Drinks Business Us Vodka By Camper English March 09

VODKA

The drink of most

resistance Vodka’s growth in the US continues despite the recession, and it still outperforms the total spirits market. However, as Camper English reports, American consumers are trading down from super-premium varieties

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Year

2003 2004 2005 2006 2007

Classic

Flavoured

410 432 462 466 484

223 249 292 321 357

Source: The Distilled Spirits Council of the U.S.

SUPER-PREMIUM BRANDS ALMOST INEVITABLY DO BETTER IN THE ONTRADE.THE FACT THAT ON-TRADE CONSUMPTION FELL PUT SUPER-PREMIUM BRANDS AT A DISADVANTAGE PROPORTIONALLY

This won’t stop some super-premium brands from pushing forward – and even expanding further into the on-trade. Belvedere vodka launched Belvedere IX this February, a brand fortified for nightlife with ingredients like ginseng, guarana, and acai, and which premieres in US nightclubs. As the worldwide brand owners of Ultimat vodka, Patrón Spirits is also putting its muscle behind the new (to them) super-premium brand. “For a new brand like Ultimat vodka, marketing is extremely important. We know we have a distinct, high quality product, but without marketing support it would be difficult to introduce our vodka to consumers and raise awareness of what makes it so unique,” says John McDonnell, chief operating officer of the Patrón Spirits Company. “Despite the economy, we’re continuing to spend at high levels to introduce and market Ultimat, which in turn helps support our retailers who are selling Ultimat in their bars, restaurants and liquor stores.”

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On-trade slide Ozgo continues: “The first thing people give up in a recession is going out – they don’t go out as much. So we saw total on-trade fall in 2008 after going flat in 2007.” Total off-trade spirits volume increased by 2.9%, where on-trade fell by 2.2%. David Page, public relations manager for Finlandia vodka, says: “We have seen a softening in on-trade sales. With the slowing of the economy, consumers are enjoying spirits at home more.” Jacob Briars, global brand ambassador for 42Below vodka, says: “A far bigger percentage of our sales globally come from the on-trade, so what we are seeing [huge growth] is certainly inconsistent [with the category]. However, this can possibly be explained by the decline in bottle sales in clubs which are more of a ‘status purchase’. Most 42Below volume comes from cocktails and mixed drinks, the sales of which are holding up pretty well globally.” Ozgo adds: “Super-premium brands almost inevitably do better in the on-trade. The fact that on-trade consumption fell put super-premium spirits at a disadvantage proportionally.”

US: number of vodka brands

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THE MESSAGE put forth this year by the Distilled Spirits Council of the United States, or DISCUS, is that the spirits industry is recession resistant, not recession proof. Vodka sales appear particularly resistant, though consumer purchasing habits have changed within the category. Despite the current state of the economy, spirits revenues in the United States increased by 2.8% over last year according to figures released at the end of January. Revenues were up, but by less than the average 6% annual increase since 2000. Growth continues, just at a slower rate. Vodka did particularly well, as it has in recent years. David Ozgo, senior vice president of economic and strategic analysis for DISCUS, says: “Vodka grew fairly nicely again last year. The category was up about 4.1 points in volume terms, compared to 1.6 for the total industry. This is consistent with the trend we’ve seen over the last 10 years, vodka volumes growing more quickly than total spirits. Vodka now accounts for almost 29% of all industry volume.”

Premium category growth Value brands like Skol and Barton’s vodka increased revenue by 3.6% in 2008 (1.8% for all spirits), premium brands like Smirnoff and Finlandia vodkas’ revenue increased by 16.1% (4.4% total spirits), high-end premium vodkas including Absolut and Stolichnaya increased their revenue by 1.9% (1.3% total), and super-premium spirits like Grey Goose, Belvedere, and Level vodka revenue decreased by 3.6% (increase of 3.4% for all spirits). Not surprisingly, the premium brands’ representatives were the most willing to talk about their sales. David Page of Finlandia says in the last fiscal year they grew by almost 20% and just broke the 3 million-case

US: vodka volumes by year and price category (‘000 9ltr cases) Year Value Premium High-end SuperGrand total premium premium 2003 20,123 10,541 9,286 1,905 41,855 2004 20,827 10,752 9,878 2,631 44,088 2005 21,080 11,281 10,527 2,992 45,879 2006 21,144 12,301 11,204 4,132 48,782 2007 21,891 13,976 11,651 4,720 51,237 2008 22,462 14,739 11,598 4,550 53,349 03-08 growth (%) 11.6 39.8 24.9 138.9 27.5 Source: Distilled Spirits Council of the U.S.

