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Euromonitor International’s latest forecast growth figures for other blended Scotch make happy reading for international spirits companies, with the category anticipated a volume CAGR of 3% (125 million litres) over the 2013-2018 period.
In five key markets that are expected to drive blended Scotch growth between 2013-2018 the key or at least an important growth driver in 2013 were economy brands. These five markets, laid out in the chart below are expected to account for around 60% of the category’s growth over the forecast period.
Source: Euromonitor International
Despite economy brands’ relatively low margins, this is generally encouraging news for both the long and short term. It seems to show that more consumers in those markets are trading up to Scotch from local spirits, which should be the case with increased local prosperity.
Additionally, in the short term, companies, despite a whisky shortage, will find it easier to meet demand. Economy brands take less time to produce (three or five years’ maturation), and with all the major companies’ massive increase in production capacity, they will have a good chance of meeting demand for these products in the coming years. This is something that would be more difficult to achieve with longer maturing standard and premium brands.
Thus, it is essential for all major blended Scotch producers to offer at least one economy brand in their portfolio and focus on it in key emerging markets. Diageo is particularly well placed to profit from this, while those which are relatively weak in the category, such as William Grant, need to spend more time developing such a brand if they want to capitalise on the category’s burgeoning growth in key emerging markets.
However, producers will have to be careful and will need to work out how to push these consumers further up the price ladder towards standard and premium brands, and thus boost profitability. This is by no means easy, as illustrated by the Russian market, in which economy brands accounted for 67% of the category’s volumes in 2013 while super-premium brands remained a very small niche. Producers, therefore, will need to work on both developing the price points and images of their standard brands. This could include not just expanding price points but also considering different pack sizes.
Premium and super-premium brands should also not be ignored. Even in these fast growing markets for economy brands, such as Russia and South Africa, premium and super-premium brands are also growing rapidly from very small bases. This is not only because of the small number of very wealthy individuals who can afford these products in the first place but also the fact that very aspirational consumers like to show off their wealth. In South Africa, Diageo’s super-premium Johnnie Walker Blue has performed strongly thanks to a number of South African workers buying this brand to signal to their family and friends that they are moving up in the world.
A broad category portfolio, with brands at all the different price points, is thus vital for all the leading blended Scotch producers. In the short to medium term, the focus should be on lower price points to encourage new consumers in key growth markets into the category, but also on develop stocks for the high price points ready to persuade consumers to trade up and capitalise on these consumers’ growing prosperity.