Caught in a trap
The true cost of deep discounting is brand loyalty, so isn’t it time the blended whisky market sought to add value and innovation, says Dave Broom
END OF year report cards often make uncomfortable reading. Blended Scotch’s is no exception. In the UK, the category story is yet again flat and steady, France has begun a climb back after the huge slide of ‘03 though it seems unlikely to have returned to ‘02 levels.
The former golden boy, Spain, is being seriously tempted by aged rums and white spirits. Neither of the major brands, Ballantine’s and J&B, showed any great growth. Though Italy shows no indication of stopping its long-term decline there are more positive signs from Greece, Eastern Europe – Poland especially – thanks to proposed changes in import duties, and Russia.
While many brands have put in strong performance (Famous Grouse springs to mind) the overall report card has to read: "Sluggish. Could do better." How much has this lethargic performance been exacerbated by the distillers’ continued willingness to play the price game in the largest of the mature markets?
"The industry has allowed price to be the cost of doing business," says Fiona Burles, group marketing manager for blends at William Grant. "It has become a selffulfilling prophecy and as a result blends have been reduced to the position of second-class citizens.
Brand owners have taken their eye off the ball and allowed themselves to be bullied. Now is the time to take a fresh look at the category."
To stay with the school analogy for a little longer, brands are being mugged in the playground for their pocket money by the school bullies – the multiple retailers.
Quite why a powerful category allows itself to be pressurised into giving in to (and funding) deep discounts is a strange one.
If one category should be able to resist the pressure you would think blended Scotch would be it. Sadly, the larger the category, the greater the competition and, as Martin Riley, international director, marketing at Chivas Bros points out, "Where you have a large, stagnant, standard category the tendency is to grab share by pricing."
That said, for Ben Anderson, global brand director at Johnnie Walker, pricing is a function of many things: brand strength, competitor activity, economic environment, tax and legislative environment.
"Price and value are key consumer motivators and are confused at a brand’s peril," he says. "Reliance on price alone will erode brand equity and won’t build brands. The challenge has to be to drive value for both the Scotch industry and the trade.
For us, price and promotion are important but so are advertising, product packaging, and other elements that help grow consumer equity." But the wider cultural environment has an insidious way of trying to negate those high ideals.
"Nothing has changed as far as deep discounting goes," says Riley, who feels the market will remain static unless the cycle of discounting is broken.
"At Christmas in the UK, I saw a standard brand on sale for £9. My reaction to that was that the producer doesn’t think much about his brand’s equity. Once into the low-price category is it very difficult to get back out," Riley continues.
"If you believe in brands and are clear about what you can achieve you can grow without deep discounting. If the consumer buys into the values of the brand then that brand can grow at a higher price – look at Grouse in the UK, or Clan Campbell in France."
Consumers aren’t stupid. Surely, if a brand is regularly on price promotion, then the drinker will simply refrain from purchasing outside the promotional period? That hardly builds brand loyalty.
"It’s a key commercial challenge," says Burles. "Out of control price promotions encourage the consumer to be promiscuous. Your blend needs ways to make consumers frequent and loyal and you cannot offer that with price promotion!"
It is a line which Iain Kennedy, J&B’s global brand director, agrees with. "There’s a lot of cheap blends on the market," he says. "Young in age, high in grain content and, sadly, they denigrate the image of Scotch. It reflects badly on blends."
How can brands escape? Grouse has managed to grow in virtually every market in the past year, something Gerry O’Donnell, Famous Grouse director at Edrington, puts down to getting the fundamentals right", namely, "the right distribution, promoting effectively and stimulating wareness through advertising".
For Burles though there is even more to do, such as adding value by credibility and innovation. "It’s a creative challenge, not an obstacle," she says. "Last year we pursued a more aggressive creative off-trade stance in France and the UK through innovation and added value and got additional promotional slots with retailers.
We had one of our highest sales ever across the entire year. The retailer and the consumer both responded – and not just when price was cut."
Education, education, education
To their credit, the major brands are trying new ways of talking to consumers. In France, J&B is running an educational programme on how the brand is constructed and why you have to pay a premium; in Spain it has rejigged its image and created high-profile, largescale events for consumers in Madrid and Barcelona.
In France, Grant’s launched a mini-barrel containing a bottle of its Family Reserve brand, as well as new carry-packs; and, in the UK, bottles carried educational neck tags. For Chivas the issue is getting people to trade up and reassess blends.
As Riley says, "We have to explain why they should pay twice the price." The brand has been heavily advertised in France, where new links with fashion have been established as well as heavy promotion in top-end on-trade outlets.
In the UK, Bell’s and Grouse have advertised on TV and the former has continued with its focus on Father’s Day promotions. As Bell’s senior brand manager, Deborah Wakeham claims, "Those who have taken a category approach to help consumers understand the category have been particularly successful."
Undoubtedly a lot is being tried, yet the category stubbornly refuses to grow. Have shorts been grabbed by the curlies by retailers? "Increased retailer power is not the issue, taking a category approach is," maintains Anderson at Johnnie Walker.
"Within the category they will have an opportunity to explore the tremendous range of flavours and experiences that blends offer." This is true, but it doesn’t address the fundamental question – can the category grow once more in mature markets, or will it continue to stagnate? There is growing evidence in the UK and France that "new", "young" drinkers (if they drink whisky at all) will start with malt rather than with blends – and then stay there.
Image-wise blends are nowhere. They are seen as poor relations to malts, commodities, bereft of heritage and quality. Burles wants brand owners "to be as passionate about blends as they are about malts", pointing out that 90% of whisky consumers are buying and drinking blends.
"Blends are still the primary route into the category," says Wakeham, "and it’s important to recognise that there are different consumers in the blended category and that this determines the places they may move to within the wider category.
Some consumers will move into Bell’s from own-label, some will move from Bell’s to a premium blend like Bell’s Special Reserve, and some will move from blends into malts." Or will some start with a "blend of malts" (as vatted malts are to be called from this year) and move back to blends? It cannot be coincidence that in the past few years, as blends have struggled to grab new users, most of the major blended houses have launched a vatted malt variant: Ballantine’s Pure, Grouse Vintage, Bell’s Special Reserve, Walker Green, etc.
The message appears to be that the future for blends, is … malts. What was notable during the research for this feature was the emphasis all of the interviewees placed on innovation. Everyone’s conversation was littered with references to "re-establishing", "revitalising" or "reinventing" blends, revealing a significant shift in mindset.
Innovate or stagnate
Brand owners are clearly beginning to think outside the box. "We’ve had an innovations team since ‘02," says Burles, "and by ‘07 innovations in blends will have added 500,000 cases to our sales."
Clearly, the general aim is to use innovation to trade people up. "Super-premium has traditionally been driven by age statements, which is limiting," she adds. "We should look at vodka, gin and bourbon and see how they have all innovated within super-premium." Watch this space.
"Blends are much free-er to play with flavour," argues Kennedy. "The competitive set has changed and the traditional mechanics of recruitment don’t apply anymore." Paying attention to other categories is vital.
Today’s consumer chooses from an increasingly wide repertoire: from rum and gin (in pain) to lager and wine in the UK) and all points inbetween. "The great truism in life," says Kennedy, "is that everyone sees the same data, and the competition from other categories is stronger.
Brands are under pressure, brands need to reinvent themselves: in liquid, in representing themselves, in packaging. Innovation is incredibly important. "The first thing is to accept that we are not in the ‘Scotch’ business these days, but in the beverage alcohol business, so we can’t be content with the share of the Scotch market. We have to be stronger about selling our assets."