Some investors in alcoholic beverages are calling for a celebratory glass, while others are considering drowning their sorrows. Global trends in the sector range from the negative—prohibition efforts in Indonesia to a second year of falling Scotch consumption numbers and climate threats to top Chilean wines—to the positive: the rise of craft spirits and the potential for growth in premium drinks in India.
Shades of Prohibition are rising in Indonesia, where small shops have been banned from selling beer and premixed drinks. Not just travelers who enjoy alcoholic libations are worried, but investors are as well: two Islamic parties have proposed legislation to ban alcohol altogether. Offenders could get up to two years in prison, should the proposals become law.
Why worry about a ban on booze in Indonesia? The effects can be quite far-reaching, considering that it's not just the drinks sector that could be suffering if the ban is passed. Tourism and hospitality are definitely not happy about the possibility, especially considering that in 2013, according to International Wine and Spirit Research, Indonesia is the 10th largest consumer of beer in Asia at 28 million cases and beer sales have risen 54% over the last 10 years.
The ban that just took effect is very specific: it bars Class A beverages—those with less than 5% alcohol content—including beer and low-alcohol wine. It was actually enacted in January, but gave vendors three months to prepare for compliance. The proposed law, however, is far broader and would not just jail violators, but fine them heavily as well.
Proponents of the proposed law claim it is meant to protect the health of the country's youth, but imbibers and those in the spirits business aren't buying that, particularly since it seeks to bar the sale, production, distribution and consumption of all beverages with more than one percent of alcohol. While there would be some exemptions, they are not clearly defined—something that generally creates the potential for trouble. Brewers from Heineken to Carlsberg to Diageo, owner of Guinness (Indonesia has the most Guinness stout drinkers in the region) are not pleased.
Scotch consumption, meanwhile, is down for the second year in a row, with China's crackdown on conspicuous consumption playing a substantial role. Rabobank said in research that Scotch has not only lost ground in China but in the U.S., where it's losing market share to other drinks, such as bourbon and Irish whiskey. Blended Scotch in particular "appears to be battling structural issues and struggling to remain relevant, particularly among younger consumers," according to Rabobank.
Not that there aren't bright spots, such as strong export growth to Taiwan and India, the growth of "premium single malts and the rise of the innovative grain Scotch category." Premium brands across spirits segments and companies, said Rabobank, "showed strong buoyancy," with Pernod Ricard India's whisky brands recording double-digit growth and "prestige and premium brands" from United Spirits (Diageo again) and Radico Khaitan growing at rates ranging from 5.5–7% "on a like-for-like basis."
China's crackdown is also hurting sales of cognac, to the extent that Hennessy (part of LVMH) is looking toward the U.S. to pick up the slack. The $2 billion industry has seen China's cognac imports fall by 26%, while on the other hand U.S. imports have risen by 13%. Cognac's growth within the U.S. market owes much of its growth to one particular segment of the population, according to Stephen Rannekliev, executive director, food and agribusiness research and advisory at Rabobank.
