Wave Kentucky Whiskey Report — 2021 State of the Industry
Wave Financial, in collaboration with High Spirits Marketing, has assembled research from multiple industry analysis to write our second Wave Kentucky Whiskey Report. The 2021 State of the Industry will discuss new market developments and forecast future trends. Our team continues to believe that Whiskey can be a favorable investment for individuals, families, and businesses that previously have not had the ability to diversify into the asset class. In the same vein as our past report, the underlying thesis is that Whiskey increases in value throughout the aging process, and its market share and value are projected to grow steadily in the near future.
Executive Summary
● Impact of Global Pandemic
○ Decline in global sales volume for whiskey in 2020 due to the pandemic and losses in on-premise (bars, clubs and restaurants, etc.) business.
○ Consumers traded up in price and quality while drinking at home.
○ Consumers are trading up to higher quality whiskey brands, and into the High-End Premium and Super Premium priced whiskies.
○ Easing regulations have helped to boost whiskey sales in the United States and across the globe.
● E-Commerce, Craft Spirits and Demographic Trends
○ Craft Spirits have been increasing in relevance and importance with consumers and will continue to do so after the pandemic.
○ New whiskey flavors are entering into the market, increasing sales among Millennials, GenZ, Women and Hispanic demographic groups.
● Production
○ Kentucky distillers filled more than 2.1 million barrels of Bourbon in 2019, the highest production year ever, and the second straight year with 2 million barrels filled.
○ Total Bourbon inventory in Kentucky was 9.3 million barrels as of January 2020. This is the first time Bourbon barrels have topped 9 million since the KDA began tracking inventories in 1967.
○ The 2019 tax-assessed value of all barrels aging in Kentucky was more than $3.8 billion.
● Bourbon Demand
○ Due to demand for whiskey, especially Kentucky Bourbon, it is currently difficult to find bourbon whiskey that has aged greater than four years on the open market.
○ Current barrel pricing remains strong.
○ Prospects for whiskey growth in the United States and across the globe will be very strong through 2028, both in terms of value and volume annually.
○ It is unclear how current aging whiskey inventories and future demand will impact future whiskey barrel sales prices.
○ The high-end cocktail craze has had a positive impact on whiskey. Whiskey is increasingly seen as a versatile beverage, making it mixable in cocktails.
Impact of the Global Pandemic
Micro Effects:
The Covid-19 Pandemic has had a tremendous impact on the alcoholic beverage industry. On-premise bar and restaurant sales have seen declines ranging from 20–35%; however, off-premise liquor stores have seen robust sales increases.[i] For some companies the sales from off-premise sites have been strong enough to keep them in the positive territory for 2020. In terms of premiumization, the High-End share change of whiskey pre-covid compared to 2020 was 0.3. The High-End dollar change for spirits was 1.7 precovid versus 3.3 in the calendar year of 2020.[ii] Larger distilleries operating with a strong majority of their business in on-premise channels didn’t experience the same success. Similarly, 70%-80% of small distilleries producing three barrels a week or less have had difficulty staying in business.[iii]
The pandemic has greatly impacted distillery tourism, on-premise sales, and tasting rooms while businesses have been forced to scale back operations. Generally, sales have been negatively impacted as professionals can’t travel or get to consumers to sell their products.
Consumer trends that grew during this period are the pursuit of unique experiences, convenient services, and wellness centered products. Experiences focused on authenticity, flavor, and luxury, and wellness products that are “better-for-you”, low and no-alc, and transparent in their ingredients have all flourished during the pandemic.
Macro Effects:
In addition to the spread of the virus, tariffs have negatively impacted smaller spirits brands, but, conversely, benefited certain larger brands. The sharp decline in global travel retail greatly impacted sales. The International Wines and Spirits Record (IWSR) estimated global travel retail volume consumption fell by 68%, and according to the UN World Tourism Organization (UNWTO), global tourist arrivals fell by 65% in the first half of 2020.[iv] This has driven an increase in online purchases through apps such as Drizzly, Instacart, and Reserve Bar.
Positive Factors Influencing Growth:
New laws are easing barriers to entry and lowering costs for new producers. Similarly, a growing number of states are permitting Sunday alcohol sales, and virtually all states now allow some type of spirits tasting. As states relax direct-to-consumer laws, consumers are able to purchase products at the distillery during their on-premise experiences. The rapid expansion in the popularity of artisan, locally produced whiskey is helping to propel its consistent market share growth. Tasting and sampling programs are also helping to drive purchases of Whiskey and other spirits.
