Super Troopers

Does super-premium really earn its stripes over the spirits segments? Holly Motion investigates

Everything is prefaced with ‘super’ at the moment – super skinny, super-sized, super-cool. Super-premium is super-popular – reporting volume and value growth in almost every category globally – but just how super-profitable is it and how is the not-so-super-premium spirits segment faring?

According to latest IWSR figures, almost every spirits category globally and almost every region, volume and value growth for the super-premium quality segment has outperformed the premium.

This doesn’t mean the premium segment should be ignored. William Grant & Sons global marketing manager James O’Connor says: “Globally it is still about twice the size of the super-premium spirits category as a whole by value. This suggests that, in general, more people are placing more value on their spirits choices.”

Pernod Ricard is the undisputed leader of the premium category, according to Yves Schladenhaufen, Pernod Ricard’s innovation & portfolio strategy director. Biased, perhaps, but 75% of his company’s portfolio is premium and above. Its main competitors can only boast 25% less than this, according to Schladenhaufen.

“For us, premium remains critical as it is the most dynamic category of the industry,” Schladenhaufen says. “‘Premiumisation’ [is] a pillar of our business model [and] a long-term approach. It’s a strategy of value creation.” In 2014, premium represented a smaller share of the market than standard brands but 36% of the global turnover versus only 34% for standard brands.

“Obviously, in periods of crisis consumers cut their spending in the premium end, but all data shows that premium and super-premium offerings come back faster and stronger.”

The company is in lockdown ahead of its annual results so Schladenhaufen is tightlipped on brand performance and whether Absolut sales have continued to suffer after poor performance and volume losses in the US.

He did say: “In the long term, the standard segment grew less than 2% yearly, whereas premium spirits posted 3% and super-premium 5%. This is not cannibalisation, it is premiumisation, driven by more consumers from the middle class and more affluent consumers worldwide.”

To achieve this, brands must stick to their values and their positioning, according to Schladenhaufen. “If a brand’s proposition is weak, its positioning is not sustainable. A brand is like a person, you must deliver according to expectations. If you don’t keep your promises, you disappoint and your friends turn away,” he says.

“If you launch a super-premium brand or line extension, you should really ask yourself whether there is something solid in it – a true story, a real quality benefit. Specifically on vodka, we can see some super-premium brands lowering their price, turning to a premium position. This raises the question of the sustainability of their proposition.

“In the gin category, we can see a proliferation of brands with exciting propositions. Only the ones tapping into a real consumer need will be able to maintain their positioning and survive. And this is very often quality, clarity on who is making it and how, and its point of differentiation versus competitors.”

POINT OF DIFFERENCE

This may be so, but the point of difference should not solely be the premium or super-premium label, for the company and consumers’ sake. “I’ve got a bit of a love-hate relationship with these premium and super-premium terms as they’re so prone to misuse,” William Grant’s O’Connor says.

“Although their job is to describe the price of a product, more and more you see them creeping into marketing copy and being used to describe why a product is that price: ‘Why is this bottle of vodka worth £35?’ ‘Because it’s super-premium’. Madness.”

If the brands are frustrated, the analysts who make a living looking at the trends and predicting the next big thing are even more exasperated. “The challenge with categories such as ‘premium,’ and ‘super-premium’ is that the definition varies from market to market, and even from supplier to supplier,” says Marina Velez, senior product manager, Data & Insights at Beverage Information & Insights Group.

“You might have a $40 whiskey that one producer calls super-premium, while another’s $40 whiskey would just be a popular brand. It’s even more subjective with wine.”

Blanket statements be made at your peril.

 “The super-premium gin segment is currently experiencing faster growth than its premium gin contemporaries but is still some way off becoming the standard for consumers,” cautions JC Iglesias, global brand director for the English gins portfolio at Chivas Brothers.

“With super-premium gin volumes accounting for just 15% of the category today, consumers are six times more likely to be drinking premium gin.”

This is true in gin’s key markets, with the ratio split in the US at 15%, Spain at 14% and the UK at 28%. “In all cases, premium gin brands still command consumer respect and demand will continue,” Iglesias says. “The growth in super-premium gins shows that consumer interest is increasing at this tier faster than before, but keep in mind that this growth is from a smaller base.

“Today, the biggest super-premium brands are only a fraction of the size of the leading premium brands and it would take a sustained period of growth for super-premium gins to even approach the size of premium ones. In short, there are super-premium gin brands with high enough volume sales to sustain themselves that also have good consumer awareness, so it all depends on how you define ‘value’.”

David Ozgo, senior vice president, economic & strategic analysis, Distilled Spirits Council of the United States, says: “Premiumisation has certainly been very important to the spirits industry.” Important, and hard earned. “The industry has done a good job of moving the consumer up to higher price points in the past 10-15 years. But, when we look at the US market in 2014, only 8% of all US volume falls into the super-premium category.

“We have talked a lot about the ‘premiumisation’ trend, but premiumisation has been as much about moving the consumer from value brands into premium brands.” In 2005, DISCUS showed 44% of US volume in value brands. By 2014 value brands accounted for only 36% of volume.

This move has been most noticeable in vodka, but it has also played out in the gin category. “The growth that we see in gin is very much about a shift from standard and value brands to premium and super-premium brands,” says Iglesias.

