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Sector Insight: Whisky - Age concern

The whisky market has room for growth, but it must find a way to attract younger drinkers, writes Jane Bainbridge.

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THE BACKGROUND

Between 30% and 40% of UK whisky sales take place during the festive season, a combination of buying for hospitality and gifts. However, the market for the UK's most popular spirit has become flat, other than the dash of fizz Jack Daniel's has received from the 'JD and Coke' phenomenon. Scotch and Irish whisky producers need to find new ways of seducing under-45s if they are to please shareholders with a kick in sales.

Though the UK whisky market was worth an estimated £2.9bn in 2004, it is a market suffering from old age. Distillers are failing to attract new drinkers to the spirit, and the core market remains 45-plus males, according to Mintel.

The market is split between blends (at least three years old) and malts (typically 10 years old). Of whiskies sold in the UK, the main countries of origin are Scotland, Ireland, Canada and the US.

The majority of the market (77% by volume) is blended whisky, but this area is becoming commoditised, subject to heavy discounting by the supermarkets, and is also declining in volume terms.

The malt segment, however, is growing by about 10% a year by volume. The imported/deluxe categories are also on the rise and, combined, the three segments are sustaining the market's value.

While an ageing population means that the older demographic of whisky drinkers is not an immediate catastrophe, the sector requires a sexier image if it is to attract younger drinkers and build market value.

Whisky is not seen as fashionable among younger drinkers, who tend not to be exposed to it in the same way as other drinks categories. This is partly due to the fact that the spirit is rarely served with a mixer, an exception being Jack Daniel's, which is often combined with Coca-Cola by younger consumers.

Trading up

While there is some crossover by drinkers between categories, with consumers of blended whiskies often 'trading up', Mintel says many people who fall into the deluxe category are entirely new to the sector.

Malts, too, benefit from the trading-up factor, but also do well from the gift market. Whisky gifts are important for introducing customers to the sector and encouraging trial, with boxed malts proving lucrative. Christmas alone accounts for about a third of blended sales and 40% of malt sales.

Despite a heritage of small, independent distilleries, the whisky market has become highly consolidated, with about three-quarters of Scottish distilleries owned by just three global companies: Diageo, Allied Domecq and Pernod Ricard.

Diageo owns market-leading Bell's in the blended sector and introduced Bell's Special Reserve in 2003, a premium blend priced about £15 a bottle. Among its other brands are Johnnie Walker Black Label, a deluxe blend, and Johnnie Walker Red Label, the world's bestselling whisky. Its classic malts range includes Dalwhinnie, Glenkinchie, Oban and Talisker. In 2002 Diageo introduced its Hidden Malts line - four lesser-known brands that had not been widely available in mainland Britain before - which are priced about £25 a bottle.

Earlier this year the company caused a storm in the market by changing its Cardhu 12-year-old whisky from single to 'pure malt', a blend of malts, due to a scarcity of the single malt. It was accused of confusing drinkers and eventually reversed its decision.

Allied Domecq focuses mainly on the UK off-trade with its Teacher's Highland Cream whisky, whereas its Stewart's Cream of Barley and Ballantine's blends are sold predominantly to the export market and in duty-free outlets. Laphroaig is its bestselling Islay malt and Canadian Club its premium Canadian whisky.

Whiskies account for 40% of Pernod Ricard's volume sales. Its portfolio includes Irish whiskies Jameson, Black Bush and Bushmills, as well as Chivas Regal Scotch, the packaging for which was updated this year. Pernod Ricard's malts include Aberlour, The Glenlivet and Royal Salute.

Glenmorangie, one of the last remaining independent distillers, was sold in October by the Macdonald family, who helped form the company in 1893. It was bought by French drinks firm Moet Hennessy, which paid £300m for the Glenmorangie, Glen Moray and Ardbeg whiskies.

Jack Daniel's is performing very well, mostly due to its accepted mixability, with owner Bacardi Brown-Forman attributing 85% of its consumption being in combination with Coke.

The whisky industry is all too aware of the need to attract younger, drinkers and many companies have been involved in activities to this end.

Mixer appeal

The Famous Grouse is undergoing a £1m global repositioning, increasing the size of the grouse icon and introducing a more premium look. To attract younger drinkers, it is offering serving suggestions for mixing the whisky.

