Vodka: Premium Bonds

Lucy Britner finds top-end vodkas are flavour of the month – even if some flavours are floundering


If 0.3% was the growth registered on any other category, you might not be that concerned, but when it is registered on the global vodka market, it could be considered cause for panic.

According to a report from IWSR, the market grew to 493.9 million nine-litre cases in 2012, only 0.3% up on 2011. Before you start off-loading shares, that’s the number for the entire category. The report goes on to say that premium-and-above sales bucked the trend by growing 7.6% to 25.8 million cases. Good news for this feature – people really do seem to be “drinking better”.

According to the Just Drinks report: “The US and Russia account for the vast majority of the premium-and-above market. The US alone has a 74% share (18.9 million cases), while Russia has an 11.5% share (2.9 million cases), followed by Brazil with a 2.3% share (601,250 cases).”

Looks like when it comes to staying power, vodka makes super glue look fickle. That it still shows growth in mature markets is terrific news for drinks companies.

In the words of Peter Fairbrother, global white spirits portfolio director for Diageo: “There is a track record of longevity of growth in the vodka category since the 1940s, and latest Nielsen data out of the US shows both super-premium and ultra-premium segments in strong double-digit growth past 12 months, so there’s no sign of a slowdown. We believe the future for vodka is bright in its most developed market.”

Fairbrother says when you look outside the US, the category remains relatively underdeveloped globally with “solid opportunities for growth”.

He continues: “Vodka’s great strength and key growth driver has and continues to be its versatility and we believe this is what will underpin the future of the category. The breadth of possibilities for great drinks within vodka allow for ongoing relevance and dynamism as well as premiumisation within the category.”

The great success of the US has led brands created in that market to ride the crest of the wave across the Atlantic and bring American tastes and trends to Europe. Earlier this year, Texas-based Tito’s Handmade Vodka teamed up with Hi-Spirits to launch in the UK.

Pioneer Tito Beveridge says: “Western European consumers often look to the US for upcoming trends. Based on Tito’s Handmade Vodka’s success and all the great fans we have who both travel to the UK and introduce friends there to the brand, we have been receiving numerous inquiries from the UK asking us to introduce it.”

Beveridge has his sights set further afield and he adds: “After the UK, we are focused on finding the right partner in the Republic of Ireland. As you know, the vodka category does very well there and we want to be part of what’s going on. Ireland is a huge tourist destination for Americans and we’re really looking forward to being available for all our loyal fans even when they travel.”

The US has long been a pioneer in the booze business – it has to be. If you want to get ahead in a mature market, you have to innovate.

Innovation is occurring not only at big company level but also at craft level.

Beveridge adds: “In America, we continue to see craft distilleries open. I have read that there are now approximately 650 craft distilleries in the States and by the end of 2014 that number is expected to rise to between 700 and 750. So, definitely expect to see more and more as the months go by.”

What does craft mean, though?

So says Tito: “Craft is not about size. Craft is about the quality of the product. We still make our handmade vodka the same way we always have – with real people making the head and tail cuts each time through our six copper pot distillations.”

Novel ideas from other markets are also looking to the US for expansion. New Zealand, with its historical association with the dairy industry, is home to a vodka made from milk. Milk Money is distilled from milk sugars and has just entered the US market via Leche Spirits, of Roswell, New Mexico.

The company plans to seed the product in agricultural communities – which must be a first for a vodka brand plan.

According to Ellis Visser, president of Leche Spirits: “Milk Money vodka is extremely smooth, full-bodied and possesses a light sweet finish. We’re hoping it will appeal to a wide range of individuals who enjoy a premium vodka. However, we will focus heavily on females within the agricultural community, aged 21-45 years.”

Milk Money vodka is 40% abv, twice distilled and gluten free. Following its introduction in New Mexico and Colorado, it will be rolled out to other mid-western states, including Wisconsin, Nebraska and Minnesota. The retail price for the 75cl bottle is $19.99.

Making vodka from, shall we say, less traditional products is a bit of a trend and in the UK Chase distillery has been making vodka from apples – but it’s not apple-flavoured vodka. Interesting stuff, especially as there are some signs that the actual flavoured vodka market is slowing down in its US heartland.

In November 2013, on-trade research company Restaurant Sciences reported that sales of on-premise flavoured vodkas fell 11.7% from Q3 2012 to Q3 2013. The researcher analysed more than 170 million drink orders and says flavoured vodka lost nearly 1% of its on-premise spirits market share over the same period.

Some brands bucked the trend and Restaurant Sciences says there were 46 new flavoured vodka launches since 2012.