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VODKA

sales mark. Svedka cites a 50% growth in dollar sales compared to the same period last year. The brand reached the 2m-case mark recently, growing from 1m cases in just two years. Marina Hahn, senior vice president, marketing, at Spirits Marque One LLC, comments: “We attribute this tremendous growth to the brand’s ‘cheap chic’ positioning and unique brand platform, ‘Svedka, Voted #1 Vodka of 2033’.” Chester Brandes, CEO and president of Imperial Brands, picked a fortunate time and marketing strategy when launching Sobieski vodka (they are the sole US importer) in August 2007. Sales in 2008 were 285,000 9ltr cases. Sobieski launched a “Truth in Vodka” campaign with taglines such as: “We designed a bottle to suit the spirit inside.

TEQUILA AND RUM ARE PROBABLYTHE CLOSEST COMPETITORS FORTHE SIMPLE REASONTHAT THEY ARE HIGHLY MIXABLE,ALTHOUGH WHISKY, SURPRISINGLY, DID FAIRLYWELLTHISYEAR

US: vodka suppliers gross revenues including Fed. Est. Tax ($m) Year

Value

Premium

2003 2004 2005 2006 2007 2008 03-08 growth (%)

787 872 883 892 923 956 21.5

771 795 854 932 992 1,152 49.4

High-end premium 1,089 1,211 1,300 1,393 1,449 1,477 35.6

Superpremium 320 460 546 778 933 899 180.9

Grand total $2,966 $3,338 $3,582 $3,994 $4,297 $4,485 51.2

Source: Distilled Spirits Council of the U.S.

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Notice the lack of la-di-da”. The vodka sells for $10.99. With a campaign based on exposing super-premium spirits as not worth the money and a few awards for taste under its belt, Sobieski’s sales may have been helped by the economic recession. “When we introduced [the brand to the market] conditions were a lot better, but the reality of the situation is I think it plays well in these difficult times,” says Brandes. Briars, of 42Below, says: “The runaway growth at the ultra/super-premium end seems to be slowing – but this is not being felt in our [premium] price point, and in fact I think drinkers are likely to seek out new tastes and experiences by looking around at a cheaper price point, or trying something new that is of roughly equivalent value.” DISCUS’ Ozgo echoes that sentiment. “You could make the argument that people are trading down, but I don’t think that’s quite the case. I think they just saw a couple of very solid products within the [premium] category and decided to buy,” he says. Going forward with flavours DISCUS reports no significant increase in the sales or number of flavoured vodkas last year, with preliminary numbers putting flavoured vodka sales at 14% of vodka sales. “You have new flavours come on the market that create interest and it’s

substituting one flavour for another from a consumer standpoint. My read on a lot of this is that if you’re a flavoured vodka drinker you’re going to substitute another flavoured vodka,” says Ozgo of DISCUS. Brands surveyed for this feature didn’t report any massive flavour rollouts planned and none admitted to planning to pull flavours off the market. Page says that flavoured vodka sales of Finlandia were up almost 8% in the US last year, and 30% globally. Additionally, says Page: “We do not have any portfolio reductions planned for this year and are planning on rolling out a new flavour in the US this spring.” Absolut just announced a new mango flavour, its 10th, and will continue its limited-edition city-themed flavours (Absolut New Orleans, Absolut Los Angeles) with a new city featured this autumn. Sobieski will launch its first two flavours in the second quarter of this year. Marina Hahn of Svedka is upbeat about flavours, stating: “We believe we have unexploited opportunities with our four flavours. They will be supported with a heavier marketing investment moving forward. Plus, as we move aggressively into the on-trade, flavours will play a larger role.” 42Below’s Briars offered a different perspective, saying it hasn’t released a new flavour since 2004, and that, “Most are brand ‘placeholders’ for the back bar, you don’t see bartenders doing anything with them or listing them on the menu,” with the exception of flavours specific to cocktails, like lemon vodka for the Cosmopolitan and pepper vodka for the Bloody Mary. The competition “In the US, we have seen a resurgence in the art of mixology. That bodes well for Finlandia because of its mixability,” says Page. The cocktail craze in the US is everywhere in the media. Flavoured vodka’s static sales, as well as premium brands selling better in the on-trade than super-premium, point to vodka’s use in everyday mixology. But other mixable spirits are also selling well. “Tequila and rum are probably the closest competitors for the simple reason that they are highly mixable, although whisky, surprisingly, did fairly well this year,” says Ozgo. Super-premium gins (preferred by the top bartenders) saw a 43.7% volume growth last year, while premium gins were down by 16.2%. Bourbon and Tennessee whiskies saw a 16.5% increase in the super-premium sector; high-end premium Canadian whiskies grew by 65.4% in volume; and Irish whiskeys were up 17.4% in the high-end premium sector and 34.2% in the super-premium sector. Super-premium Tequila volumes increased by 10.6%. Vodka showed a higher percentage volume growth than every other spirit category except for Irish whiskey. Spirits sales are, as DISCUS says, recession resistant, and vodka appears to be the most resistant. It seems people have not given up drinking vodka at all, they’ve just found new formats and less expensive ways to do so. db