As the trade wars cool down, how will the spirits industry evolve?


In June, the alcoholic beverage industry collectively breathed a big sigh of relief as retaliatory tariffs, the result of a long-standing trade dispute between the EU and the US, unrelated to the industry. alcohol involving illegal subsidies paid to Airbus, have been defused.

The trade war has significantly disrupted the spirits industry, hitting workers in distilleries and wineries, importers, exporters, distributors, retail and restaurant workers, farmers, packaging companies and logistics providers. Established brands watched the barrel of ever higher prices, and newer brands were reluctant to compete in an unstable market. “During the tariff debacle, no product in the EU could feel safe,” said John Beaudette, founder of the leading US alcohol importer and distributor. MHW SA. “The office of the United States Trade Representative (USTR) may periodically adjust both tariff rates on products already affected and add new categories and products from other countries.”

What does this relief look like for the alcohol industry? Read on as Beaudette, a former board member of the Distilled Spirits Council of the United States (DISCUS) and the National Association of Beverage Importers, dives into what the American alcohol landscape looks like with tariffs. newly lukewarm.

(It should be noted that American whiskeys remain the only spirit subject to 25% tariffs linked to an ongoing dispute over steel and aluminum.)

How do tariffs affect the industry?

Jean Beaudette: Brands affected by 25% price increases have either increased prices or reduced costs (by reducing advertising, marketing and manpower), or a combination of these. Many brands have speculated that they could be next, triggering large shipments of products from non-tariff European producers to the United States as insurance against a possible tariff. This had a big impact on logistics systems: container shortages, space problems in public warehouses, and delays in docking at the dock all pushed up costs for everyone. “

“In addition to all the uncertainties and challenges that brands impacted by tariffs face, the pandemic has hit and put many brands in a position where they could not execute a sales strategy suited to the changing dynamics of market trends. consumer consumption. For example, over the past decade, US imports of single malt scotch had increased by about 6% per year. Suddenly, scotch imports fell 4% in 2020, as overall spirits volumes increased nearly 5% across all categories. Through no fault of their own, they have been trapped in the tariff war. The reality is that their loss was someone else’s gain. New brands could play ball.

“Another victim of arbitrary tariffs has been the elimination of the United States as a target for new brands seeking to export. With an additional 25% cost, US importers and overseas producers have chosen to wait for a better time to launch something new.

So we’re about to see a huge wave of new brands?

JB: “There is no doubt that we have entered a new period of brand acceleration, similar to what happened after the advent of the Internet. We saw a 36% increase in the number of new brands entering through June 2021 compared to the previous year. To cope with this increase, we have already increased our workforce by 40% and a further 20% by the end of the year.

“On the supply side, a good indicator of the brand’s new initiatives and activities can be seen in the number of alcoholic beverage formulas submitted and processed by the TTB. For 2020, formulations of spirits and predominantly malt products topped 24,000, up 70% from five years ago. Another measure from ‘bw166’ indicates that the TTB has approved more than 21,000 spirits labels in the past twelve months ending July 2021, up 20% for the year, but up 33% for the last three months.

Will new brands be able to enter the market in such a short time?

JB: “To meet the ever-changing and often fleeting demands of alcoholic beverage consumers, important supply-side momentum makers have converged to help new brands and players seize the opportunity. While the Trump administration has shaken the industry with tariffs, on the other hand, it has provided a major federal excise tax relief program (called the “Craft Beverage Modernization Tax Reform Act”) for them. eligible domestic and foreign producers. It represents a great permanent economic opportunity for new, emerging and established brands.

“For spirits producers, this offers huge incentives to invest in their brands or launch a new one. To put it in perspective, an eligible producer of 40% ABV bottles could save over $ 1 million in excise taxes for up to 50,000 9-liter cases. This represents a 70% reduction in taxes, which makes it possible to invest in people, marketing and other brand building activities. Foreign producers around the world have never seen an incentive program like this and they are excited to work with their US importer to invest in sales efforts in this market.

Are these brands all new or international brands entering the United States?

JB: “One of the main drivers for the entry of new spirits brands into the US market is the potential for a lucrative exit / sales opportunity. Global beverage companies like Diageo, Constellation Brands

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, and Pernod Ricard pay high premiums to entrepreneurs capable of creating a brand. This is one of the reasons why so many celebrities have entered this industry in recent years. With their power over social media, they can create demand and therefore build a brand almost overnight.

“Brand loyalty is low right now – new entrants with a good product and good packaging and a credible story can attract customers very quickly. “

How has e-commerce played a role in this wave of new brands?

BD: “We have heard from industry players that the pandemic has advanced the timeline five years and more in terms of alcohol e-commerce and making consumers more comfortable with online shopping and home delivery. . Case in point: Third-party marketing and order fulfillment platforms such as Drizly, ReserveBar, MiniBar, Thirsty and many more saw their businesses triple and quadruple overnight. “

“One of the by-products of the pandemic will be a movement to grant spirits similar limited direct sales opportunities to consumers, in accordance with the way wines are treated. Craft spirits distillers and importers want the ability to ship bottles to customers inside and outside their state, especially when their brand is not available in that market. Wines uses a controlled system that tracks product shipments directly to consumers, ensures state taxes are collected, and requires receipts to be signed only by those 21 years of age or older. Spirit players want the same opportunity. Kentucky has already launched a program whereby licensed distilleries across the United States and importers representing foreign brands can ship spirits directly to consumers on a limited basis. It will be interesting to see which other states initiate similar models.

Are we going to see more RTDs?

BD: “The hard seltzer phenomenon shocked me. In my 30+ years in this industry, I have never seen anything like it. Malt-flavored drinks, a category within beer, have grown by 251 million cases in just two years. Most of this growth was the explosion of hard seltzer. This corresponds to the 251 million cases of spirits consumed in the United States in 2020! “

“In 2020, the United States added 45 million cases of alcohol consumption [according to Beverage Information Group]. Wine added 3.5 million cases, spirits added 15 million cases, and beer / malt added 25 million cases. Since beer is over 10 times the size of spirits by volume, spirits are certainly gaining shares of wine and beer.

“A large part of the new formula and label approvals managed by the TTB relate to“ ready-to-drink ”(RTD) cocktails made from spirits and seltzer waters. While the majority of hard seltts, such as White Claw and Truly, are made with neutral malt ferments, there are many new entrants looking to lead consumers to true, cocktail-style, spirits-based offerings. While some are made from rum, tequila, and whiskey, the majority of newer RTDs are made from vodka, reflecting the fact that a third of all spirits consumed in America today are vodkas. 20% of the new products we see at MHW are now spirit based RTDs. ”

“I see a ‘hopping ball’ coming in which today’s seltzer consumers (down over 200 million cases per year) can be drawn into by traders of traditional spirits, cocktails, RTDs. made from spirits, wines and traditional beer brands. You can bet the folks at White Claw, Truly, and the rest will do their best to make sure they control the start of the jump ball.

About Michael Brafford

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