from these nations.
The economies of Brazil, Russia, India and
China have started to slow down. This has
been driven by high inflation, particularly in
India1 and Brazil,2 and the impact of a
slowing global economy overall.3
China’s government in particular is aiming
to rebalance the economy away from an
over-reliance on exports and investment
towards domestic consumer spending.4
This change also echoes a longer term
value shift in emerging markets, from
material to non-material wealth. For
example, in China there has been a rising
backlash against the ostentatious
demonstration of wealth and the rise of the
anti-corruption movement.5
A large percentage of whisky consumption
in China is through corporate gifting by
wealthy state entities and officials and this
social shift could have an impact on the
overall volumes of whisky consumed.
Source: 1) Times of India, 2012; 2) Bloomberg, 2013; 3) BBC News,
2013; 4) BBC News, 2013; 5) Newsmax, 2011
The growth still taking place in the BRICs is
significant when compared to much of the
developed world, but this economic slow
down marks a potential threat to absolute
volume growth for whisky.
Although these markets are not specific
destinations for Irish Whiskey at present,
this highlights that future growth in these
markets may be a challenge.
“
“Brazil is going through a
period of slow growth
and fast inflation – a
period of stagflation…The
weak data on
consumption will spark
debate that this could be
more prolonged than
expected
”
Marcelo Salomon, co-head for Latin America
Economics at Barclays Plc.
Increasing pressure on natural resources could impact some of
whiskey’s key ingredients and production processes
Environmental concerns over climate
change and land use could create
future sustainability challenges
around supply chains and cost
structures.
The on-going irregularities in climate
change are impacting local crop harvests,
which are increasingly subject to extreme
drought and also erratic flooding. This will
obviously impact the crop supplies
available for whiskey production, and
therefore affect the overall supply chain.
There are also on-going discussions
between governments and alcohol
distillers concerning the use of precious
land space to grow what is considered a
non-essential consumer product. Any
impact on crop areas will influence the
overall supply of grains, which will
therefore have an affect on crop price.
Increased scarcity of certain crops are
already pushing grain prices higher. Any
rise in price of the grains used in whisky
production will therefore impact overall
production costs, which could create cost
challengers for distillers.
Source: 1) Whisky News, 2012
“
With the crops being poor in
Scotland in 2012, the price of
malted barley was expected to
increase from £300/tonne to
around £350 in 20131
”
This shows how environmental issues
and concerns could come to bear on the
industry and could potentially disrupt the
future of whisky production.
However, there is an opportunity for the
whisky production process to embrace
more sustainable practices, but also to
give back to the local environment. For
example, there is growing interest in
converting whisky by-products into biofuel
energy, as a way of creating a renewable
energy source and therefore create a
closed-loop production process.
A commitment to sustainable whiskey production
processes in Ireland will connect well with Origin
Green; “making Ireland a world leader in
sustainably produced food and drink”
Regulatory control could drive category growth, but too many rules
could also stifle it
While strengthening industry regulation
is required to safeguard the integrity of
whisky coming from designated regions,
such as Scottish and Irish, there are
concerns that protection could stifle
innovation.
If the Irish Whiskey category is going to
grow and expand, consistent quality will be
key. There is an opportunity for
strengthening existing legislation to ensure
that all distillers are producing Irish
Whiskey according to set specifications
(specific % amount of grain, etc.). This is
what the Scottish Whisky Association
(SWA) has done in Scotland. Furthermore,
recent legislation will mean that Scotch
whisky producers will soon be expected to
apply to the UK Government to have their
brands verified as originating from
Scotland1
The Irish Whiskey Act of 1980 does not
actually contain a definition of the terms
“single malt Irish Whiskey” or “single grain
Irish Whiskey” or specific rules governing
production. In addition, the new Irish
Whiskey Association (IWA) is a lobbying
body without any authority to enforce
regulation. Therefore, the legislator has a
Source: 1) Just Drinks, 2013
role to strengthen the existing legislation
around whiskey production.
However, there will be a need to find the
right balance between strengthening
regulation and allowing the category to
have the freedom to create its own rules.
