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Spiritual awareness

Growing numbers of female drinkers, a continuing trading-up trend and education by the premium brands are helping to maintain growth in the UK spirits market, says Robyn Lewis

ACCORDING to the Canadean statistics for the UK market, whisk(e)y remains our favourite national spirit, which means that it accounts for around 29% of all the spirits we drink. Bells, The Famous Grouse, Teachers, Jack Daniels and Grant’s Family Reserve are the top five brands in the category (in that order) and make up 44% of the whisk(e)y imbibed in the UK.

After a dram of the brown stuff it’s vodka that takes our fancy with the mighty Smirnoff brand at the top and Grants, Vladivar, Absolut and Stolichnaya bringing up the rear, the category in total accounting for 18% of the spirits market.

Gin and genever brands are way below in fifth place for market share, accounting for just under 3m cases coming behind both FABs and the liqueurs, cocktails and specialities categories – which include Bailey’s Irish cream, Southern Comfort, Tia Maria and Pimms. Rum and cane spirits and brandy then appear in sixth and seventh place in the market share chart.

As a whole, the market looks steady, with whisk(e)y in slight decline but the vodka, FABs and the liqueurs, cocktails and specialities sectors are all recording significant growth (see graph on page 28) to more than make up for the loss.

"We are definitely expecting the market to continue growing," says head of trade marketing at Scottish-based Whyte and Mackay, Debbie Workman.  "Currently the ACNielsen stats we have show the market as growing by 2.2% year on year (MAT to week ending 04/09/04), with white spirits growing in volume terms faster than the market place.

This is not surprising given the fact that younger drinkers tend to be introduced to spirits through white spirits such as vodka, selling 65m litres, white rum, 13m litres and gin 25m litres (all MAT to week ending 04/09/04).

Each of these categories is experiencing volume growth. White spirits, due to their versatile profile also lend themselves to a new product generation, as do premium packaged spirits which have driven growth in vodka and white rum in particular."

Edwin Atkinson, director general of the Gin and Vodka Association, would agree that things in the white spirit world are certainly very positive and, "all the indications are that this will continue.

White spirits remain at the top of the tree with vodka continuing to do well – it has now overtaken Scotch as the most popular spirit in Scotland according to our figures and it is about to do the same in England and Wales as well.

Gin at the moment is also enjoying resurgence and there have been a number of really great gins launched onto the market this year.  This element of product development is continuing and there is much in the way of innovation happening in the category.

As with vodka, there is now a shift to more premium and even super-premium products and every indication is that the market is more than ready for this."  The plethora of premium (and recently super-premium) vodkas on the market has been much commented on.

It is certainly a trend that brand owners across the board are keen to take advantage of, offering, as it does, an opportunity to increase value in the products and the category.  The recent sale of luxury brand Grey Goose vodka, for a massive US$2 billion to Bacardi, would seem to indicate that there is increasing confidence in this top-end sector for the future.

There seems much for the luxury brands to feel positive about. At Louis Vuitton Moët Hennessy (LVMH), the Belvedere vodka and Hennessy Cognac brands have been reaping the rewards of this trend with good growth for both products.

 "There is definitely a fashion for trading up with spirits and that’s the same whether it is from your standard pouring vodka to a premium brand or from a premium to super premium brand," comments Belvedere brand manager Andrew Notcutt.

"There are certainly no signs that this is slowing down.  In fact it’s just the opposite with the trend now beginning to spread out from London to other key UK cities.  At the end of the day, bar owners are now beginning to realise that if you run a quality establishment the products you stock have to reflect that, be it Champagne, wine or spirits."

The key to continuing growth for this top-end sector is, according to Notcutt, educating consumers to brand call – a trend that has taken off in the US.  "We have to get to a situation where consumers name call a product at a bar as they do Champagne," he explains.

"With whisky this is also true but for white spirits like vodka it is all too often a generic call. We have done a lot of work with bar tenders in the on-trade to educate them, emphasise the quality of our brands, their heritage and the premium message, and we hope that will be passed on to the consumer who will first try and then become loyal enough to brand call."

