“standfirst”>Could vodka do to whisky what whisky did to Cognac in duty free? If the world’s most popular white spirit continues to follow the super-premium route, Tom Bruce-Gardyne thinks it might
Global sales of vodka have been growing by around 4% year on year since 1997. For duty-paid retailers in big vodka markets like the UK, the drink continues to drive growth in the overall spirits category. With a range that stretches from cheapest-on-display, through ownlabel to mainstream and premium brands, vodka covers a vast range of price-points. Above this sits the superpremium category, now well established in the US and beginning to spread abroad. Add in the high level of advertising support given to the big brands, plus all the innovation in flavoured vodkas, and this thriving white spirit is the hero of the drinks shelves.
But so much for the high street – how is life on the other side, in duty-free? Given the rapid rise of vodka on the domestic scene, one wonders if travel retailers have caught up. Or is there still a time lag? Erik Juul-Mortensen, president of global dutyfree at Vin & Spirit and responsible for Absolut, thinks not. “Well I would agree if you go back five or ten years, but today that has turned completely around,” he says. As proof that operators are now up to speed with trends on the street, he cites the number of products, from spirits to perfumes, that have used duty free as a launch-pad. “Two years ago we launched Absolut Vanilia in duty free worldwide and last year we launched Absolut Raspberri with a major introduction in duty free around the world,” he explains. The latest member of the family is Absolut Apeach which is already available in America. It gets its global premier at Cannes this October.
Absolut reckons itself to be the bestselling vodka in duty free, with predictions to pass 700,000 cases this year. Vin & Sprit has made duty free a top priority for a number of reasons as Juul-Mortensen explains: “It is very important because it’s an excellent shopping window for a premium spirit brand like Absolut. Part of this is because it’s our target consumer audience that passes through and has an opportunity to see the brand. But secondly it is the environment it is sold in. If you see some of the duty-free stores in Europe, in South America … in Canada, these are high-quality stores where Absolut fits in beautifully.”
Smirnoff, the world’s biggest vodka brand, questions Absolut’s stated supremacy. At Diageo Global Duty Free, Jon Roberts, category director for all spirits other than Scotch, puts the two brands neck and neck. Quoting the latest DFIC figures, he says Smirnoff grew 6% in duty free last year while the category was flat, or at best up 1%. The brand has also used the sector to launch new lines including Smirnoff Twist and various flavours around Europe. In November the repackaged premium Smirnoff Black is being given itsworldwide debut in the UK and Australia where it will remain a travel-retail exclusive for at least six months.
For Roberts, the beauty of such an approach is that, “It gives the opportunity for some immediate live consumer feedback. It’s a more efficient, cleaner and more effective way of brand building than doing, say, a regional launch in somewhere like London, which can be very expensive and much more difficult to measure.”
For Smirnoff the incentive to bring out new lines is strong, especially in Europe where the big savings of the past have gone for good. “The consumer expects good value, but you also have to offer them a point of difference,” says Roberts. But with such a ubiquitous mother brand this poses a real challenge. “You could say that we’ve been a victim of our own success because you can get Smirnoff Red in most bars and supermarkets around the world,” he adds. But if the brand was neglected in this arena it is beginning to fight back. According to Roberts, “We’re seeing strong growth of Red, up 9% in 2004. It has been achieved by focusing back on the basics of what makes Smirnoff the number one vodka in the world.”
Europe: the birth of ‘travel-retail’
The vodka category has come a long way since 1999 and the abolition of duty free within the EU. The painful transition period was accompanied by a massive drop in sales for all spirits across the continent. For a while it seemed the industry’s grim predictions pre-abolition were all going to come true. Without the ability to simply stack it high and sell it cheap, airports would slowly lose the will to sell alcohol. Instead of those brightly lit bottles, the shelves would be filled with cuddly toys and CDs.
Well, fortunately for the industry, it never quite happened. With determination, suppliers and retailers have managed to reinvent the category as travel-retail. In the past practically any spirit would appeal to northern Europeans if sold at half the price they would pay back home. Now, because all elements of the marketing mix matter, operators have had to become an awful lot smarter about the latest retail trends. This is good news for vodka as it fights for its rightful share of the shelves compared to other spirits. At Diageo, Jon Roberts says of the company’s white spirits that after the painful dip that followed abolition, “We are now trading above where we were then.”
Scandinavia is a very important market for Smirnoff, and a lot of work in duty-free has been done on the Nordic ferries. Here the brand can operate at two levels – as an on-trade proposition through the bar, and in retail through duty free. “This gives us a huge opportunity to build the brand especially when you have serious regulatory issues in the local market,” says Roberts.