“
As an industry we need to
be very clear on quality
and observation of the
rules of what makes an
Irish Whiskey
”
Brendan Buckley, Innovation and Category
Development, Pernod Ricard
Establishing a role for Irish Whiskey
Despite potential future challenges, there is an opportunity for Irish
Whiskey to tap into the category’s overall growth
Irish Whiskey is the fastest growing subsection of the entire whisky category
globally.
Global consumption of Irish Whiskey
increased by 10.5% from 2011 to 2012
compared to the whole whisky category
growth of 2.8%.1
Having moved on from a turbulent past of
technology challenges, political struggle
and the infamous prohibition era (which left
the spirit dwarfed by the success of its
Scotch cousin), Irish Whiskey is beginning
to experience a renaissance.
Jameson has played a critical role in this
success. It is seen as the engine behind the
growth, generating excitement through its
shot formats and driving exposure through
significant exporting to the US. Jameson is
Ireland’s strongest export brand,
accounting for around 3.4 million of the five
million cases exported annually.2 At the
same time, independent producers, such as
The Teeling Whiskey company, are
reinvigorating the Irish category by creating
new and innovative varieties of Irish
Whiskey.
The category is expanding from a small
base. Irish Whiskey accounts for only 2% of
Source: 1) IWSR Data, 2013; 2) Irish Examiner, 2012; 3) IWSR
Database, 2013; 4) IWSR Database, 2011
global whiskey volume, compared to 26%
from Scotch.3 There is significant potential
to expand the category by those willing to
invest.
Indeed, the future looks positive; Irish
Whiskey has the highest predicted volume
growth rates of global spirits, outpacing
even vodka to 2016.4
Lessons can be learnt from whisky drinking
markets around the world when it comes to
establishing a role for Irish Whiskey. The
next section will examine key whisky
drinking markets to understand the key
learnings for success in these different
locations.
“
Jameson is indisputably
the engine of this train,
with 76% of Irish
Whiskey sales in the US,
representing about 86%
of growth
”
Hannah O’Leary, brand ambassador for
Jameson
The US: Home of the accessible Bourbon variety
The US is the biggest export market for
Irish Whiskey, largely driven by the deeprooted connection of the Irish diaspora
community living in the US.
There has been a recent re-birth of bourbon,
the locally-produced whisky in the US. The
beginning of this resurgence can be traced
back to Japan in the 1980s. At that time, the
first single-barrel bourbon was only available in
Japan and as a new generation of young
Japanese drinkers wanted to try something
different from the Scotch preferred by their
parents, its popularity began to increase.
Young consumers wanted to find a premium
drink of their own.
Bourbon sales in the US had been fairly low
before the 80s, so a lot of bourbon sitting in
barrels in Kentucky warehouses was slowly
ageing. When Beam released its small batch
specialty bourbons in 1992, Japanese
consumers bought large amounts and the
trend for bourbon trickled back to the US where
there was still a good supply.
•
Bourbon is currently experiencing a
rejuvenation due to new marketing efforts from
Jack Daniels, but also due to the mixology
•
influence sweeping the US, spurred on by the
increasing presence of whisky cocktails in
popular culture, as well as the emergence of
leading edge bars. This is making whisky more
accessible to new audiences. Bourbon
distillers have also embraced new flavours –
honey, cherry, maple and cinnamon – have
become the most recognised in connecting to
new audiences and are strong examples of
bourbon's accessibility.
The demand for authentic, locally produced
goods, for which bourbon connects strongly, is
also another key factor for growth. Recent
years have seen the rise of American craft
whisky. Craft distilleries are experimenting with
certain types of techniques – from stills to
barrel sizes – and craft whiskies are often
priced higher than older whiskies from major
distillers.
KEY LEARNINGS FOR SUCCESS
Reinvigorating a declining category by
appealing to a new generation of drinkers with
new formats can significantly drive volume
growth and exposure.
Tapping into broader consumer trends around
authenticity and craft production, and leading
edge culture can buoy volume growth.