However, Notcutt knows that the hard work isn’t over and with the deluge of premium and super-premium vodkas now entering the market there is no doubt that competition is tough. "There are bars in London that have now started to clear out those vodkas from their back bars that just aren’t shifting and that is something that we will definitely see more of," says Notcutt.

"There will only be a few winners. I mean, how many brands is it practical for a bar to carry? Most of the pretenders that are around that don’t get bar called, and therefore don’t shift, simply won’t make the cut."

Another market trend that could well affect the success of the burgeoning premium sector, is the reported move towards the take-home market: staying in is allegedly the new going out. While this shift is not sinister in itself, the dominance of the market by the big multiples could spell a shift to deep price discounting and the sacrifice of value at the altar of volume.

Notcutt’s colleague at LVMH, Ian Fitchew, the off-trade director, has a tough job ahead of him to protect the value of the luxury brands under his watch. 

"The off-trade is definitely growing in importance for our brands especially since we launched our Hennessy Fine de Cognac into the sector, though we haven’t really done a big Belvedere push there yet," Fitchew explains.

"Some of the category is definitely driven by price and there is a lot of emphasis on promotion.  There is a definite conflict there for luxury brands to sell their product to retailers who want to discount them.

What we need to do is to take a more value-added approach, in order to balance the offer. Packaging, gift packs, merchandising and brand activities then become very important.  We can learn a lot from the Champagne brands in this way."

While many of those I talked to agree that the shift to the take-home market was a continuing trend, the emphasis from most was still on the potential of the ontrade arena.  "For brand building, and in terms of value, on-premise outlets are invaluable," says Smirnoff marketing manager at Diageo, James Pennefather.

"In particular, when you are launching a new brand or product extension the brand has to look credible and strong in the on-trade.  The motivations of people who are out with friends is somehow to make a statement with what they are drinking.

Also, don’t forget, it is a lot cheaper to try something new in a bar in comparison to the alternative of buying a whole bottle from an off-trade retailer, and that is a key factor."  The continuing importance of the on-trade to spirits brands and the drinks trade is backed up by a new report from market analysts Datamonitor.

Their findings indicate that total spending by British consumers in bars, cafes, restaurants and hotels is likely to increase by almost 10% in the next five years, from £26.7 billion in 2003 to £29.1 billion in 2008.

Danielle Rebelo, consumer markets analyst at Datamonitor, who wrote the report, says that the growth in spending, will be driven, "by a rise in mid-week going out, female drinking and affluent middle-class singles with time, money and desire to go out.  We forecast that the average yearly spend in the on-trade per Briton will reach £625 by 2008."

This rise in mid-week drinking occasions will also lead, the report claims, to a decline in the amount of alcohol consumed – lower quantities of premium beverages – and a rise in female drinking (which is predicted to reach 152 litres per capita in five years, an increase of 27%).

This could lead to further feminisation of drinks brands and categories.  "We have already seen the release of drinks such as Archers Aqua and Baileys Glide for the market and we will now start to see the feminisation of traditionally male drinks," she adds.

White spirits have already done much to capture the female pound but the brown spirit brands are currently somewhat lagging behind.  As David Williamson of the Scotch Whisky Association points out, the UK market for whisky, while steady, has not grown.

"We’ve had consecutive duty freezes in the budget, which has helped keep our market position, and trends such as the growth in malt are continuing, which is positive.  However, we still cannot rest on our laurels, in particular with the strip-stamp issue coming into effect from around April 2006, it is important the category is in as good a shape as possible."

The aforementioned growth in the malt market, which has been evident abroad for some time now, is finally making headway in the UK, and some of the malt brands have seen the potential for growth via the cocktail sector.

Isle of Jura malt from the Whyte and Mackay stable is just one that has realised the need to increase the appeal of the category outside its traditional consumer base.  "We do all need to broaden our horizons beyond the 45-year old golf playing male," comments Justin Penman, international marketing manager for malts at Whyte and Mackay.

