Distilled Spirits Council Economic Report: Tariffs Cause Rough Seas on Both Sides of the Atlantic, Strong U.S. Spirits Market in Jeopardy
The devastating impact of the retaliatory tariffs on distilled spirits products is accelerating, threatening to upend the decade of growth in the U.S. spirits sector, the Distilled Spirits Council of the United States (DISCUS) reported today at its annual economic briefing for media and analysts.
“While it was another strong year for U.S. spirits sales, the tariffs imposed by the European Union are causing a significant slump in American Whiskey exports,” said DISCUS President and CEO Chris Swonger.
“The data is clear. These tariffs are chipping away at American Whiskey’s brand equity in our top export markets. These great American Whiskey products that have been the toast of the global cocktail scene are struggling under the weight of the EU tariffs.”
In the United States, supplier sales were up 5.3 percent in 2019, rising $1.5 billion to a record total of $29 billion, while volumes rose 3.3 percent to a record 239 million cases, up 7.6 million cases from the prior year, Swonger said.
In 2019, spirits gained market share versus beer and wine with sales rising half of a point to 37.8 percent of the total beverage alcohol market. This represents the 10th straight year of market share gains for spirits overall, where each point of market share is worth $770 million in supplier sales revenue.
“We are now gravely concerned that the U.S. tariffs on EU spirits imports will have the same deleterious effect in the United States,” said Swonger. “If this trade dispute is not resolved soon, we will more than likely be reporting a similar drag on the U.S. spirits sector, jeopardizing American jobs and our record of solid growth in the U.S. market.”
New Data: Tariffs Damage American Whiskey Brand Across the Globe
New data released this week from the U.S. International Trade Commission shows that the EU’s 25 percent retaliatory tariff on American Whiskey caused exports to the EU, the U.S. spirits industry’s largest export market, to tumble by 27 percent in 2019 compared to 2018. Global exports of American Whiskey have declined 16 percent and global spirits exports are down 14.3 percent over the same timeframe.
Further, the data shows major export declines in top individual EU countries such as the UK (-32.7 percent), France (-19.9 percent), Germany (-18.2 percent) and Spain (-43.8 percent).
DISCUS Chief of Public Policy Christine LoCascio pointed out the Administration has made important progress on the trade front, including the passage of the United States-Mexico-Canada Agreement, which preserves tariff-free trade for spirits with two of the United States’ largest and most important export markets. Additionally, the China Phase-One agreement and negotiations with Japan are also positive developments.
“We are hopeful that the recent trade agreements will create new momentum for negotiations with the EU that will result in the immediate removal of retaliatory tariffs on American spirits exports and U.S. tariffs on certain EU spirits,” said LoCascio.
U.S. Spirits Consumers Continue to Gravitate to High-End and Super Premium Products
Turning to the U.S. market, DISCUS Chief Economist David Ozgo reported that the strongest revenue growth in the U.S. spirits market in 2019 continued to come from high-end premium and super premium products. The revenue for those price points increased 7.6 percent and 7.9 percent, respectively, and by 8.0 percent and 7.0 percent in volume. Ozgo pointed out that, due to the rapid growth in super premium products over the last 10 years, the average supplier revenue per 9-liter case (12 bottles) is now more than $120.
Key spirits category drivers of sales growth in 2019 included:
- American Whiskey, up 10.8 percent or $387 million to $4 billion; Rye was an important component of the overall American Whiskey category growth with sales up 14.7 percent or $30 million, reaching $235 million;
- Tequila/Mezcal, up 12.4 percent or $372 million to $3.4 billion; Mezcal surpassed $100 million in sales for the first time totaling $105 million;
- And pre-mixed cocktails, up 7.5 percent or $25 million to $351 million.
Ozgo stated Irish Whiskey had another strong year with revenues up 5.6 percent to $1.1 billion as did Single Malt Scotch, up 9.6 percent or $81 million to $925 million. He stressed, however, that these popular spirits categories are threatened the longer the U.S. tariffs remain in place.
Vodka remains the spirits sector’s largest category, representing 31 percent of all volume. In 2019, vodka revenues were up 2.9 percent to $6.6 billion driven by strong growth in high-end premium products.
“Sophisticated consumers, with their preference for prestige bottles and unique experiences, are the key drivers of growth in the spirits industry,” said Ozgo. “A strong U.S. economy coupled with market modernizations that provide greater access to spirits, has put wind in the sails of the super-premium spirits category.”
Ozgo highlighted a number of spirits trends for 2020, including an increase in spirits tourism; emphasis on sustainability in the cocktail craft; expanded cocktail menus featuring more flavorful low ABV or non-alcohol drink options; and the creation of cocktails with less sweet flavor profiles like savory and sour drinks.
2019 Policy Wins: Extension of Federal Excise Tax Cut and Increased Consumer Access to Spirits
In the public policy arena, DISCUS secured a one-year extension of the Craft Beverage Modernization and Tax Reform Act, which equalizes the federal excise tax (FET) on spirits, beer and wine for the first 100,000 gallons for all producers.
“The one-year extension of the Craft Beverage Modernization and Tax Reform Act was a big win for craft distillers, but our job is not done,” said Swonger, noting that the spirits sector supports 1.64 million hospitality jobs and $190 billion in economic activity. “Making this tax cut permanent will provide craft distillers with the stability and certainty needed to continue to invest in their businesses, generate new jobs and support their local communities. This is a top legislative priority for DISCUS in 2020.”
Swonger highlighted other policy victories in 2019 including:
- Spirits tax threats defeated in 17 out of 18 states;
- Sunday sales ban lifted in West Virginia, the 43rd state to repeal this blue law, generating an estimated $1 million annually;
- Spirits tastings passed in North Carolina, and the limit on distillery sales was repealed;
- A historic new law in Texas increased the license cap on package store ownership from five to 250 improving spirits access for Texas consumers;
- Law passed in Virginia requiring localities to opt-out of alcohol sales, allowing spirits sales across the state.
Important Gains in Social Responsibility Continue
Swonger, who is also the president and CEO of Responsibility.org, reported that significant progress was made in 2019 in reducing underage drinking and alcohol-impaired driving. According to U.S. government data, underage drinking and college binge drinking have fallen to historic lows, and alcohol-impaired driving fatalities as a percent of total vehicle traffic fatalities is at its lowest level since 1982.
“For nearly 30 years, Responsibility.org has been at the forefront of combatting underage drinking and impaired driving through the development of evidence-based programs and the support for comprehensive anti-drunk driving legislation,” Swonger said. “While there is more work to be done, we are pleased that these numbers are trending in the right direction.”