THE REJUVENATION OF BOURBON
Bourbon’s growth over the last five years
has been significant. The category has
refocused on high quality products and
variety as a way of premiumising the
product. The mixology wave has fuelled
the accessibility of the spirit, making it topof-mind and a key ingredient in the
fashionable whisky cocktail. Also the
increasing demand for local, authentic
products has supported growth of the
category.
Japan: The innovative single malt
The last decade has seen Japanese
whisky explode onto the global stage
and challenge Scotch’s dominance in
the category.
Japanese whisky is similar to the Scotch
single malt variety. Historically, Japanese
distillers travelled to Scotland to learn the
Scotch distilling practice, and took this
knowledge back to Japan.
Whisky production in Japan started around
1870, but the first distillery opened for
commercial production in 1924. There are
now 10 whisky distilleries in Japan and the
most well known producers are Suntory
and Nikka. Suntory is a three-time winner of
“Distiller of the Year” award at the
International Spirits Challenge.
Some of the subtle differences between
Japanese and Scotch, such as the water
used and its compatibility with Japanese
food, are being emphasised as strong
selling points for Japanese single malt.
Japan is now the second greatest producer
of single malt whisky in the world after
Scotland, and it is starting to gain exposure
in Europe – France, Sweden and Norway –
as well as winning prestigious international
awards. However, 95% of what is produced
is still domestically consumed.1
Source: 1) Euromonitor Report, Whiskies: Growth opportunities
in all markets, 2012
The main drivers behind its domestic
popularity are the increasing demand from
a younger Japanese demographic and
format innovation. A new audience of
young, male urbanites has been embracing
the ‘highball’ whisky and soda cocktail
format .
One of the key advantages that Japanese
whisky has over Scotch, looking into the
future, is that there is a large supply to meet
a rising demand; something which the
Scotch market is struggling to create.
•
•
•
Innovation within the single malt category can
turn the traditional Scotch format on its head –
unique and local differences of a whisky profile
can be celebrated – such as the water used in
production.
New formats, such as the ‘highball cocktail”, can
drive significant volume growth and reinvigorate
the category.
Investing in quality control and waiting for the
right moment to release high quality whisky
when demand is high can generate high value
growth.
A RISING STAR AMONGST SINGLE
MALTS
Although investment in Japanese single
malt began in the 1920s, it has only
recently started to attract attention in the
last decade, mainly due to the commercial
efforts of Suntory. For example, they were
one of the first Asian companies to employ
American celebrities to market their
products, they operate two museums in
Japan to promote social and cultural
programmes across the country. The
slogan of Suntory’s whisky division is “The
art of Japanese whisky since 1923”
Russia: Slowly shifting from vodka to whisky
Whisky is the fastest growing spirit in
Russia – it grew by 48% in 2012.1 The
significant upheaval in the spirits
category is creating new opportunities
for whisky producers.
hosting golf events and tastings at yacht
clubs to win attention with its target
clientele.
Premium elite-class retail grocery chains
are on the rise in Russia, such as Globus
Gourmet in Moscow. Globus has focused
on amplifying the physical appearance of
whisky and placed it centre stage, while
shelves of vodka have been relegated to
the sides. These are the outlets where
people with higher disposable incomes
shop.3
Russia is traditionally a spirit-drinking
nation, but there is an emerging fatigue with
vodka. As Russians try to sever all
connections with its Soviet past and move
into a more Western world, premium
whiskies and tequila are winning.2
Despite the government’s recent focus on
reducing alcohol consumption for health
reasons, whisky producer Beam has
expanded into Russia with success.2
Beam has targeted aspirational drinkers
whose taste buds are favouring whisky over
vodka and who also have an appreciation
for Western culture, so are more likely to
purchase imported varieties. The alcohol
legislation that is emerging is also more
focused at the most affordable end of the
spectrum and is therefore having less of an
impact on higher-end, imported spirits.
Beam is also creating more unconventional
methods of gaining brand exposure. ‘Blind
taste tests’ are set up in bars to compare
Jack Daniel’s and Beam, and Beam is also
Source: 1) IWSR Database, 2012; 2) BusinessWeek, 2012; 3)
Ostoenko, N., 2010
CHANGING WHISKY RETAIL
•
•
•
There is an opportunity to connect with
increasingly sophisticated consumers who are
looking to try something new and different.