'There is still a stigma in the UK about drinking Scotch long with soft drinks,' says Derek Brown, brand heritage director for The Famous Grouse. 'But young people in continental Europe - including Spain and Greece - enjoy Scotch in tall glasses with lots of ice and mixers.'

The whisky trade is also trying to educate consumers about the region their bottle of whisky comes from, in a similar way to French wines. Scotches are now often branded as Speyside, West Highlands or Islay.

There is no doubt that there is room for growth of this sector, with only 13% of the population drinking blends and 10% drinking malts, according to Mintel. Hence the research company's forecast for the market is one of steady growth, with an increase of 7% in real terms to £3.2bn by 2009.

WHISKY BRANDS SALES AND MARKET SHARE IN UK, 2003

Brand pounds m ltrs (m)

On Off Total % On Off Total %

1 Bell's 380 128 508 17.5 5.0 7.0 12.0 13.6

2 The Famous Grouse 352 105 457 15.8 5.6 6.2 11.8 13.3

3 Grant's 180 77 257 8.9 2.7 3.5 6.2 7.0

4 Jack Daniel's 234 35 269 9.3 3.2 1.3 4.5 5.1

5 Teachers 42 59 101 3.5 0.5 3.1 3.6 4.1

6 Glenfiddich 45 22 67 2.3 0.9 1.5 2.4 2.7

7 Jameson 36 19 55 1.9 0.6 1.2 1.8 2.0

8 Whyte & Mackay 6 28 34 1.2 0.2 1.8 2.0 2.3

9 Glemorangie 12 21 33 1.1 0.4 1.4 1.8 2.0

10 High Commissioner 1 17 18 0.6 n/a 1.6 1.6 1.8

Others 283 369 652 22.5 0.3 16.5 16.8 19.0

Own-label n/a 444 444 15.3 n/a 24.0 24.0 27.1

Total 1571 1324 2895 100 19.4 69.1 88.5 100

Source: Mintel

WHISKY BRANDS ADSPEND (£000)

Brand 2003 2001 1999

1 Jack Daniel's 3421 2069 1412

2 Bell's 2362 2935 3190

3 The Famous Grouse 1695 2132 2679

4 Glenfiddich 1646 973 615

5 Whyte & Mackay 1131 295 249

6 Glenmorangie 925 888 943

7 Jameson 483 482 933

8 J&B Rare n/a n/a 467

9 Black Bottle n/a n/a 263

10 Waitrose 21-year-old n/a n/a 208

11 Johnnie Walker Black Label n/a 1051 n/a

12 Tesco Malt range n/a 200 n/a

13 The Macallan 557 269 n/a

14 Bell's Special Reserve 507 n/a n/a

15 Highland Park 503 n/a n/a

Others 1505 1298 1386

Total 14,735 12,592 12,345

Source: Nielsen Media Research/Mintel

ANALYST COMMENT - Kevin Baker, Director, alcoholic beverages, Canadean

Despite losing volume and share to lighter spirits, whisky remains Britain's favourite tipple, with almost 9m cases consumed in 2003.

The UK market is dominated by blended Scotch, which accounts for almost 80% of total sales, but has been losing volume at the rate of 1.2% a year since 1999.

American whiskey, which accounts for 8% of sales, has been growing at almost 10% a year over the same period. Malt whisky and Irish whiskey are also outperforming blended Scotch and account for 6% and 4% of sales respectively.

Just two brands, Bell's and The Famous Grouse, account for a third of all standard blended Scotch sales. The top four brands in this area (Bell's, The Famous Grouse, Teachers, and Grant's) have bucked the decline in standard Scotch, posting marginal growth.

The deluxe Scotch segment, which is dominated by Johnnie Walker Black Label and Chivas Regal, has seen volumes grow. The latter has seen growth of almost 10% a year since 1999.

The malt whisky sector is led by Glenmorangie, acquired just a few weeks ago by Moet Hennessy.

Jack Daniel's accounts for 90% of US whiskey sales in the UK. Its nearest rival, Jim Beam, has just 5% of the category. Jack Daniel's is the fourth-biggest whisky brand in the UK and has succeeded in attracting younger drinkers. Its US heritage and relatively recent arrival in the UK in the 80s have allowed the brand to avoid the perception of being a 'dad's drink', an image problem affecting many Scotch brands.

Although it is likely that whisky sales will face a slow decline over the next few years, its position as Britain's leading spirit seems unassailable for the time being.

This article was first published on marketingmagazine.co.uk

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