E-Commerce, Craft Spirits and Demographic Trends
Consumers trading up, a shifting demographic landscape, and an exploding craft arena are a few of the encouraging trends affecting the alcoholic beverage industry. Also, favorable economic conditions for individuals and families, coupled with rising disposable incomes have allowed many consumers to trade up to High End Premium and Super Premium spirits. These segments are projected to fuel sales in the wider alcoholic beverage market.
Women and millennials are responsible for driving key growth areas in the industry including: craft, premiumization, and flavors. The craft spirits arena continues to thrive and an increase in experimentation has led to a blurring of traditional categorical lines. Consumers are showing increased desire to connect with the history and tradition of smaller distilleries. As such, consumers now more than ever want to know the story behind the production processes and are increasingly willing to pay a premium for an original, higher quality product. Another favorable trend is the increased appetite for higher valued products.
The rapid expansion of e-commerce opportunities for consumers will help boost alcohol beverage expenditures in the near future. From 2019 to 2024 average yearly household expenditures on alcoholic beverages is forecasted to grow from $579.25 to $610.75.[v] According to data from Finaria, the COVID-19 outbreak of 2020 helped increase the number of total e-commerce users across the globe by 9.5% year-over-year to exceed 3.4 billion.
Social media applications and websites continue to provide producers increased marketing opportunities and new abilities to spread product awareness. Social media also gives producers the ability to target specific demographics, monitor the dialog surrounding their product, and build brand awareness. All with the goal of boosting the value of their interactions with consumers.
The number of e-commerce users is projected to grow by 10% year-over-year to 3.8 billion by the end of 2021; a four hundred million person increase compared to 2020.[vi] By 2025, the number of worldwide e-commerce users is set to reach 4.9 billion. The expanding market generates increased opportunities for producers to sell their goods. Global E-Commerce revenues grew 25% in 2020 compared to 2019 and reached $2.43 trillion. These revenue figures are expected to reach over $2.7 trillion in 2021, and $3.4 trillion by 2025. As more revenue shifts to online purchases, consumers can take advantage of new products and easier methods of purchasing.
In 2020, total alcohol dollar sales through e-commerce grew by 232%; while spirits, specifically, grew by roughly 396%.[vii] Currently wine holds the majority share of e-commerce with 68%, and spirits maintain only 19%. However, spirits grew their market share by 6.4% whereas wine lost 7.7% of its share in 2020. 2020 saw a 167% growth in total alcohol e-commerce buyers, driven largely by new buyers.
Domestic Whiskey Market Analysis
The US Whiskey Market has experienced strong gains and is projected to continue to thrive in the future. By US sales volume, Whiskey was the second largest category in 2019 with 69.3 million 9L cases sold. Compared to 2019 the whiskey category grew by 4.8% in 2020. The category has experienced positive growth every year since 2010 at a compound annual growth rate (CAGR) of 4.4%.[viii] From 2012 to 2019 straight whiskey’s share of total spirits consumption grew from 8% to 10.5%.[ix] Following the same trend, whiskey sales in the US are projected to increase from 10.3 billion in 2019 to 13.4 billion in 2024 with a CAGR increase of 5.5%.[x] Whiskey sales are expected to grow at a faster rate than total distilled spirits sales in the same period. The whiskey dollar share of the distilled spirits is projected to grow from 35.5 in 2019 to 38 in 2024. These predictions point to the bullish sentiment towards the whiskey market sector.
While the overall category experiences growth, consumers have shifted out of Value and Premium whiskies into High End Premium and Super Premium brands. This trend is projected to continue through 2024. The growth in High End Premium and Super Premium price tiers lead much of the growth for the overall category. Whiskey was by far the largest category of spirits to be exported in 2019. By volume in thousands of proof gallons, 31,453 of Whiskey was exported. Rum, the next closest category, exported only 7,521. From 2018 to 2019 Bourbon exports grew by a powerful 14.3%.