“The standard segment has been in decline for a long time, and that is as much about a demand for higher quality as it is about generational differences in brand preference. So, while the standard segment has seen volumes decline consistently by 1% over the past 10 years, premium gins have been growing by an average of 4% over the same time [IWSR 2014]. We are now at the stage where the global volume of premium gin is approaching that of standard gin, whereas 10 years ago standard brands outsold premium gins by two to one [IWSR 2014] and this is a trend that is set to continue.”

GIN TRENDS      

In the US, the super-premium gin category grew by almost 20% in 2014, though from a fairly small base. DISCUS’ Ozgo asks: “Will we see something like the Grey Goose of the gin category where a brand that retails for $30-$35 per bottle gets to the million case level? I certainly hope so. However, I think it could be more difficult. When Grey Goose came along we were in a period where whiskey, the largest spirits category, generally was still in decline. Thus, the vodka category did not have much competition. But, there has been a huge resurgence in the whiskey category, especially bourbon in the past two to three years that is still going strong.  So, it will be much more difficult for a super-premium gin to hit that million case level.”

When spirits brands have large portfolios and consumers are trading up, it is sometimes said there is danger of cannibalisation.

“Of course the ideal would be to have both premium and super-premium products in rude heath,” William Grant’s O’Connor says. “However, if you had to choose, having your super-premium products ‘cannibalising’ your premium ones would definitely be preferable – it’s when it’s the other way round that you’ve got an issue.

“The only watch-out would be if you had a brand with both premium and super-premium variants, and knew people traded up through the range – in that case if the premium brand was suffering you might be reducing your pool of future super-premium consumers and thus long-term sales.”

For Mauricio Vergara, CMO for Bacardi in North America, the single most important thing is to add value for consumers. “That doesn’t mean lower prices. It means outstanding quality, great stories, and engaging in consumers’ day-to-day life.”

Vergara says Bacardi is trying to understand the consumer trends and be more aggressive in premiumising its portfolio – Grey Goose, Bombay Sapphire, Dewar’s 12 and others. He says even standard brands, such as Bacardi Superior, can play a role “by providing exceptional quality at  good value for money – but, by engaging consumers with credible, relevant messages, not by discounting.

CREDIBILITY

“Consumers are looking for credibility – not provenance. You need a credible story that people care about, not necessarily a history or a home. Stories have to be substantiated in the intrinsic product, its process, its ingredients, its craftsmanship or other variables, but they have to mean something and be interesting and valuable for consumers. In the end, credible and relevant brand stories are what make consumers want and be willing to pay more for a brand.”

Velez concurs: “Brands/product features must be put into context for the consumer. The idea has to be something that establishes importance and resonates with the consumer as one they can relate to. Brands need to define and communicate the unique characteristics that make them attractive to their customers.

“As a luxury purchase, super-premium spirits must stand out from the crowd. Aspirational/lifestyle advertising is still important for super-premium brands. We are seeing a trend towards excitement and (as in other categories), creating greater emotional engagement in drinks advertising.”

Diageo recently acknowledged its failures in the US with its premium vodka at its Capital Market Day. Smirnoff global brand director Matt Bruhn said: “It’s not enough to have the best ad campaign – we must have the best products that meet their every changing needs.”

Bruhn added: “We and vodka got lazy, we made mistakes. Adding 42 flavours, all of which are almost the same, was a bad decision. As our competitors entered the market and took prices down it left us open to attack. We stop bringing on new consumers, stop challenging the market and offering new experiences for new occasions. Vodka followed our lead – more flavours, more copycat brands, less true innovation – and allowed other products to take the lead.”

He said globally the vodka category is not dying, it’s just not growing. “Smirnoff is not looking into vodka for the answers; they aren’t there and haven’t been there for years. The answer to growth lies with consumers, an empowered generation of change agents demanding new products, new experiences – they won’t be settling for our 45th flavour drunk with soda.”

After bottoming, US volume growth has improved for flavoured and unflavoured vodkas, according to Bruhn. It remains to be seen how, but the global brand director said the company needs to reimagine the brand “not as a tired ‘leader’ but as a true challenger, a change agent relentless for growth.”

The US vodka market is the premium cautionary tale. Companies are eager not to make the same mistake.

William Grant’s O’Connor says: “Investment will always chase growth, so in the future we can expect to see continued innovation in super-premium spirits segments – especially in those categories with lower barriers to entry – and a shrinking of the playing field in premium segments. This effect will be accelerated by retailers (and bartenders) with limited shelf space – as they make room for more upmarket brands by whittling down their premium ranges, they’ll increase the competitive pressure on the brands that are left with a knock-on effect on margins.”

Chivas Brothers’ Iglesias is encouraged: “By all indications, we expect to see continuous growth in both the premium and super-premium segments, similar to what we have seen over the past five to 10 years. We also expect to see growth in emerging gin markets as well as those that are developed, such as Spain and the US. Globally the gin category is only the eighth largest international spirits category in volume, but it is also one of the fastest growing. This would indicate gin is going in a positive direction as category tastes continue to evolve around the world.”    

Bacardi’s Vergara adds: “Premium/super-premium spirits weathered the great recession pretty much intact,  therefore, there is little from an economic or demographic standpoint to suggest any meaningful slowdown in growth on the horizon.”

Super news.