Daniel Bone, Insights Director at IRI, takes a look at the trends of 2019 – what worked and what didn’t. And he gives us a snapshot of what to expect in 2020.
The $18.3bn Australian retail liquor market is continuing to show resilience against a soft macro-economic backdrop. Falling consumer confidence has been driven by dwindling household consumption growth, low wage growth and negative per capita GDP growth.
Annual dollar growth of 3.3 per cent in the 52 weeks to 03/11/19 amounted to an additional $524m in sales growth. It also compares favourably to the 2.2 per cent YOY value increase observable at the same time last year (52 weeks to 04/11/18). Nevertheless, negative volume growth persists (albeit marginal, -0.5 per cent) against the backdrop inflationary excise increases, health and moderation influences and pressure on discretionary spend.
Improved beer performance, with dollar growth up 2.4 per cent versus 1.7 per cent YA, has more to do with stabilising the leakage from lost ‘classic beer’ sales. Twelve months ago, the segment shed $162m in sales at a rate of -7.1 per cent. Fast forward 12 months and there has been a noticeable softening in the leakage stemming from classic beer amounting to -$73m (-3.4 per cent). The turnaround in Tooheys performance (from -3.7 per cent to +2.3 per cent) is the most notable brand example.
Craft beer, although recording YOY growth that’s considerably down from the highs of 2015-17, remains a bright spot. Dollar growth has stabilised at around 9.5 per cent YOY for successive years. One notable shift in craft beer has been the rise of craft lagers, led by the impactful Mountain Goat GOAT Lager launch. It is an interesting outcome given that craft beer commentators in the more advanced US craft scene have long been predicting a resurgence of traditional craft lagers as a counter-trend to the choice complexity that has resulted from a proliferation of styles and brands.
Elsewhere, the two Great Northern lines still remain the two largest growth driving sub-brands across the total liquor industry, adding +$145m in raw dollar growth. No wonder the brand was awarded a Gold at the recent Australian Effie Awards with judges noting that “The Great Northern case study is a model for all students of advertising”.
Glass spirits remains the fastest and most significant dollar growth contributing category (+$317m), with only two of the 24 segments tracked by IRI in decline. We have observed quarterly dollar growth above nine per cent in each of the last three quarters, which has contributed to an annual sales uplift of 8.6 per cent (up from 3.5 per cent in the prior year). The sales acceleration has been particularly pronounced in light spirits, with annual dollar growth of 14.9 per cent versus 7.3 per cent YA. At a segment level, gin and vodka standout by accounting for a combined $140m in sales growth, up from a combined +$64m a year ago. That equates to a combined 45 per cent share of total glass spirits dollar growth, while only accounting for just over a quarter of category sales.
Vodka’s rate of growth is more than 4.5 times higher than 12 months ago led by Smirnoff Red, Vodka O and Skyy – all of which are in double-digit growth. Herein lies the difference between the two key growth segments: gin’s growth is led by innovation (and an expanding assortment) with a 31 per cent YOY active product count. In contrast, we have seen vodka’s active product count remain stable.
Despite the swathes of NPD activity in gin, the ubiquitous Gordon’s brand has been the main growth driver. We observe the same theme in the rapidly growing UK gin market too whereby the pink sub-brand extension has proven incremental to sales, while also imparting a broader ‘halo effect’ on the core Gordon’s SKUs. But other non-traditional brands – both local and international – are having a profound impact on surging gin sales; a telling example is Roku, which is a top 10 growth generating SKU in glass spirits.
The ongoing sales acceleration in gin (+30.5 per cent) has likely impeded the performance of Aperitifs, with leading suppliers like Diageo having noted that gin’s growth has been influenced by consumers coming into the early evening gin occasion that is typically the domain of an aperitif. On a related note, the upcoming summer period looks set to be a vital barometer in determining whether we have reached – and even gone beyond – ‘peak Aperol’. But Campari will no doubt invest heavily in well executed on- and off-premise trade activations to ensure Aperol remains front of mind for that crucial first-drink-of-the-night occasion.
Double-digit growth in light spirits is the standout bright spot in the total industry (let alone spirits), yet resurgent dark spirit sales have also propelled total industry performance. The 6.3 per cent dollar uplift in dark spirits sales amounted to +$138m in growth, up from +$41m YA. Accelerated growth in single malt scotch (+14.7 per cent) led to a near $6m increase in growth contribution from what has been a consistently high performing super-premium product segment in recent years. However, it’s the near seven per cent uplift in blended Scotch that’s arguably more impressive given the declines that had characterised the segment previously.
Specifically, Diageo’s globally lucrative partnership with HBO has been realised locally with the Johnnie Walker brand showing mid single digit growth having recorded double digit decline 12 months prior. The reversal of the brand’s growth trajectory, which reflects the blended Scotch segment more broadly, is testament to the power of affinity-led marketing and using pervasive themes in popular culture to enliven established brands. It must go down as the packaging innovation of the year in what is ultimately it’s a tale of cultivating brand relevancy at a time when shoppers are expressing indifference towards the importance of established brands in directing their choices.
When pondering what’s next in spirits, rum and tequila commonly feature in projections about what could take-off in the coming years. Tequila’s annual growth of 14 per cent, up from 5.7 per cent YA, is an indication that the agave distilled spirit will occupy a more prominent role in Australia’s burgeoning cocktail culture. While spiced rum growth of 5.4 per cent exceeds the total industry, we have not yet seen a significant sales surge in the off-premise that would get proponents of the so-called ‘rumolution’ to amplify their predictions of rum being the new gin.
In contrast to spirits, very little good news is emanating from the performance of the cider fixture. Annual dollar declines of -3.1 per cent are better than the mid single-digit declines observable a year ago, but symbolise a category that has lost growth momentum for three years now. Near four per cent dollar growth in fruit ciders is the only bright spot in the category, and that growth has softened from the 6.4 per cent increase a year ago.
Wine is another category that has lost momentum over the last two years. Annual dollar sales growth is currently tracking below one per cent with just $33m added in growth (down from +$70m YA). Sparkling wine sales falling into marginal decline (-0.8 per cent) has primarily underpinned the softening category performance with still wine having recorded successive annual gains of 1.1 per cent.
One noteworthy trend is the juxtaposition between the two largest selling wine segments. Led by Penfolds and 19 Crimes (the only two wine brands featuring in the industry’s top four sub-brands). Shiraz (+5.9 per cent) has overtaken Sauvignon Blanc (-3.5 per cent) to become the number one selling wine varietal YOY. In fact, Shiraz has overtaken Rosé as the number one growth driving varietal even though the latter is growing by +20.2 per cent. Meanwhile, overall sparkling declines have been influenced by Prosecco’s reduced rate of growth and Champagne’s declines (-2.0 per cent), but ultimately led by sparkling white sales falling into mid single digit declines. And with Rosé growth subsiding, it begs the question of what the wine industry can do to ‘sustain share of throat’ in the coming 12 months.
This article first appeared in the December issue of National Liquor News, which can be read in full here.