Spirits Industry SWOT
Some of the unique strengths of the US spirits industry include being a highly consolidated sector and adult consumers favoring spirits over beer while weaknesses include weak flavors and sales losses to cheap alcohol. The industry exhibits some promising opportunities like increasing consumers' disposable income likely to drive sales of premium spirits and the increasing popularity of cocktails; however, it also faces threats such as many regulations and retaliatory tariffs to U.S. exports.
U.S. SPIRITS INDUSTRY SWOT ANALYSIS
- Spirit premiumization within the U.S. spirits industry is a significant strength for the key players in the sector. For instance, key players in the industry can manufacture and market high-end, super-premium products that match the preferences of millennials. Thus, premiumization can potentially spur growth within the sector and drive the overall consumption of spirits.
- Key players in the spirits industry have the resources and innovation to develop new, sophisticated products that align with modern trends. In this regard, leading brands in the U.S. spirits industry with their massive production capacities and network of businesses can qualify as craft producers to hop onto the new craft bandwagon.
- The U.S. spirits industry is a highly consolidated sector with over 25 known M&A (mergers and acquisitions) deals since 2014. Consequently, these mergers and acquisitions have resulted in approximately 60% ownership of the U.S. spirits market by only seven companies.
- Adult consumers favor spirits over beer and wine, especially the millennials, according to a report by the Distilled Spirits Council.
- Cheap alcohol can significantly hurt the U.S. spirits industry considering some premium bottles going for $35 and above and some tequila brands $175. According to Constellation Brands, its spirit sales declined in the last quarter of 2018, primarily because of the excellent performance of its cheap alcohol.
- Spirits are conventionally known to feature high alcohol volume ratios; however, the current market dynamics hint at a rising preference for low alcohol by volume drinks. With the sales of no-alcohol beverages rising following a surging interest from health-conscious consumers, the U.S. spirits industry can potentially lose sales to this segment.
- Spirits lacking flavors is a concern for modern alcoholic beverages consumers and the lack of such in many spirits such as rum and vodka has led to a decline in their popularity. Likewise, millennials are highly receptive of new flavors, variety, and labels in both the spirits and craft beer categories. Thus, U.S. spirits with weak flavors need to improve those flavors to match the expectations of millennials.
- Increasing consumers' disposable income influences consumers' spending on premium spirits and dining out at bars and restaurants. The projected rise in the U.S. per capita disposable income in 2018 presents an opportunity for the industry, especially the premium spirits category.
- Growing consumers' interest in premium spirits and craft spirits have led to the upturn in traditional spirits, such as mead, the oldest spirit known to man and Moscow Mules, a cocktail made with vodka. Both Mead and Moscow Mules were among the most popular "trendy drinks" in 2018.
- The increasing popularity of cocktails over beer and wine is driving demand for spirits in the industry and that of the products used for mixing drinks.
- The U.S. alcoholic beverage industry is a highly regulated sector. Distilleries are subject to multiple Prohibition-era regulations that discourage companies from entering the industry. Equally, these regulations cause existing operators to waste resources trying to evade the rules.
- The health and well-being of consumers is a significant threat the industry faces. The increased attention to health and well-being can cause consumption to stagnate or decline. Health concerns are linked to the 2017 decrease in alcoholic consumption in the U.S. by 0.7%.
- Retaliatory tariffs to U.S. exports can affect the U.S. spirits industry exports. For instance, in 2017, retaliatory tariffs caused a -8.7% decline in American whiskey exports to the European Union, which had been growing at a steady 33% during the first half of the year.
In carrying out a SWOT analysis of the U.S. spirits industry, compilations of market research reports, industry reports, news reports, and industry watchdog's reports were leveraged to uncover findings on the industry's strengths, weaknesses, opportunities, and threats. The search involved a thorough examination of credible reports published by leading market research vendors such as Mordor Intelligence and IBIS World - which featured insights into the factors affecting the U.S. spirits segment and the whole alcoholic beverage sector. Despite most of these industry reports demanding a paid subscription to access the contents, excerpts pulled from the overview of their reports featured substantial and reliable data to form conduct the SWOT analysis. Among other trustworthy industry sources examined are Beverage Daily, which features daily news on the sector, L.E.K (a management consulting company), and CNN, a nationwide news agency. The search process consolidated information from various other sources such as the Distilled Spirits Council with first-hand data regarding the happenings within the industry.