The shift from white to dark spirits in some
markets creates an export opportunity for the
category.
Below-the-line marketing can effectively target
consumers.
India: Moving from domestic demand to imported premium
India has a strong history of producing
and consuming Indian-made ‘whisky’,
but rising incomes are leading middleclass consumers to spend more on the
imported luxury and premium whiskies.
The domestic ‘whisky’ made in India does
not meet the European definition of whisky,
and cannot carry the category name if
imported to the EU. As a result a
comparison between the Indian liquor and
imported whiskies is not possible. However,
the history of consuming this Indian-made
liquor helps to explain the accustomed
taste to whisky, and therefore the rising
demand for imported whisky.
were 27.6 million. 3
A potential barrier to growth in the future is
import tariffs, which are higher in India than
in other emerging markets. The World
Trade Organization’s efforts to decrease
taxes on imported alcohol from 550% to
40% in India is still in process.1 This means
that only the very top echelons the middleclass can currently consider buying Scotch
whisky.
Indian consumers are aspiring to imported
whisky varieties, such as Teacher’s and
Whyte & Mackay, which are seen as
premium and aspirational varieties.1
Premium and super-premium brands have
seen a growth rate of around seven percent
in 2012.2
•
Additionally, a number of foreign producers
are promoting consumer education of
imported whisky through Scotch tasting
sessions in Mumbai and Delhi.
•
In 2012 the single malt category grew 20%
in India.2 In 2012, Scotch exports to India
Source: 1) Euromonitor Report, Whiskies: Growth opportunities in all
markets, 2012; 2) Livemint, 2012; 3) Business Insider, 2013
Premium and super-premium positionings are
likely to win in emerging markets where
increasingly sophisticated consumers are
looking to trade up.
Events to promote expose to the category, such
as whisky tasting, can dramatically increase
volume growth.
LAUNCHING PREMIUM VARIETIES
The whisky producer Beam launched
Teacher’s single malt at about Rs 4,000
(around £40) a bottle in India. The
category is growing at 30% for the
company in India. Around the same time,
it also launched Teacher’s 25 year old, a
blended Scotch priced at Rs 26,230
(around £260) in Delhi.
Irish Whiskey can learn from other markets in order to create its own
point of differentiation
Case studies into different whisky
markets can identify key learnings to
consider when thinking about the
future of the Irish Whiskey category.
They can also highlight how each type
of whisk(e)y leverages its own point of
differentiation within varying markets.
In the US, Bourbon whisky is
differentiated by its accessibility. It has
embraced the mixology trend and its wide
variety of flavour combinations makes the
whisky accessible to new audiences.
In Japan, the single malt whisky can be
associated with innovation. It has taken
the traditional Scotch model and molded it
to its unique climate and geography, using
its distinguished taste profile as a key
differentiator from the original Scotch
variety.
In Russia, whisky is seen as a more
exciting choice amidst a saturated vodka
market. It is associated with complexity
and sophistication by aspirational
consumers.
In India, Scotch imported whisky is
strongly connected to premiumisation and
meeting the needs of wealthier and more
knowledgeable consumers.
Irish Whiskey therefore needs to identify
its unique point of differentiation, and this
should align on an emotional level, with
the Irish culture and temperament.
When thinking about Irish identity, one
of the elements that stands out is
versatility.
The Irish population is one that has had to
adapt to the peaks and troughs
throughout its history; from the early
potato famines, the English occupation of
Ireland and the most recent boom and
bust of the Celtic economy - versatility is
an important way of life.
Versatility is also a credible entry point for
Irish Whiskey due to its liquid profile and
smoothness on the palette, which enables
it to be accompanied by many flavours
and occasions. This more fluid personality
connects with the down-to-earth and
open-minded attitude of Irish people.
These flexible qualities permit Irish
Whiskey to set itself apart from the more
traditional and stoic characteristics of
Scotch whisky.
