Regular Cantillon readers won’t be too surprised by the Drinks Industry Ireland’s latest spirits report, which highlights the rough terrain the global drinks industry is navigating at the moment. After the dizzyingly successful year the sector had in 2022 as international travel and the on-trade generally rebounded from the pandemic, 2023 was an altogether more sobering experience.
[ Guinness flows but Diageo’s profits dry upOpens in new window ]
While the volume of Irish spirits exported last year was essentially flat from 2022, values declined by a hefty 9.3 per cent. Irish whiskey, the core product in the national portfolio, fared reasonably well with export volumes up 2.6 per cent to 15.6 million cases. The value of whiskey exports, however, slumped 14 per cent to €975 million. Irish gin exports, meanwhile, plunged 6.1 per cent in volume terms with the biggest declines in the standard and value end of the market. Premium gins, where “most Irish brands compete”, as DII highlights in the report, suffered a “more benign” drop-off of 2.3 per cent.
The trouble for spirits exporters is shoppers have reined in spending generally, moving towards cheaper products like beer in the UK and Ireland, and cheaper local substitutes in the Americas. This is particularly worrying for the likes of Johnnie Walker and Smirnoff brand owner Diageo, which has focused on “premiumisation” in recent years, hoping to recoup revenues lost through secular declines in alcohol consumption globally through more expensive, exclusive products. That trend was turbocharged during Covid when stuck-at-home consumers had more disposal income and more of an inclination to spend it on premium tipples.
[ Fall in sales could spell trouble for Diageo’s ‘premium’ strategyOpens in new window ]
Dragging consumers up the price ladder might have worked under those conditions and even beyond the lockdown periods. But those habits have slipped in the past 18 months as households grapple with punishing levels of inflation across most of the major economies.
Jameson maker Pernod Ricard, which reported a 9 per cent decline in sales in the first nine months of its financial year, publishes its annual results later this month, which will be closely watched for any signs of a turnaround. By all accounts, though, 2024 is looking like the year in which the hangover truly set in for the spirits industry.
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