Global Whiskey Market Analysis
Despite declines in 2020, the global whiskey category is projected to grow revenue every year through 2025, at a CAGR of 6.4%.[xi] Whiskey lost 4.4% of revenue in 2020, but global whiskey revenue is expected to experience a strong rebound in 2021 with a 9% increase. In 2019, there was an increase in global whiskey average revenue per capita with a value of $12.31, but that figure then fell to $11.65 in 2020. It is projected to again increase to $12.58 in 2021, and grow to $15.56 in 2025. The average price per unit in the global whiskey market also experienced a slight decline from $14.08 in 2019 to $13.95 in 2020. However, that is also projected to rebound in 2021 to $14.64 and up to $17.24 in 2025. The CAGR is forecasted to increase by 4.2% for that metric over the same period.[xii]
Globally, the whisky category is projected to grow in value every year through 2028 at a CAGR of 2.3% starting from 2021. New flavors and increasing exports globally are expected to drive growth. For North America, the market value CAGR is 1.4%, growing from $6,829.2 to $7,565.4 (millions of US dollars). The reason for such growth is related to consumer demand for high-quality brands, and consumers shifting into high-end premium and super premium products. Latin America is forecasted to experience similar growth, at a CAGR of 1.7%. The rising demand for premium brands, rising preference for whiskey in Brazil, increasing population, increasing disposable incomes, urbanization, and increasing standard of living all help to support growth in this region. Europe is also forecasted to experience strong growth, at a CAGR of 1.2%. The steady growth of the young and working population coupled high consumption of alcoholic beverages in Eastern Europe are helping to contribute to the increasing demand.
By volume, the Asia Pacific Whiskey market is projected to grow every year up to 2028 at a 2.6% CAGR. The increasing demand in emerging economies including India and China, growing demand for premium quality spirits, increasing economic development, increasing population, increasing disposable incomes, urbanization, and the increasing standard of living all help propel the growth of the markets in this region. The Middle Eastern whiskey category is also projected to grow in value every year through 2028, at a CAGR of 2%. The factors driving growth of whiskey in the Middle East are rising consumption of alcoholic beverages among the young-adult population, and increased availability of alcohol products through online channels and at places such as airports. However, the base revenue volumes are relatively small compared to other markets.
The whiskey category for the market in Africa whisky is also forecasted to experience steady growth in value every year through 2028, at a CAGR of 2.2%. The factors that lead to the growth of whiskey in Africa are increasing disposable income of consumers, growing foreign investments in the alcoholic beverages industry, increasing demand for flavored alcoholic beverages, rising American whiskey exports to South Africa, increasing economic development, urbanization, and the increasing standard of living.
Conclusion
Despite the spillover effects of the COVID-19 pandemic the industry outlook for alcoholic beverages remains positive. The shifting demographic trends and e-commerce explosion help support the same hypothesis. These factors paired with the favorable forecast for the both the domestic and global whiskey market enhance the potential opportunity for investors.
For more information, please contact info@wavegp.com.
Authors:
Benjamin Tsai, President, Wave Financial
Samuel Eisner, Analyst, Wave Financial
Steffani Scheurich, Owner and Founder, High Spirits Marketing
DISCLOSURE:
This informational piece is intended to inform Wave Financial’s audience of the current status of the American Whiskey industry. Nothing in this material should be interpreted as an offer or recommendation to buy, sell or hold any security or other financial product. Wave Financial LLC is federally regulated by the US Securities & Exchange Commission as a registered investment adviser. Registration with the state authority does not imply a certain level of skill or training. Additional information including important disclosures about Wave Financial LLC also is available on the SEC’s website at www.adviserinfo.sec.gov. Or, learn more information about Wave Financial at www.wavegp.com.
The views expressed in this report reflect the authors’ personal views about the subject companies, platforms, issuers, security and non-security investments (“investments”) and not those of Wave Financial. The authors’ comments are not intended to be construed as recommendations or an offer to buy, sell or hold any investment. The authors’ compensation is not directly or indirectly related to the specific recommendations or views contained in the research report. The ecosystem landscape included in this post is intended to provide generalized guidance; nothing in this analysis is intended as investment advice, a recommendation or an introduction to particular funding or capital resource.
*Estimates use private distiller data, captured through conversations and market research involving distillers, distributors, and other parties involved in the Kentucky Bourbon Industry, and while deemed reliable cannot be substantiated. Results projected are for illustration purposes only and cannot be guaranteed.