Accessibility
Sophistication
Innovation
WHISKY POINT
OF DIFFERENCE
Premiumisation
The future of Irish Whiskey
There are a number of important foundation blocks that the Irish
Whiskey category must address in order to secure its future growth
In the face of emerging competition and to
secure growth in new markets, Irish
Whiskey must create and communicate a
clear, distinctive and inimitable USP for
the category.
emotional connection with the category.
‘Monkey Shoulder’ whisky (see box) is a
good example of this, where stories of the
past link the whisky back to its historical
roots.
The enduring strength of Scotch’s category
image and the emergence of new players to
the category could potentially limit Irish
Whiskey’s expansion if it is not able to create
a compelling identity that sets it apart from
other whiskies.
Portfolio plays a key role in supporting
and building this affiliation to the the
category.
To build affiliation, the category needs to
consider what captivating stories can be told
that will set Irish Whiskey apart, as well as
the most compelling ways to tell the stories.
This affiliation could come from two places:
the tangible linking of the production process
to the unique characteristics of Irish Whiskey
and/or the intangible mystique of the
category and its historical origins.
Midleton’s positioning around ‘Redbreast’ pot
still Irish Whiskey (see box) clearly
demonstrates a more tangible connection. It
is not celebrating the tradition of the process
for tradition’s sake, but for the unique depth
of flavour that pot still distilling gives Irish
Whiskey.
On the less tangible side of building
affiliation, stories can create a deeper
As drinkers become more sophisticated and
new whiskey audiences emerge, increasing
the variety, interest and complexity of the
category will be a key focus for distillers (see
box). The role of the portfolio will be
increasingly important - rather than focusing
on one single product, a wider offering of
products will keep existing drinkers engaged
and also build a connection with new
drinkers.
Future growth of the category will depend
on a ‘co-operative’ relationship between
larger and independent distillers.
Independent distillers can complement the
volume growth and category exposure that
can be achieved through larger distillers and
their economies of scale, by adding character
to the Irish category. As a result, a synergistic
relationship of ‘co-opetition’ is needed
between the larger and independent whiskey
distillers in Ireland to build the category fit for
the future.
The name of the whisky
‘Monkey Shoulder’ relates to the
injury suffered by workers as a
result of turning the malt during
production. The Scotch brand is
one of the last in the world to
still use this technique, and the
name evokes this historical
connection and story.
Midleton’s ‘Redbreast’
positioning focuses on
rejuvenating the traditional spirit
of Irish pot still distilling. Pot still
is unique to Ireland and stands
apart from other whiskeys with a
unique taste profile.
The Teeling Whiskey company’s
Poitín is a niche product with the
aim to add variety and character
into the portfolio, through
celebrating an ancient Irish spirit
and recognising the history of
Ireland.
There are three potential growth platforms to secure a role for Irish
Whiskey now and in the future
Native
personality
Maturity
Matters
Flavour
Complexity
Native Personality
Leveraging ingredient origin and distillation
environment to create a unique whiskey
flavour profile
There is a significant opportunity to leverage the ingredients and distillation
environment specific to geographical location in Ireland in order to build unique
flavour profiles for whiskey.
In Scotch whisky, flavour profiles are already attached to designated regions,
such as the peaty notes from the Isle of Islay, for example.
This opportunity remains largely untapped for Irish Whiskey, where there are
only five distilleries in the country, compared to around 100 in Scotland.
To classify as ‘Irish’, whiskey must be matured on the island of Ireland for at
least three years, exposing it to a unique climate. The raw Irish ingredients,
such as water and grain, as well as the climate and distillation process, provide
an opportunity for brands to stand apart from other whiskies and be famous for
a certain personality or taste profile derived from the place of origin.
As the Irish Whiskey category grows and develops, flavour and character
profiles will distinguish one brand from another.
Native personality will permit Irish Whiskey to stand out from other
whiskeys and be famous for unique taste profiles designated to Irish
origin.
“
If you build a replica Irish Whiskey distillery in Scotland and used the
same ingredients to produce the same spirit, it would more than likely
taste the same. But after leaving it in Ireland for three years to mature I
can guarantee the whiskey would taste different.