Chuck Ellis, president and CEO of Restaurant Sciences adds: “Since its peak, flavoured vodka has lost market share over the past 12 months to other flavoured spirits, such as whiskey. A few select brands, such as Grey Goose Cherry Noir, up 11.6%, and Smirnoff Cranberry, up 19%, are still showing excellent growth.”

But Restaurant Sciences said there was bad news for some other big-name brands, including Stolichnaya and Grey Goose’s other flavours.

The analyst tracks more than 600 flavoured vodka brands, with the top 50 accounting for 73% of sales. Among the larger brands, Absolut Citron, the flavoured vodka category leader, saw a 1.8% year-on-year sales decline. While Grey Goose Cherry Noir flavoured vodka is enjoying increased on-premise sales, all other Grey Goose flavoured vodkas’ on-premise sales are off between 8%-20%. Other category leaders, such as Stolichnaya and Three Olives, are down more than 20%, according to the report.

So what’s next for flavours

Stoli launched its first flavoured vodkas more than 50 years ago – Pepper and Honey & Herb flavours, which were introduced in 1962.

Global brand manager Alexi Lambrou says: “Selecting the best taste is clearly important so the first step is to ensure we have something consumers will enjoy that’s both original and premium, such as the indulgent line including Salted Karamel, Chocolat Konut and Chocolat Razberi. Furthermore, we want flavours that bartenders in the on-premise would value as part of their back bar in creating new and exciting cocktails.”

Meanwhile, Diageo approaches flavours with caution for some of its brands. Ketel One, a joint venture between Diageo and the Nolet family, is focused on two classic flavours – Citroen and Oranje.

Cîroc on the other hand has seen a steady trickle of flavours. Diageo claims Ciroc Coconut was one of the first coconut flavoured vodkas and “certainly the first in ultra premium”. Cîroc has since launched a range of flavours including Red Berry, Peach globally and, most recently, Amaretto in the US last year.

Fairbrother says: “These launches were a breakthrough in vodka, with Cîroc Peach being the largest revenue-generating innovation in the States last year. All new variants have complemented the existing business, increasing both the number of consumers choosing Cîroc and the share of drinks that Cîroc earns from its target consumer base.

“In many ways we see Cîroc as still being in ‘launch’ in the US and we believe it has tremendous growth potential ahead. Our total brand awareness, trial and distribution all are in significant growth.”

If Cîroc’s foray into flavours is a trickle, then Smiroff’s is a torrent and the brand is well versed in the dessert trend that is still prevalent Stateside. Most recent flavours include Iced Cake and Kissed Caramel.

“We have also launched Smirnoff Sorbet flavours to address consumers’ interest in a lower-calorie product,” adds Michelle Klein, VP, global Smirnoff.

Although Absolut has long been a pioneer of flavours – it launched its first flavour Absolut Peppar in 1986 – activity for 2014 is centred largely around its luxury, sparkling and oak-rested expressions.

Mathias Westphal, global brand director at Absolut says: “We are currently focused on supporting the three new products that we have released in the past couple of years. Absolut Elyx – a handcrafted luxury vodka, Absolut Tune – a vodka and sparkling wine hybrid – and Absolut Amber – vodka rested in oak barrels. That said, we are always looking at ways to elevate the vodka category through innovations and new flavour offerings that open up the occasions on which people can enjoy Absolut, and how mixologists create new types of cocktails.”

That’s not to say new flavours aren’t on the cards for Absolut but Westphal says careful planning is required to avoid market saturation.

“Each of the limited editions released is carefully vetted for both the artistic collaborators and the flavour that is introduced,” he says.

“This ensures each limited edition is of the highest quality and never is just a novelty. While we generally don’t comment on any upcoming releases, we can safely say we are always looking at new ways to elevate the vodka category and to collaborate with new artists.”

Earlier this year, Absolut dropped ‘vodka’ and ‘Country of Sweden’ from its bottle logo, believing the brand to be iconic enough without the extra words. The company has also started working with Brazilian artist Rafael Grampa, who will start a story that will be fed by consumer input. Eventually the whole thing will become an animated film. How’s that for innovation?

Westphal sees “great potential” for geographical expansion in emerging regions such as Asia and Africa where today he says “the development of the vodka category is at an early stage”.

As for continued growth in mature markets, he believes: “The potential for growth will be driven by new areas of opportunity and new occasions through the types of innovations.”

That’s the key to vodka’s longevity – new ideas. Vodka ordinaire might be the hardwood at the centre of the tree – the roots even – but new growth comes from the green shoots of innovation.