Provenance and profits: The future of the gin industry

The pace at which gin has reinvented itself as a fashionable spirit is one of the most dramatic changes to have occurred in recent times.

Formerly derided as passé by consumers, the IWSR’s forecasts confirm that the much-hyped gin renaissance is not simply journalistic hyperbole. The UK is a longstanding barometer of gin trends, so its performance is particularly telling; total gin consumption was over 6m nine-litre cases in 2018. That figure is expected to rise to over 10m cases by 2023, according to the IWSR’s data.

The UK is also the world’s largest exporter of gin – at the beginning of 2018, there were 315 distilleries in the UK, more than double the number operating five years previous. And there’s more good news: total global gin consumption is expected to rise 4.4% during the period 2018-2023, according to the IWSR’s forecasts.

Total global gin consumption is expected to rise 4.4% during the period 2018-2023, according to the IWSR’s forecasts.

South Africa is among those nations with a bourgeoning thirst for this fashionable white spirit. The CAGR for gin consumption between 2013 and 2018 was an astounding 27.65%, rising from 518,000 nine-litre cases in 2013 to almost 1.8m in 2018. Gin consumption in Nigeria and Uganda is also forecast to grow by 0.4% and 4.5% respectively between 2018 and 2023. South Africa’s second leading gin brand, after Gordon’s, is the lower-priced (by UK standards) Old Buck, which saw its volumes increase by 51.3% between 2017 and 2018. Gin is not simply a Western phenomenon, as the IWSR’s data proves.

Nevertheless, premiumisation – that overused word beloved of marketeers – has been responsible for propelling gin to unprecedented heights in mature markets such as the UK. The IWSR’s data concerning global gin consumption stratified by price bands is particularly revealing. The CAGR (2013-2018) for gin sales in the ultra-premium segment was an astounding 50.1%.

No other price point has shown such dramatic growth – sales of premium and super-premium gin rose by 14.7% and 25.2% respectively. Forecast growth (2018-2023) for upmarket gin brands is similarly positive, albeit not predicted to rival the previous five years. CAGR for premium, super-premium and ultra-premium gin is 10.4%, 13.9% and 17.6% respectively. Conversely, the value segment lost volume between 2013-2018, albeit a paltry -1%.

Of course, wherever there is rapid expansion in a category, there are those who prophesise its demise.

So what are the key elements of gin’s marketing mix that will ensure its future success?

Firstly, it is clear that consumers’ growing demand for unique and craft-focused drinks has transformed and will continue to transform the industry. Small distillers have been crucial to the gin market’s growth – the emergence of the craft gin movement, emphasising its provenance credentials, was a marketing masterstroke, perfectly timed to coincide with the global rise of social media and consumers’ growing interest in authentic brand stories.

It is clear that consumers’ growing demand for unique and craft-focused drinks has transformed and will continue to transform the industry.

In just 10 years in both the US and UK, the spirits sector has diversified beyond a handful of large distillers to a market now represented by producers of all shapes and sizes. Yet consolidation is becoming a growing trend; London gin maker Sipsmith was purchased by Beam Suntory in 2016. More recently, US spirits specialist Brown-Forman acquired Fords gin. However, the marketing and demand for these corporate-owned ‘craft’ brands is likely to remain the same.

Secondly, the gin market is ever-innovating and ever-changing in terms of the liquid available, the regions that are producing it, and the consumers it is targeting. The dynamism in the category puts its rival vodka to shame; pink gin is no longer a niche offshoot, it is a rapidly expanding segment in its own right, according to insiders in the UK trade. Several major brands have released a pink gin, including Gordon’s, Beefeater, Pinkster and Edinburgh gin. UK retailer Marks & Spencer has partnered with The Old Curiosity to release its own range of colour-changing gins. In addition, savoury gins are now starting to move out of the craft market and into the mainstream.

And yet, and yet. The craft movement, its innovation and market success are to be lauded, but this does not tell the whole story. Far from it, in fact. Apparently unworthy of media hype, the world’s best-selling gin is San Miguel gin, a Philippines-based diversified beverage company majority-owned by the San Miguel Corporation. The IWSR’s data shows that more than 69m nine-litre cases of gin were consumed globally in 2018. San Miguel gin accounted for more than 12m of those cases. Sales of San Miguel gin, which is priced at the lower end of the spectrum, rose 6.1% between 2017 and 2018.

So the low-priced gin segment is very buoyant – more than 29m cases of lower-priced gin were sold in 2018. The standard-priced segment accounted for 20,193,000 nine-litre cases in 2018. The forecast CAGR is 3% for low-priced gin and 4.9% for the standard subcategory. Mass-market brands such as Gordon’s and Tanqueray continue to benefit from this global demand for lower-priced products, as the IWSR’s data illustrates. Sales of Gordon’s gin increased by 27.8% between 2017 and 2018, while Tanqueray increased by 19.1% in the same period. The idea that craft gin will ever dominate global market share is a complete fallacy.

Consumers may be surprised to learn that the world’s biggest gin market is the Philippines

Indeed, consumers may be surprised to learn that the world’s biggest gin market is the Philippines, largely driven by the widely distributed and affordable San Miguel gin. The Philippine market grew by 5.3% between 2013 and 2018; the forecast 2018-2023 CAGR is 3.8%, according to the IWSR’s data.

Overall, IWSR analysis points towards a vibrant category. There is tremendous growth in key markets, lots of innovation, premiumisation and a clear role in society and culture. But are there any threats on the horizon?

The US is the largest single importer of British gin, with sales reaching £675m in 2018. However, the IWSR’s data suggests that US consumer demand for gin is waning; the forecast volume CAGR for 2018-2023 is flat, at -0.06%. Hardly a cataclysmic change, but evidence enough that the category is starting to peak. What is particularly noticeable is that across the board, sales of spirits are on the rise in the US. Americans spent more than $51.1bn on them in 2018, but their spending habits are shifting away from white varieties to dark, flavour-filled liquids like whisky and tequila. British distillers should keep a keen eye on future developments. Demand is also predicted to fall by -0.1% in Spain and -5% in India, which retains its burdensome tariffs and import restrictions.

Gin must be careful not to repeat the mistakes of its closest rival, vodka.

In addition, gin must be careful not to repeat the mistakes of its closest rival. It is no secret that vodka has struggled to keep its head above water in recent times; the consumer backlash against faddy flavours marketed by brands has been extensively documented. Similarly, as ever-more obscure and radical botanical tinctures are beginning to overcrowd the gin market, flavour fatigue and lack of equity may start to haunt the category, unless investors moderate and finetune their innovation. Yet the safest conclusion to draw from the IWSR’s data is that overall, there is a tangible sense of optimism permeating through the world’s distilleries, and justifiably so.