Jack Teeling, The Teeling Whiskey Company
”
Early Indicators
Nine Leaves distillery, in
Japan, draws water from the
natural spring deep
underground that runs off the
Biwako tributary. The water
has a low PH and is very
pure - qualities which
transform the unique taste of
the whisky.
Penderyn single malt whisky
promotes its geographical
location in Wales. It celebrates
that it is produced in a UNESCO
region of geological heritage,
with specific reference to the
unique type of water and wood
used; and has created the series
‘icons of Wales’ where each
bottle commemorates a person,
milestone or event from Welsh
history.
Slane Castle Irish Whiskey is
set to be released in 2015, and
will use barley from the castle
estate and water from the river
Boyne – ingredients unique to
the area. It also promotes a
closed-loop production cycle,
where byproducts of the
production process are used for
on-site energy generation, as
well as animal feed.
Native Personality
Implications for Irish Whiskey brands
• Distilleries need to identify from the area of
production the unique personality characteristics of
Irish Whiskey that allow it to stand apart from other
whiskies.
• Brands need to understand and effectively
communicate the link between place of origin and
the unique taste and character profile by building it
into the story and soul of their brand.
• Through the distillery location and the local sourcing
of ingredients, brands can create something that is
inimitable.
Flavour Complexity
Looking to casks and processes to
naturally expand the flavour complexity of
the category
There is an opportunity to build affiliation with sophisticated whisky drinkers,
as well as new audiences, by meeting the demand for new and interesting
flavour profiles.
Different levers can be pulled to tap into this opportunity:
• Filtering and distillation – experimenting with chill filtering to balance the
‘impurities’ that impart flavour for example
• Cask materials – types of wood and casks coated with other spirits
As whiskey producers continue to experiment with these levers, the result
can shift the depth and breadth of flavour profiles.
This expansion of flavours will make the whiskey category more creative and,
as a result, more accessible to new and existing whisky drinkers.
Flavour complexity will give Irish Whiskey the opportunity to show off
its versatility and creativity, increasing its exposure in the category
with both existing and new audiences.
“
I think there is a way to do more interesting flavouring as innovation
Steve Uri, US Whisky Blogger
”
Early Indicators
Compass Box created a
limited edition whisky called
“The Entertainer” with a
more sophisticated blend. It
connects back to the 20th
century when blends
contained higher proportions
of malt whisky and where the
whiskies were more peaty in
flavour.
Chivas Regal Mizunara uses
the famous Japanese oak
(mizunara) casks, which
impart hints of incense,
appealing specifically to
Japanese palettes. This is
the first time a Scotch
blended whisky has
incorporated mizunara to
create a deeper taste profile.
Bruichladdich is made
from 100% Scottishgrown organic chalice
barley and is non-chill
filtered and uncolored,
to develop extra flavour
and texture.
Maturity Matters
Rethinking the rules around ageing and
maturity
As the demand for whisky around the world increases beyond the supply
available, attitudes towards accepting No Age Statement (NAS) will continue
to shift. This highlights an opportunity to shift consumer perception and
education that is rooted to only ‘the benefits of age statements’.
As age becomes a more interesting dimension, innovations that move
towards the NAS arena will continue to emerge, as well as the education
around the age concept in whisky. In some ways, this will make ageing and
rarity a more compelling proposition. However, it will also create the
opportunity to develop more complex whiskey where maturity matters, not
age. This will place the art of the blender at the core of the production
process.
Maturity Matters gives Irish Whiskey the green light to be experimental
away from traditional and expected formats - to meet current
consumer taste preferences.
“
At a product level there is a knowledge that age doesn’t guarantee
quality…Bottling a whiskey when it is ready is as valid an approach as
bottling a whiskey when it’s 20 years old. A lot comes down to the art of
the blender.
Brendan Buckley, Innovation and Category Development, Pernod Ricard
”
Early Indicators
Maker’s Mark diluted its
bourbon from 90 proof to 84
proof in order to meet
demand, without telling its
consumers. As a result the
brand lost equity from loyal
consumers who were
disappointed to discover the
content had changed, even
though Maker’s Mark later
reversed their decision.