"With our 10-year-old, which is a lighter style of malt, we have found it does lend itself to cocktails, and we have worked with that, developing a range of drinks.  We have been careful to make sure the choice is quite diverse, from Jura and apple juice, quite simple for your local boozer, to complicated cocktails with unusual ingredients for a cocktail bar.

It is important that it remains relevant to your consumers and that we do not disguise the flavour of the whisky either, which has been a problem with whisky cocktails in the past."

This approach of emphasising the mixability of whisky and other brown spirits will be key to success in today’s market, according to Cathryn Sleight, marketing director at Allied Domecq Spirits & Wine UK (ADUK).

"Mixability provides new and exciting ways for customers to enjoy their favourite brands. Varied serving solutions, often created by the bar staff themselves, provide an opportunity to drive sales and increase rate of purchase," she explains.

In fact, imported whiskey, is a good example of how brown spirits can enjoy success with mixers (Jack Daniels and Coke is a prime example) and, as Sleight points out, the Nielsen stats show the category is up 9.1% by volume and 7.9% by value (on-trade MAT to week ending 04/09/04).

"The UK’s interest in what is happening in the US continues to be significant when considering a drinks trend.  Brands such as our Makers Mark are showing growth," Sleight says.

The popularity of Cognac in the US market (again driven largely by cocktails and with a mixer) is also something that brand owners are trying to replicate over here.  "With our Courvoisier brand we have been sponsoring international cocktailing skills and really pushing distribution through the top-end style bars," Sleight says.

"It is important to work at a bespoke bar-by-bar level, which allows us to draw from and build in best practice.  We focus on education since knowledge, skill and understanding of our brands is key."

As in politics it seems education has become something of a mantra in the spirits industry of late.  Premium brand building has become more effective through the investment of time and money in explaining to bar staff the nuances of the product and the category which, in turn, is being passed on to consumers.

Rum, tipped by many to be enjoying a revival along with gin, is the latest to be pushing the premium end of its offering and has been equally as keen as other categories to educate the masses.

"In a sense, rum definitely lags behind other sectors in terms of knowledge.  People think of Bacardi and Coke and they think of the Caribbean but that is about as far as it goes," explains Marianella Abadi, director of Solera, importers and distributors of one of the newest rums on the UK market, Santa Theresa.

"We launched our rum here this June and realised that we were going to have to teach people a lot about the brand, about Venezuela as a rumproducing country, about our production methods and about how to drink it, in order to establish ourselves.

To achieve this we set up a Rum Academy where we invite bar staff along and we give them the information not only to push the product in their bars but to also open up the rum category to a premium level."

Appleton rum (hailing from Jamaica) a more established brand in the UK, has also been running similar seminars for some time now at the Appleton Academy.  Andreas Redlefsen, brand manager of the Appleton rum flagship brand, explains that half the problem in the UK market for rum is the perception of it as a very dark spirit.

"People, when they think of rum, seem to think of the old Navy rum when, in fact, the sector in growth is golden rum," he says.  "We are working to attract ABC1, well travelled, well educated consumers who are beginning to trade up from generic white rums or bourbon, but it is a challenge.

The gold rum category has been rather neglected by the big players and so it is up to smaller players like us to take up the challenge.  That means it will be a long, slow build but it does look as if we will make it.

Already you can see a larger choice of rum on the back bar than you would have, even just two or three years ago."  This exuberance from Redlefsen is echoed around the entire spirits sector, as hard work is paying off with positive market growth.

However, as always, there remain some crucial challenges ahead.  The stripstamp issue is one such concern, as well as the government crackdown on binge drinking, which could harm the category irreparably, if handled badly by the industry.

"It is really too early to tell what effect the government’s Alcohol Harm initiative will have on the category," comments Illy Jaffar, communications manager for Pernod-Ricard UK.

"We are still watching and learning but obviously we hope that the premium end of the market where we are (with brands such as Chivas Regal and Havana Club) would not be affected too much.

Having said that, however, it is clearly in our interest to promote a sensible drinking message in case measures are taken that affect us all, such as an advertising ban.  What is clear though is that the industry needs to pull together on this.

Not just brand owners but distributors and on- and offtrade retailers and everyone in between." Likely? Watch this space, as they say…

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