Growth expected in Australian alcoholic spirits sector

Posted by AFN Staff Writers on 23rd October 2013

Although the sector is currently in its “infancy”, alcoholic spirits are predicted to be a potential growth area for liquor manufacturers as exports increase over the next five years, according to market research organisation IBISWorld.

The domestic spirit manufacturing industry in Australia has always been small, according to IBISWorld, with just over 60 per cent of domestic demand satisfied by imports in 2013-14. Distillers have responded to this competition by producing higher value premium products, propelling industry growth.

Within the spirit manufacturing industry, however, ready-to-drink (RTD) alcoholic beverages have struggled over the past five years due to higher taxation, increased competition and consolidation and changing consumption patterns. Nevertheless, IBISWorld said the outlook for spirits, including RTDs is favourable, with revenue forecast to grow due to higher innovation and increasing exports.

Export market growth

Greater exports of Australian spirits have led to higher revenue for the spirit manufacturing industry over the last five years, according to IBISWorld.

Asia, and particularly China, is a growing market for Australian spirits due to rising incomes and the reputation of Australian products as being high in quality. Furthermore, Australia’s proximity to Asian markets and the development of free trade agreements bode well for the industry, according IBISWorld.

Small domestic industry leads to ‘premium’ products

Despite the growth in export markets, competition from imports remains high in the domestic market, according to IBISWorld, and local operators have reacted through ‘premiumisation’.

Australian distillers are focusing on high-quality spirits in an attempt to target high-value consumption, both domestically and internationally, according to IBISWorld. Australia now houses 21 whisky distillers, and through premiumisations, WestWinds Gin from Western Australia, which entered the market in 2011, and 666 Vodka from Tasmania, which entered the market in 2010, have successfully penetrated the domestic market for white spirits.

RTD market contracts

Battling high taxes and “increased health consciousness”, the domestic RTD industry has contracted over the past five years, according to IBISWorld. The outlook for the industry is more positive, however, with exports expected to drive growth.

Exportation to New Zealand and Asian markets has enabled RTD manufacturers to achieve greater economies of scale through a centralised production hub. IBISWorld said this, combined with growth in lower cost Australia spirits and greater marketing, is likely to lead to higher revenue and profit margins.

IBISWorld said that while the spirit manufacturing industry in Australia was in its infancy, its potential to increase sales domestically and internationally is “significant”. Domestic climatic conditions allow for a diverse range of spirits to be produced, allowing manufacturers to compete with the international spirits with strong brand loyalties. Consumer preferences for domestically produced goods and premiumisation trends will offer investors growth over the long term, according to IBISWorld.

Australian spirits sector predicted to grow