Macallan has launched a
range of no-age statement
malts whereby their natural
colour will be the indicator
of age. This is shifting the
consumer perception
around age statements.
Glenrothes malt whisky has
created the tagline “Our
whisky is ready when it
tastes perfect. Not when it’s
reached a certain age.”
Showing the importance of
maturity over age.
New roles for Irish Whiskey brands
The three platforms converge to create three opportunity spaces for
Irish Whiskey brands
Native
personality
Timeless
Character
Sophisticated
Origins
Maturity
Matters
Inventive
Flavours
Flavour
Complexity
Timeless character
Where origin of ingredients and the personality
developed from locality can establish new markers of
quality where age statements once stood
High quality wood
Rather than prioritising the age of a whiskey, the individual whiskey
characteristics are sufficient to stand alone, creating a new language in
the category.
The main facilitator of this shift away from the age focus is the awareness of
high quality ingredients to achieve maturity. This will provide an opportunity for
brands to build their character and quality from their local environment and
ingredients, rather than how long they have been aged (see box). Local
ingredients and locality (village, region, river etc.) will become the shortcuts to
quality.
This timeless identity places the focus on the highest quality ingredients, but
also the personality that can be developed from the production process. A
number of creative distillers already invite consumers to create their own
bespoke whiskey, as well as experience the production process for themselves,
which further drives the focus away from the length of ageing, but places more
emphasis on the core ingredients that the consumer selects – the cask size,
wood type and grain variety (see box).
Irish Whiskey brands have permission to leverage ingredients
and production processes unique to Ireland to craft new
overarching quality statements.
Kilchoman, which opened on Islay in 2005,
removed the age statements and its Machir
whisky uses high quality wood instead to
achieve maturity.
Bespoke character
The London Distillery
Company offers
consumers the
opportunity to design their
own bespoke whisky.
They can select their cask
size, wood type and
barley variety, as well as
shadow a distiller for a
day to gain an insight into
the whisky production
process. The focus is on
the character derived
from ingredients.
Timeless character
THINGS TO CONSIDER
• Which Irish ingredients, unique to an area, could be
used to communicate and act as new markers of
superior quality?
• How can Irish brands educate consumers around the
importance of maturity and character, to sit alongside
the importance of age statements?
• What technological innovation could help shift the
consumer mindset from age to the quality of ingredients
used?
Sophisticated origins
By tapping into the emotional connection to Irish
people and geography, and by celebrating the flavour
profiles originating from locally sourced ingredients
and materials, brands can create inimitable offerings
that appeal to the sophisticated drinker.
Brands can build unique personalities that combine the complex flavour
derived from Irish terrain and local ingredients, with evocative stories that
relate to the traditional production process and history of Ireland.
The traditional Irish pot still whiskey, for example, is experiencing a renaissance
(see box). The distillation method imparts a complex taste profile, likely to
resonate strongly with sophisticated single malt whiskey drinkers, and which is
unique to Ireland. Furthermore, its history linked to the production process
conjures a powerful emotional attachment to place, as this specific process does
not exist anywhere else in the world.
Sophisticated flavours can also be further enhanced by local origins. This can be
seen with cross category food and whiskey pairings (see box). It is said, for
example, that a Laphroaig whisky from Scotland will enhance the flavour in
seafood because of the sea air the whisky is exposed to during distillation. This
synergistic combination of sophisticated flavour and origin builds an emotional
connection between the drinker, the whiskey and the land which will deepen the
overall whisky experience .
Irish Whiskey brands have access to local ingredients and
history to celebrate sophisticated flavours from the land to
deepen emotional connections with consumers.
Traditional reinvented
Pot still is unique to Ireland and the
most recent marketing campaigns has
focused on the ‘rediscovery’ of Irish
Whiskey. This adds character to the
type of whiskey and how it is distilled.
The taste profile is also suggested to
appeal to consumers who like the
complex taste of single malt.
Cross category synergies
Whisky food pairing is becoming a
popular activity, which increases the
accessibility of the category. Scotch
Broth Events promote new ways of
enjoying whisky, and pair whisky tasting
with sampling artisan Scottish food.
