The Luxury Spirits Market: Key Growth Drivers

While China remains a key market for high-end international spirits – especially Cognac – the country’s luxury market leadership could soon be threatened by the US, where agave spirits have made strong gains. A proposed alcohol ban for Chinese civil servants and CCP officials would further curtail the outlook of China’s luxury spirits market. Meanwhile, a resurgent travel retail channel will help drive Cognac sales to 2026, enabling the category to claw back market share lost to rival categories such as malt and grain Scotch whisky.

The findings are part of the IWSR’s newly published Status Spirits Strategic Study 2022, which analyses the performance of status spirits categories in key markets around the world.

Baijiu retains a dominant 84% value share of the global status spirits market – covering products with a weighted average price above US$100 – but consumption remains almost completely confined to China. Excluding baijiu, the global market for international status spirits grew by 35% in value terms during 2021, according to IWSR figures, leaving it 8% ahead of pre-pandemic 2019. Value expanded at a compound annual growth rate (CAGR) of +9% between 2016 and 2021.

Growth is expected to continue over the next few years, fuelled by the rebounding travel retail channel and positive trends in markets such as the US.

“While there are undoubtedly headwinds – including the cost-of-living crisis, ongoing Covid-19 restrictions in some places and the war in Ukraine – status spirits have proved resilient,” says Thorsten Hartmann, Head of Custom Analytics, IWSR.

“The fundamentals for future growth are solid: increased wealth; a focus on spirits as an investment by consumers, retailers and brand owners; new audiences coming online; and digital engagement.”

Gains are also being driven by an increasingly buoyant auction scene, where sales are rising thanks to increased focus from auction houses and brand owners dealing with them direct as a primary route-to-market.

However, while overall prospects for status spirits are bright, current macroeconomic tensions – especially rising inflation driving up interest rates – are creating some uncertainty in the market.

“Higher interest rates tend to dampen speculative investments on non-income-producing assets such as status spirits, as they increase the cost of borrowing to fund purchases, as well as the opportunity costs of ownership,” says Hartmann.

“While wealthy consumers will continue to buy bottles to drink, the market for pure investments is likely to cool as income-generating assets become more attractive.”

Key markets

International status spirits remain largely reliant on three markets – China, the US and travel retail – which together accounted for 65% of global value in 2021. Smaller key status spirits markets include Japan, Taiwan, the UK, Russia and France, which all grew in value in 2021 as well.

China is the biggest market for international status spirits (excluding baijiu), with a global value share of just over 30%. Cognac dominates sales, but there is a long-term consumption shift in favour of malt Scotch.

China’s economic troubles are likely to limit status spirits growth over the next five years, and its leading position could come under threat from the US. If the rumoured alcohol ban for CCP members and civil servants goes ahead, that too will limit the category’s growth.

“There will also be a structural shift not necessarily in consumption but in purchasing patterns – Chinese HNWIs [high net-worth individuals] will at some stage rejoin the international circuit and will transfer some purchasing of status spirits to global travel retail and rest-of-world domestic markets,” says Shirley Zhu, Research Director Greater China, IWSR.

Much of the growth in the US is set to come from agave spirits, which already account for more than 40% of US status spirits sales by value, making them the largest single category.

“The much shorter maturation cycle of agave spirits compared to brown spirits allows for faster production ramp-up, and the relative youth of the category makes it much easier for new entrants,” notes Adam Rogers, Research Director North America, IWSR.

“Status spirits growth in the US should be more assured than in China, as the market is more diversified and there’s less of a swing to purchases abroad,” says Rogers.

While duty free – heavily impacted by Covid-19 travel restrictions – is expected to recover over the next five years, creating more value than any single national market, this prognosis hangs on the return of Chinese tourists to international travel. That depends in turn on the decisions of the Chinese government.

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