What are the propellants for spirits in Canada? - Market Intel

For most of the 21st Century so far, Canada has proven to be the owner of one of the most durable of modern Western economies. A well-regulated banking system allowed the country to avoid the worst of the global banking crisis of the late noughties, while relatively generous government support admirably protected the economy during the pandemic.

Even today, with inflation, high consumer debt levels and stagnant productivity as ongoing concerns, the economy remains sufficiently robust that financial firm Deloitte was moved to observe that the “Canadian economy is proving its resilience, surpassing year-end expectations with solid labour market performance and sustained population growth” and that “many signs point to a recovery from the current economic slump in the latter half of the year”.

For alcohol brand owners, even though the on-premise continues to struggle following the initial post-pandemic exuberance of 2022, the overall market outlook is, if not quite rosy, at least generally positive.

“During the pandemic, most notably in 2020, alcohol volume consumption reached record highs in Canada,” says IWSR Drinks Market Analysis market analyst Ryan Lee. “There was a correction towards more normal alcohol consumption [levels] in 2021 and 2022, with every major category, excluding spirits, posting volume declines. While 2022 brought a sharp drop in consumption, it is important to note that volumes were mostly in line with 2019 trends.”

For beer and wine, this translated to volume declines of 3% and 5%, respectively, from 2021–22, while spirits volumes held firm during that period, according to IWSR. Subsequent declines in spirits volumes from 2022–23 were more than offset by growth in spirits-based RTDs, which are classified by the Association of Canadian Distillers/Spirits Canada (ACD) as ‘refreshments’, alongside malt and wine-based coolers, premixed cocktails and ciders.

Changes in regulations could benefit all segments of the alcohol trade in the coming years, as Ontario, Canada’s largest province and accounting for roughly one-third of the country’s total beverage alcohol consumption across all categories, has declared its intention to expand beer, wine, cider and RTD sales from a select number to all grocery and convenience stores by 2026. Additionally, Alberta, which accounts for 19% of all alcohol sales, is investigating the possibility of expanding sales of spirits into grocery and convenience stores.

A whiskey/whisky nation, but vodka leads in sales

Historically – and still today – Canada is very much a nation of whiskey/whisky drinkers. While there is some regional variation – those from the Maritime provinces in Eastern Canada (New Brunswick, Nova Scotia and Prince Edward Island), for instance, tend to favour rum – whiskey/whisky has been more or less neck and neck with vodka as the leading category of spirits for several decades. In 2023, according to the ACD, whiskey/whisky as a category trailed vodka sales by only 3% in terms of volume, while the two segments combined accounted for roughly 28% of all spirits sales.

Canadians tend to be somewhat nationalistic in their whiskey/whisky purchasing, with domestic brands representing almost two-thirds of the segment’s sales. And bucking historic trends that held steady until well into this century, ever-growing volumes of whiskey/whisky is now premium or luxury.

“In general, we’re still seeing more and more premium offerings,” says Todd Fuller, manager of statistics at the ACD. “Particularly so at the high end, mainly in whiskey/whisky, but also in tequila and vodka.”

That premiumisation trend is driving growth of the tequila category as well, which was one of only three segments tracked by the ACD to increase in volume from 2022–23, alongside refreshments and the tiny ‘miscellaneous’ category, with 8.4% growth during the same period. While the traditional tequila segments of blanco, reposado and añejo are not broken out by the ACD, the move towards more premium expressions is reflected in the fact that gold and other tequilas combined easily outsold white in both 2022 and 2023.

“Tequila and mezcal haven’t yet hit their peak in Canada, despite it being the third-largest consumer of tequila after Mexico and the US,” says Meg Sethi, CEO of Alchemysts Inc, a leading beverage alcohol marketing agency. “As tequila is now the No.2 spirit [in the] on-premise, I think we’ll start to see innovation around how to integrate it into popular or classic cocktails.”

In the refreshments category, the gains made by coolers – a segment dominated to a great degree by spirits-based and premixed cocktails – were partially offset by a 10% decline in cider. Taken on their own, the former two segments registered 1.6% growth from 2022–23, relative to closer to 1% growth for the category as a whole.

‘Aperitifs, fortified wines and herbal remedies fly off the shelves’

To a high degree, as elsewhere, mixology continues to set trends and influence the spirits market in Canada.

“Cocktail culture has expanded our understanding of different styles of whiskey/whisky and rum, and opened our eyes to the merits of gin and agave spirits,” says Christine Sismondo, academy chair for World’s Best Bars, Canada East. “Even though some of them are still quite good, those standard liquors now gather dust as the aperitifs, fortified wines and herbal remedies fly off the shelves.”

That said, the government boards that oversee liquor sales in all provinces, with the exception of Alberta, can have a limiting effect on innovation and experimentation, argues Shawn Soole, lounge manager at Clive’s Classic Lounge in Victoria, British Columbia. “With the way our various provincial governments run their liquor boards, I think every province is infatuated with anything that is mainstream in the US or global market and finally makes it to us,” he notes.

Sethi, Sismondo and Soole all identify mezcal as a spirit poised for significant growth in the Canadian market.

“I don’t think Canadians have fully embraced mezcal and all of its uses yet and predict this will change,” says Sethi. “Currently, mezcal accounts for 7% of agave spirit consumption in the US, a number I predict Canadians will land closer to over the next few years.”

Rise of craft distillers

Mimicking to a degree the growth of craft brewing in Canada, which presently exceeds even the US in the number of breweries per capita, craft distilling has grown voraciously over the past five years, with well over 250 such distilleries now operating in the country. Thanks to a favourable taxation regime in British Columbia, a disproportionate number of them – between one-quarter and one-third – are based in the country’s westernmost province.

“Craft spirits don’t amount to a significant percentage of the market, although we don’t compile numbers to support that specifically,” says the ADC’s Fuller. “[But] craft is great at promoting the spirits category in general. It’s the best promotional programme the big distillers have ever had, and it doesn’t cost them a cent.”

Getting their products behind the bar, however, continues to be a significant challenge for craft distillers. “Post pandemic, with the increase in operating costs and especially with the introduction of wholesale pricing in BC, it’s been tougher [for craft distillers] to make it into bars,” says Soole. “Along with the increased saturation of distilleries here in the province, it makes it tough to support everything.”

Selling sustainability – or not

While sustainability has become a hot topic in Canadian distilling, particularly with large companies such as Diageo, who is presently building its carbon-neutral Crown Royal Distillery in Ontario, there is little evidence that it is resonating with the Canadian consumer.

“If people looked at the sustainability of distilling in detail, they might realise how resource-heavy it can be,” says Fuller. “The thing is, people don’t do that, although that’s something I think could change very quickly.”

While growing awareness of sustainability in beer, wine and spirits could become an issue in the future, the bigger challenge over the coming months and years is likely to be maintaining the pace of premiumisation in all three alcohol categories. Although where spirits are concerned, at least, Fuller offers a reassuring word. “We’re not seeing a slowing of premiumisation at all,” he says.

This observation, coupled with expanded off-premise opportunities in Canada’s largest provincial market and a healthy and still-growing RTD category, would seem to bode well for the future.