Sophisticated origins
THINGS TO CONSIDER
• Which local ingredients and materials should be used to
create complex and unique flavour profiles?
• Can Irish distilling methods create complex flavours to
rival the sophistication of Scotch single malts?
• Are there new occasions or events which can
simultaneously enhance the flavours and origins of Irish
Whiskey?
Inventive flavours
Brands can create innovative propositions to challenge
the role of age statements through the four levers that
enhance flavour complexity.
Innovative ageing
Altering the distilling and filtering process, changing the cask materials
and experimenting with more sophisticated blends are inventive
techniques to produce creative and complex flavours.
These flavour innovations can move the focus away from age statements and in
turn expand the category. For example, changing the cask materials can
account for around 75% of a whisky’s flavour.1 American oak can offer sweet,
silky, vanilla and coconut flavours; European oak can produce spicy and fruity
notes and French oak’s tighter grain can allow for a more gradual integration of
flavours, which is favoured by winemakers. This opens up a number of flavour
options to create a taste profile where complexity dominates, instead of age.
At the same time different production techniques can be used to modify the
ageing process itself. How a cask behaves will depend on its age, size and local
climate - ageing takes place three times faster in the tropics. Ardberg has
experimented with the local climate element through producing the first whisky
aged in space (see box).
Irish Whiskey brands have the versatility and momentum from
the recent interest in the category to be creative with flavours
and develop mature taste profiles that are not constricted by
age.
Source: 1) The Sunday Times Magazine, 2013
Ardberg sent whisky molecules to age in
space in 2012 in charred-oak casks
amidst a near zero-gravity environment
and the result was Ardberg’s Galileo. It
was named the best whisky in the world
at the annual World Whiskies Awards.
Vintage concept
Glenrothes is one of the distilleries that
has rejected age statements in favour of
single-year vintages. The ‘vintage
concept’ increases the flavour options
whilst removing the need for age
statements.
Inventive flavours
THINGS TO CONSIDER
• In what ways could the cask temperature and
atmosphere be altered to change the ageing process?
• How can young and aged blends create innovative and
surprising flavours that attract new whiskey drinkers and
excite established ones?
Final thoughts
Final Thoughts
It is essential that Irish Whiskey identifies
its key point of difference.
Irish Whiskey needs to create a clear USP
for it to stand out in the whisky category,
when compared to other whisky varieties.
Versatility is a credible entry point, due to
Irish Whiskey’s smooth texture, which
bestows it with adaptability to different
flavours and occasions. This quality also
connects emotionally with the Irish culture
and temperament.
Strengthened regulation will ensure
quality control and consistency for longterm future growth.
As Irish Whiskey continues to grow in
volume and value, existing legislation in the
category will be strengthened to ensure that
the quality of Irish Whiskey and its
reputation is maintained for the long-term
future.
Category growth will rely on smaller and
larger players working together - ‘coopetition’.
Larger whiskey producers will be able to
create significant category volume growth
due to their economies of scale and their
access to resources and distribution
networks.
They
are likely to achieve significant growth
by focusing on a concentrated portfolio of
Smaller distillers will then be able to ride the
positive wave of increased exposure and
consumer awareness. They will then be the
ones who are able to add creativity to the
category, by adding portfolio variety through
small batch innovations. In turn larger
distillers will benefit from the energy injected
into the category by smaller distillers’.
For this reason, larger players should
support smaller whiskey producers with
difficult business challenges - such as limited
access to capital, succession issues and
resource shortages - as it is in their best
interest to secure overall growth in the
category.
Irish Whiskey investment and planning
needs to have a long-term focus in mind.
Due to the long-term nature of the category,
whereby whiskeys may take 20 years plus to
be released, emerging social, technological,
economical, environmental and political
considerations should be taken into account
when making any future investment plans.
This is to ensure the long-term survival and
growth of the category.
--THE END--
“Too much of
anything is bad,
but too much
of good
whiskey is
barely enough.”
--Mark Twain--

The Future of Whiskey Final Report

Transcription

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