There is no question that spirits sales in travel retail are suffering but some positive news from U.S. domestic off-premise markets indicates strong consumer demand that spells optimistic potential recovery for travel retail post-COVID, particularly among more premium brands.
The pandemic’s devastating impact on the U.S. hospitality industry in 2020 resulted in major shifts in consumer buying behaviors and innovative relief measures. These changes are expected to boost economic recovery, modernize the alcohol marketplace and increase consumer convenience for years to come, according to the Distilled Spirits Council of the United States (DISCUS).
“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.”
Even with the COVID-19 pandemic, the U.S. spirits industry experienced solid sales growth in 2020, with strong off-premise sales at liquor stores offsetting weak on-premise sales amid nationwide restaurant and bar closures and restrictions.
Supplier sales in the United States were up 7.7% in 2020 to a total of $31.2 billion, while volumes rose 5.3% to 251 million 9-liter cases. Overall, total beverage alcohol sales by volume grew 3%.
Off-premise sales were up 18%; on-premise sales were down 44%; and sales at global travel retail outlets dropped to nearly zero.
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.
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. 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.
U.S. spirits consumers gravitated to super premium products
Most relevant to travel retail, the DISCUS report shows that the strongest growth took place from higher-end, super-premium brands.
“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 DISCUS Chief Economist David 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.
Tariffs hurt 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% tariff on American Whiskey in 2018, the value of American Whiskey exports to the UK and EU have decreased 53% and 38%, respectively. In June 2021, the EU tariffs on American Whiskey will automatically increase to 50%.
LoCascio stated that U.S. retaliatory tariffs on certain imported spirits have had a similar harmful effect, including a 37% decline in U.S. imports of Scotch Whiskies since the imposition of a 25% tariff on Single Malt Scotch Whisky in October 2019.
Discus’ number one legislative priority in 2021 on the federal level is to secure an immediate suspension of tariffs on all distilled spirits.
2020 Key Spirits Category drivers of sales growth in the U.S. included:
- American Whiskey sales up 8.2% or $327 million to $4.3 billion; Rye Whiskey was up 16.9% or $40 million, reaching $275 million;
- Tequila/Mezcal sales up 17.4% or $587 million to $4.0 billion; Mezcal up 7% or $19 million totaling $124 million;
- Cognac sales up 21.3% or $413 million to $2.4 billion; and
- Pre-mixed cocktails sales, driven by spirits ready-to-drink (RTD) products, up 39% or $137 million to $489 million.