Scotch in 2023: bad, but not that bad?

Scotch whisky export shipments in 2023 as tracked by HMRC, saw volumes plummet by almost one-fifth. But there's more than one way to measure the market, and IWSR data doesn't make for quite such grim reading, as Richard Woodard discovers …

That old chestnut about 'lies, damned lies and statistics' – which may have been coined by Mark Twain or Benjamin Disraeli, take your pick, – should never be far from anyone's mind when perusing the numbers that claim to measure and characterise any given subject.

It seems to be particularly true of the global Scotch whisky market in 2023 (and, indeed, 2022). Consider the figures produced by HMRC for export shipments of Scotch: after the soaraway success of 2022, when volumes leapt by 21% and value by 37%, breaking through the £6 billion barrier in the process, the category returned to terra firma with a pronounced thump in 2023: volumes down 19%, value slipping by 9.6%.

And yet, the recently released 2023 data from IWSR Drinks Market Analysis paints a rather less depressing picture for the industry, suggesting that global volumes fell by only 3% after all. Those figures include the UK too, but that doesn't account for the discrepancy. What's going on?

The claimed strength of the IWSR numbers – the research organisation is probably the most trusted source for the beverage alcohol industry – is that they're based on what's been sold and consumed, rather than what's been shipped. And, in this period, that's a crucial distinction.

Take India, for example. According to IWSR, Scotch whisky volumes were up by 7% in 2023, markedly down on the longer term trend (volumes up at a compound annual growth rate (CAGR) of +16% between 2018 and 2023), but a heck of a lot better than HMRC's tale of woe in 2023: volumes down -24%, value down -22%.

This is the general problem of the past couple of years for Scotch writ large: the trade in India bought in way too much in 2022 (partly because of logistics issues during the Covid-19 pandemic) which meant huge amounts of whisky sitting in warehouses throughout 2023 – and quite a bit of it is still there, by the way. A similar dynamic was at play around the world, from China to the US to Latin America.

At the same time, the widespread cost-of-living crisis has eventually bitten consumers hard, eroding financial confidence and leading to cutbacks. If you're struggling to pay your energy bills, a bottle of Scotch can easily become an unwanted extravagance.

“In the US, decreased disposable income levels have reduced the rate of premiumisation within many categories, Scotch included,” reports Adam Rogers, IWSR research director for North America. “Consumers are placing more importance on a brand's price-to-quality ratio for affordability reasons.”

The US is an interesting case. The market is suffering from the overstocking issue described above, but not to the same extent: shipments (HMRC) down -7% in 2023, consumption (IWSR) down -3%.

Introducing a third data source at this point risks confusing things. But, according to the Distilled Spirits Council for the United States (DISCUS), Scotch volumes in the US were down 6.3% in 2023 to 9.2m cases, with value falling 3.3%. In volume terms, that's the lowest level since 2011, although the picture is rosier for value (second largest figure in history).

Looking at the past 20 years window, total Scotch fell 1.5% by volume according to DISCUS which exposed a stark contrast between blends and single malts: the former down 15.9% while malts jumped 143%. But – and it's a big but – malts declined for the second successive year in 2023, dropping to their lowest level since 2014.

Recently, growth for single malts around the world has sometimes appeared to be inexorable. But, according to IWSR, malt Scotch volumes in China fell for the first time since 2014 last year, declining by 11% – and it's not all down to overstocked supply lines. “Single malt prices are high, which might hinder volume growth, especially in ultra-premium and higher bands, as consumers become more cautious about spending,” says Shirley Zhu, IWSR research director for Greater China.

If that's right – and there is anecdotal evidence from other markets, such as Germany, to suggest that it is – then single malt could be facing its biggest challenge in a generation. As Adam Rogers points out, US consumers have taken a fancy to Japanese and Irish whiskies, and their own increasingly impressive Bourbons and American single malts – not to mention Tequila and mezcal. Compare the pricing across these categories and, in many cases, Scotch single malt can appear to represent poor value.

Of course, that may all be because of the difficult economic times in which we currently live; once consumers feel more buoyant and chipper again, they'll happily open their wallets and purses. Won't they?

Well, anyone who says they can predict the future after the events of the past decade needs to have a word with themselves. For what it's worth, IWSR forecasts point to CAGR volume growth for Scotch globally of +1% between 2023 and 2028, with the top two markets; France and the US showing slight declines (both CAGRs of -1%) and India rising steadily (+4%).

But, in a world where Gen Z consumers are increasingly wary of alcohol and 'mindful drinking' is on the rise, Scotch whisky isn't so much a volume game anymore. Instead, it's a judicious balancing of keeping the case sales going, but persuading the punters to part with more cash in the process. That's a ticklish act in a competitive world – as current trends with single malt illustrate – but in the mid-2020s, it's increasingly becoming the key to success.