Whiskey SWOT Analysis

Part
01
of two
Part
01

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

STRENGTHS

  • 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.

WEAKNESSES

  • 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.

OPPORTUNITIES

THREATS

RESEARCH STRATEGY

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.
Part
02
of two
Part
02

Whiskey Industry SWOT

Some strengths of the US whiskey industry include constant innovation, high sales volume, strong market positioning, and market performance, while the threats to the industry are related to the slow growth of market share, a shaken industry, and slumped exports. The industry faces threats from the tariffs imposed by Trump's administration on steel and aluminum, as well as increases in the trade-weighted index (TWI), but can still take advantage of opportunities in advancements in technology, growing interest in whiskey, and Millennials' preference for whiskey products.

STRENGTHS

  • Constant innovation : The US whiskey industry is constantly revolutionizing in response to consumers' changing preferences and consumption patterns. More products have been unveiled over the years including vintage offerings, limited-time offerings of rare releases, new line extensions and brands, and the latest batches from small distillers.
  • Players in the industry have strategies in place to develop new products that won’t be ready for years. For instance, the innovation team at Heaven Hill (a family-owned spirit producer) holds monthly forums to discuss ideas in the pipeline worth considering for high-profile limited releases (like the annual Parker’s Collection). In Heaven Hill master distiller Denny Potter’s own words, “innovation for us in this industry isn’t something you decide today, it is a process that for one project could span decades — we’ve got a 27-year-old coming out this year that I doubt anyone really planned on.”
  • High sales volume : In the US, whiskey is among the best-selling types of spirits. In 2018, the total whiskey brands sold made up to with 66.1 million 9-liter cases, second only to vodka which sold 72.5 million 9-liter cases that year.
  • Strong market positioning : The introduction of new and unique mash bills and formulas for US whiskey, different alcohol strengths, outstanding packaging, and different age factors have helped whiskey become the iconic spirit in the US with a rich history, heritage, and tradition almost like no other category in the alcohol and beverage industry.
  • Strong market performance: Outlook statistics show that the revenue for the whiskey segment amounts to $18.126 billion in 2019. Additionally, forecasts show that the market will even perform better in the next for five years (2019-2023) growing annually at CAGR of 2.7%.


WEAKNESSES

  • Shaken industry: There is a negative perception of the US whiskey industry that has been created as a result of the 2018 tariffs imposed on steel and aluminum by Trump’s administration. The chaotic back and forth has shaken the industry, many investors remaining reluctant to pour money into the industry.
  • Slow growth of market share: Stiff competition in the US whiskey market has caused slow growth in market share for most US-based whiskey brands.
  • A Forbes article highlighted that bourbon exports decreased from 2013 to 2018, while the US remains the largest import market for Scotch whiskey by value, accounting for over 1.1 billion in Scotch whiskey sales.
  • Slumped exports : According to a report by the Distilled Spirits Council, US whiskey exports registered an 11% drop from in the second half of 2018, following import duties of between 10% and 25% tacked on US whiskey and bourbon by Canada, China, Mexico, and the European Union.

OPPORTUNITIES

  • Growing interest in whiskey: There is an opportunity for the US whiskey industry due to the whiskey renaissance in the country.
  • According to the President of Heaven Hill Max Shapira, "there is also a growing consumer interest in brands that have a history and transparency."
  • Advancement in technology: In the age of technological advancements, technology use is becoming increasingly becoming prevalent in the spirits industry. As such, there is an opportunity in technological innovations that can facilitate the production of better quality whiskey.
  • Kentucky Distillers is an example of a player who has put its step forward to explore the opportunities in data analytics, automation, IoT sensors, and RFID tags to streamline production.
  • Millennials’ preference for whiskey products: There is an opportunity in the alcohol consumption habits of Millennials who have become more inclined to consider whiskey products that are long believed to be an “old man's” drink. The same is the case as whiskey fall into the category of what Millennials consider as ‘authentic’ consumer items.

THREATS

Sources
Sources

From Part 01
Quotes
  • "US alcoholic beverage producers are highly regulated, as the sector remains subject to many Prohibition-era regulations. "
  • "Disposable income affects spending levels across all categories. When people have more money, they are more likely to consume premium spirits, which translates into higher revenue for distilleries."
Quotes
  • "This 2019 market research report provides a detailed overview of the state of the alcoholic industry in 2019."
Quotes
  • "In 2018, spirits gained market share versus beer and wine with sales rising seven-tenths of a point to 37.4 percent of the total beverage alcohol market. It is the ninth straight year of market share gains overall, where each point of market share is worth $740 million in supplier sales revenue."