Making market modernizations permanent will boost recovery & increase consumer convenience
The pandemic’s devastating impact on U.S. hospitality businesses in 2020 resulted in major shifts in consumer buying behaviors and innovative relief measures that will boost economic recovery, modernize the alcohol marketplace and increase consumer convenience for years to come, the Distilled Spirits Council of the United States (DISCUS) reported today at its annual economic briefing for media and analysts.
“Tariffs and the pandemic left a wake of destruction in the hospitality industry in 2020,” said DISCUS President and CEO Chris Swonger. “Permanently enacting marketplace modernizations introduced in response to COVID-19, from online delivery to cocktails-to-go, will aid in the recovery of restaurants, bars and craft distilleries.”
The U.S. spirits industry experienced solid sales growth in 2020 as a result of fast acting state leaders who implemented creative temporary measures to keep hospitality businesses afloat amid months-long shutdowns, as well as “stuck-at-home” consumers choosing to buy super premium spirits as “affordable luxuries.”
Swonger stated that supplier sales in the United States were up 7.7 percent in 2020 to a total of $31.2 billion, while volumes rose 5.3 percent to 251 million 9-liter cases. Overall, total beverage alcohol sales by volume grew 3 percent.
In 2020, spirits gained market share over beer and wine with sales rising 1.3 points to 39.1 percent of the total beverage alcohol market. This represents the 11th straight year of market share gains for spirits overall, where each point of market share is worth $800 million in supplier sales revenue.
Swonger pointed out that governors across the nation moved quickly in response to COVID-19, issuing temporary measures such as cocktails to-go and expanding delivery options. Now, state legislatures are pressing forward to make many of these effective relief measures permanent.
To date, 18 states have filed legislation to make cocktails to-go permanent, and many more bills are expected. Legislation has also been filed in some states to permit direct-to-consumer shipping of spirits, which was expanded in eight states during the pandemic to support craft distillers who were forced to shut down their tasting rooms and tours.
Destructive Tariffs Continue to Curtail U.S. Spirits Export Growth
Christine LoCascio, DISCUS Chief of Public Policy, reported that retaliatory tariffs imposed on U.S. spirits as a result of unrelated trade disputes continue to stunt U.S. export growth. Since the EU’s imposition of a 25 percent tariff on American Whiskey in 2018, the value of American Whiskey exports to the UK and EU have decreased 53 percent and 38 percent, respectively. In June 2021, the EU tariffs on American Whiskey will automatically increase to 50 percent.
LoCascio stated that U.S. retaliatory tariffs on certain imported spirits have had a similar harmful effect, including a 37 percent decline in U.S. imports of Scotch Whiskies since the imposition of a 25 percent tariff on Single Malt Scotch Whisky in October 2019.
“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,” said LoCascio. “We are hopeful the Biden administration will clearly recognize the widespread damage being caused by the escalation of these trade disputes. We urge the U.S., EU and UK to make it a priority to immediately suspend these tariffs.”
COVID-19 Impacts on U.S. Hospitality Industry
Turning to the U.S. market, DISCUS Chief Economist David Ozgo stated that the pandemic had a lopsided impact on hospitality businesses resulting in strong off-premise sales at liquor stores vs. weak on-premise sales amid nationwide restaurant and bar closures and restrictions.
Ozgo reported that off-premise sales were up 18 percent; on-premise sales were down 44 percent; and sales at global travel retail (duty free) outlets dropped to nearly zero.
He stated that at the start of the pandemic in April, U.S. restaurants and bars lost 5.8 million jobs – almost one out of every two jobs, according to the U.S. Bureau of Labor Statistics. Through December 2020, 2.3 million jobs have not been recovered.
Additionally, a new survey of COVID-19 impacts on craft distilleries by DISCUS and the American Distilling Institute, found that 36 percent of craft distilleries reported a total revenue decline of 25 percent or more in 2020.
U.S. Spirits Consumers Gravitated to Super Premium Products
In discussing the off-premise sales increase, Ozgo reported an initial spike in sales in the United States early in the pandemic as uncertain consumers stocked up on both food and beverages, so-called “pantry stocking.” He pointed out, however, that the data show the rate of growth of off-premise sales decelerated as the months passed.
“The increase in spirits sales revenue reflects consumers’ willingness to spend a little extra on super-premium spirits during the past year since they were not traveling, going on vacations or dining out as often,” said Ozgo, noting that sales of super-premium spirits represented 40 percent of revenue growth. “It also reflected consumers’ desire to bring that special restaurant and bar experience they were missing into their homes. We saw a renewed interest in home bartending as people stocked their bars with a range of spirits categories to experiment with new drink recipes and create craft cocktails at home.”
2020 Key Spirits Category Drivers of Sales Growth in the U.S. Included:
- American Whiskey sales up 8.2 percent or $327 million to $4.3 billion; Rye remains an important component of the overall American Whiskey category growth with sales up 16.9 percent or $40 million, reaching $275 million;
- Tequila/Mezcal sales up 17.4 percent or $587 million to $4.0 billion; Mezcal up 7 percent or $19 million totaling $124 million;
- Cognac sales up 21.3 percent or $413 million to $2.4 billion; and
- Pre-mixed cocktails sales, driven by spirits ready-to-drink (RTD) products, up 39.1 percent or $137 million to $489 million.
2020 Policy Wins: Permanent Federal Excise Tax Cut for Distillers and Increased Consumer Convenience
In the public policy arena, Swonger highlighted a number of victories in 2020 including:
- Passage of the Craft Beverage Modernization and Tax Reform Act making federal excise tax cuts permanent for distillers;
- Expanded consumer convenience and economic relief measures to help struggling hospitality businesses including:
- Cocktails to-go in 33 states, including permanent laws passed in Iowa and Ohio;
- Curbside pick-up/delivery options from on- and off-premise retailers in multiple states;
- Direct-to-consumer shipments of spirits from in-state distillers in 8 states; and
- New law permitting direct-to-consumer shipping of spirits in Kentucky
2021 Policy Priorities
LoCascio outlined top priorities for the coming year including: securing additional economic relief for the hospitality industry; the elimination of retaliatory tariffs on U.S. and EU spirits products; expanding convenient consumer access to spirits products; and protecting hospitality businesses and consumers from state tax hike threats.
Swonger wrapped up the briefing with thanking the more than 800 distilleries that answered the call to produce much-needed hand sanitizer during the national public health emergency.
“Distillers nationwide switched gears immediately to make hand sanitizer for their communities and first responders despite facing their own significant hardships caused by the pandemic,” said Swonger. “This is a testament to the strong bonds that distillers have with their local communities, their ingenuity and their generosity of spirit.”
In wrapping up the briefing Swonger concluded, “Many adults have enjoyed a touch of normalcy during stay-at-home orders by creating their own craft cocktails or ordering cocktails to-go. While the overwhelming majority of Americans who choose to drink, do so responsibly, it’s important for adults to seek out resources or talk to a health professional if drinking is interrupting relationships or affecting daily routines.”
DISCUS Annual Economic Briefing Presentation