VODKA: The clear favourite

With markets set for a resurgence, word in the travel retail sector is that vodka will soon be challenging whisky for the top spot. But while it’s a sexy drink, says Alan Lodge, its followers are fickle and there are challenges aplenty.

Aside from whisky, the leading lights as far as drinks are concerned in the global Travel Retail and Duty Free (TR&DF) industry is a drink that knows almost no bounds – vodka.

The clear, neutral spirit has been reinvented over the past decade as a fashionable and – above all – incredibly versatile spirit which offers consumers unlimited possibilities and drinks firms the opportunity to crack any market around the world.

Like all other drinks categories, sales figures across the TR&DF sector in 2009 make for slightly unpleasant reading.

All bar one of the top-10 performing brands suffered declines in sales as the world tightened its purse strings. However, with 2010 promising a return to growth, the buzz is loud in the industry that vodka could soon be challenging whisky as the jewel in the TR&DF crown.

Performance is particularly strong in northern Europe, Scandinavia and the US, particularly in monetary terms due to high excise duties.

Elena Manuylova, managing director of the Moscow office of Tovaritch & Spirits International, confirms: “The strongest markets for vodka in duty free and travel retail remain the countries with high excise duties, like Finland, Sweden, the UK and also some Scandinavian countries, as well as Norway due to the state monopoly restrictions.“

As with all drinks, vodka is subject to the fickleness of fashion. However, the exploding cocktail culture and its spread around the world leaves the category on a very sure footing as it looks for growth opportunities. That is not to say, though, that it is immune to fluctuations.

“The next 12 months look promising for vodka and the entire travel-retail sector,” says Jim Perry, VP & managing director for travel retail at Brown-Forman. “However, there are three caveats. First, the economy must avoid sinking back into a global recession.  

“Second, we must remember that we are always one fanatic away from a tragedy and resulting travel restrictions. Third, the vodka market can be very new brand- and fad-driven. This results in brands bursting onto the scene and spending huge sums to secure short-term distribution.

“The challenge for the travel-retail business is to not become dependent on these new brands to the detriment of existing ones that have generated consumer demand over the long term and will be there in two, five, ten years.”

Affordable quality

What is interesting about vodka in TR&DF is that the top-10 global sellers include vodkas which, in domestic markets, would fall easily in the super- and ultra-premium categories. The likes of Grey Goose and Belvedere – usually the reserve of club-going celebrities and their crowd – are much more accessible to the regular drinks buyer through the duty-free channel.

Andrey Skurikhin, partner at Stolichnaya owner SPI Group, explains that people come to duty-free stores to seek products that would usually be out of their range, at a more affordable price.

“When people come to duty free they are looking for cheaper prices than in domestic markets, but simultaneously they are looking for higher quality and maybe something they wouldn’t buy in their domestic markets,” he says. “Consumers want to trade up and still spend the same or less than before.”

The trick, then, lies in convincing these shoppers that they should plump for your brand, rather than one they are perhaps a little more familiar with.

Yunona Dribko, spokesperson for Ukranian vodka Nemiroff, is clear on the importance of advertising to make your brand stand out on the cluttered duty-free shelves.

“The main instrument that affects the sales volume and brand image is advertising activities,” says Dribko. “On formulating our offer for a customer, we rely on the preferences, behavioural reasons and culture of spirit consumption of potential consumers.

“In duty free and travel retail channels we have selected two types of effective sales promotion. In regions with the developed culture of liquor consumption, such as countries of the former CIS and Eastern Europe, we use mechanics of extensional purchase – three bottles at the price of two.

“Tasting and consultation are provided for the potential customers in order to inform them about a producer and products and to contribute to their interest in the first purchase.”

Market leader Absolut has a long history of powerful in-store activities across the duty-free channel, and Ian Williams, managing director at Pernod Ricard Travel Retail Europe, says this is an approach that the company has no intention of moving away from.

“A premium visual identity in-store reinforces the brands credentials and image and attracts consumers to the brands as they browse,” he says. “In-store visibility, along with high-profile experiential marketing campaigns, are part of the key cornerstones to our strategy in travel retail.”

Christophe Lemarié, president of Pernod Ricard Americas Travel Retail, adds: “It is clearly very important to enhance the familiarity of the consumer with our strategic brands, chief among them Absolut for the travel-retail channel. This is reflected to the attention we pay to the visual elements of our campaign ‘In An Absolut World’ through transparencies and displays.”

While there is much money to be made in duty-free stores at airports, brand owners are increasingly concerned with getting listings with airlines and ferry operators. However, this isn’t necessarily a profit-driven strategy, as Parry explains: “Airlines, and to a lesser extent, long-distance trains, provide an opportunity to get a brand into the mouths of consumers.

“It is a great sampling activity, but generally not a very profitable channel. It is also important to partner with the right airline, one that is able to make sure your brand is served in ways that are memorable to the consumer.”

Skurikhin agrees that there is value to be found in airline listings, but only in a predominantly marketing sense. “Airline listing is important as it is a window and a way to enforce international brand status,” he affirms. “But the biggest channel is still airports.”

Looming threat

The global buoyancy of the category does not mask genuine fears over young pretenders creeping up from behind. The likes of gin and rum have enjoyed massive regeneration over the past couple of years and also enjoy association with the booming cocktail culture. Perry, however, sees the threat coming from a quite different product.

“I actually worry more about Tequila, which is a white spirit category that is exploding in local markets, but has so far failed to exploit travel retail,” he says. “I worry that in the long run consumer demand will shift to Tequila and when consumers are in the duty-free environment they will not see their favourite brands and will therefore pass on purchasing anything.”

As a category, Tequila still lags some way behind. However, as vodka has borne witness to, fashions can change overnight and the trick will be to ensure vodka remains trendy and spreads its appeal across new markets once the boom in established regions has bottomed out.

Alan Lodge, October 2010