With tight margins on standard brands, those in travel retail are striving to trade consumers up. Here vodka has much to learn from Scotch. As Robert Johnson of Chivas Brothers (Pernod Ricard’s Scotch whisky division) puts it, “No other category offers such an established ladder of added value from standard to 12 year-old to single malts and super-premiums.”
Vodka is building its own super-premium category with brands like Belvedere, Ciroc and Grey Goose. The latter has shown dramatic growth in the US where it is now over a million cases. In last year’s Impact Report Grey Goose was predicted to be one of the world’s top 25 spirits brands by 2010. Beyond the US, however, the super-premium sector is still pretty niche and still firmly on-trade based.
The USA: duty-free culture shock
Unfortunately for people like Jon Roberts, the world’s biggest vodka market is also the one that least understands duty free. Most American travellers find the idea of buying booze in airports simply bizarre. And, while it may be a huge country, less than 7% of the population holds a passport. Patrick Moran, global duty-free director at Brown-Forman, which owns Finlandia vodka, believes there are US consumers keen to buy specialist lines, but concedes, “They are still not interested in buying brands they can find fairly easily at home.” His brand has seen volumes fall in duty free. “Like all businesses, Brown-Forman pursued profitable sales for Finlandia vodka and in doing so had to make some hard decisions about listings that did not meet our profitability criteria,” said Moran recently.
At Absolut, Erik Juul-Mortensen agrees that US consumers “haven’t quite discovered duty free the way Northern Europeans have with their high taxes. But I think it’s coming,” he adds. Certainly some of the major US operators have been smartening up their act in the big international hubs like New York’s JFK where travellers are being offered a much more deluxe shopping experience than before. With spirits, the main audience might be foreigners waiting for flights home, but it should rub off on Americans themselves. Unfortunately, sampling is not allowed and any bottles purchased are removed from the passenger until they board the aircraft.
Of course, US consumers can also be targeted on their return flights. Jon Roberts imagines an American who has “maybe tried Ciroc vodka in a London bar, but the conversion to purchase may happen later in Heathrow on the way back home”. Over the summer the UK operator World Duty-Free ran a “news wall” in Heathrow’s Terminal 4 featuring a range of premium and super-premium vodkas including Ciroc and Absolut Level. Apparently, the take-up was very encouraging with Ciroc, for example, recording double-digit growth albeit from a low base.
An alternative environment where US vodka drinkers can be seduced is on ships. With fear of terrorism depressing long-haul travel, many are holidaying on cruise ships closer to home. Some 70% of cruisers in the Caribbean are American. Relaxed and away from the stress of airport check-ins and heavy security, passengers can be easier to engage. And usually there are fewer restrictions on sampling.
Asia: brown spirit stronghold
On the West Coast of America, the majority of vodka sales in airports are to those returning to the Asia-Pacific. Consumers in this vast region tend to be more aware of duty free, especially when it comes to brown spirits. Vodka is a major spirit in Australia and New Zealand, led by Smirnoff. But the further north you travel from here, the smaller the category becomes compared to the likes of Scotch. Yet things can and do change. Scotch whisky managed to muscle its way past Cognac in the course of a generation, and there is no reason why vodka might not one day do the same to whisky.
Absolut adopts a dual approach. “We believe duty free and duty paid should go hand in hand,” says Erik Juul-Mortensen. “We believe duty free can create trial and awareness, and a good example of this was Absolut Vanilia which we launched through a major promotion in Singapore airport, and this was very helpful for the domestic launch that followed afterwards.” But, on the whole, duty free can do little to open up a market if there isn’t some established domestic presence. Japan is the third biggest vodka market in the region, but sales are only around 500,000 cases. David Gates, Diageo’s marketing director in Japan, says brand owners have to recognise that the country’s perceived love of premium Western imports has waned. “The Japanese are much more discriminating now than they were during the bubble era when there was more an acceptance that if it was Western it was good. I think there is more pride in ‘made in Japan’ now – a recognition that the quality of Japanese design and produce are hard to beat.” For now, Smirnoff can only build what Jon Roberts calls “beach-heads” in readiness for the day the market changes.
And finally to the great unknown – China. Vodka is currently tiny and the talk is all of potential, but the omens are not discouraging. Foreign travel has boomed with passenger numbers out of Shanghai doubling two years ago to 16 million. Those travelling within the region are not getting much exposure to vodka in duty free compared to Scotch and Cognac. But those who make it to London or New York would be left in no doubt as to the spirit’s mass international appeal.