In its 2010 market report, Spirits & Liqueurs, independent drinks analyst Key Note claims that the value of whisky sales in the UK, the world’s third-largest market for Scotch, fell by 23% in the five-year period from 2005-09.
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Scotch now accounts for only 24.3% of the UK spirits market – dramatically down from the 31% share that it held in 2005 – largely due to the rise of a generation of whisky-averse younger drinkers and competition from more aggressively-marketed white spirits such as vodka. Much of the competition is manufactured by the same multinationals which own the majority of Scottish distilleries.
“The last decade has seen demographics in the UK dictate the market, with divisions in the spirits and liqueurs market having formed corresponding to consumer age,” the report says. “Growth in sales of white spirits and particularly of vodka has been maintained by younger consumers, who have enjoyed the versatility of the spirit.
“In contrast, the dark spirit industry has reported a gradual decrease in the past few years. The Scotch industry, especially, has experienced a steady decline for some time, although since the recession was announced in the UK in 2008 conditions have worsened.”
Coinciding with a period of mostly strong economic growth in the UK, the lost sales of Scotch in the UK equate to the high tens of millions of pounds.
Data available on the SWA’s website shows that in the same period Scotch volumes sold in the UK declined from 30 million LPA to 25.8 million LPA. Over the same period, however, global volumes rose from 308 million to 330 million LPA .
In response to the report, the Edinburgh-based SWA conceded that the UK market had been “challenging”, but stressed that the UK slump was more than compensated for by a 32% or £764 million rise in whisky exports over the same period.
A spokesman for the SWA also pointed to a 2% rise in 2009-10 sales in the UK, and that widespread industry investment in the home market demonstrated confidence in whisky’s future growth in Britain.
He also suggested that the figures strengthened the case for “fairer” taxation of whisky compared to the rest of the alcoholic drinks sector, and the continuation on the freeze on spirits duty announced by Chancellor George Osborne in his first Budget in June last year.
According to the SWA, Scotch is already taxed some 250% higher than the same amount of alcohol served as cider, 37% higher than beer, and 30% higher than for wine. The body argues for a “simple and transparent and fair” system that taxes drinks according to alcohol content. Whisky, vodka, gin and rum are all taxed on the same basis.
The SWA spokesman told the Sunday Herald: “Representing over 92 million bottles a year, the UK remains the industry’s third-largest market. Companies are investing at home, with deluxe bottlings growing interest in Scotch whisky among new consumers.
“With the UK market up 2% [in value] to September 2010, we are arguing for a duty freeze in the March Budget to help support this encouraging trend.
“However, to focus on [the UK] just one out of 200 markets ignores Scotch whisky’s global success. Exports grew by £764m – a 32% rise – between 2005-09, with Scotch whisky now worth more to the UK than Cognac and Champagne exports combined are to France.”
Scotch is the leading single product export from Scotland, accounting for 15% of total Scottish exports (excluding oil and gas), 24% of Scottish manufacturing exports and 87% of Scottish food and drink exports. Scotch grew last year in 17 out of 20 of its top markets.
Industry analyst Donnie Blair, formerly head of strategic affairs at Diageo and arch-critic of the Scotch sector’s recent growth performance, said: “After many years of sluggish growth it is disappointing to see LPA figures down by three million in the UK between 2008-09 and down by nearly one million globally.
“At a time when other spirits are soaring ahead, Scotch has now gone into actual decline.
“I have brought this to the attention of the Scottish Parliament, Scottish Enterprise and Scotland Food & Drink but no-one seems willing to engage with the question, despite the fact that over the past 30 years this underperformance has cost us around 50,000 jobs. As we face upcoming unemployment problems in Scotland this is an issue that can no longer be swept under the carpet.”
According to Key Note, the total market value of spirits and liqueurs stood at £8.4 billion in 2009, a 2.1% decline from 2005. The market grew in 2007 and 2008, but dipped in 2006 and 2009, in line with recessionary periods.
The report characterises the “mature and developed” UK spirits and liqueurs market as especially hostile to new entrants, dominated as it is by a few leading companies.
The success of supermarket own-label spirits has hit the sector’s overall market value in the last five years “to the dismay of private label companies”.