Shaken and Stirred
“standfirst”>In stark contrast to most regional spirits markets, Western Europe is suffering something of a hangover, says Chris Losh
Europe might be the birthplace of many of the world’s most famous spirit categories, but national pride in the likes of Scotch, Cognac et al doesn’t, it seems, equate with a steadily rising sales graph. While the rest of the world is either discovering or rediscovering the joys of 40%abv liquor, the trading environment for spirits in Europe remains what marketeers euphemistically call “challenging”.
Vinexpo, in its market research capacity, predicts a global growth for spirits of 12% by volume and 15% by value from 2003 to 2008. North America, Latin America and Central and Eastern Europe are all forecast to experience double-digit growth and Asia is predicted to rise by over 200%. Yet, against this generally positive global trend, the sulkiness of Western European markets sticks out like a bottle of Smirnoff Ice at a tasting of classed growth claret. Vinexpo sees it as being the only region in the world that is going to be drinking less spirits over the coming few years, predicting a volume fall of three million cases, or 2.5% from 2003 to 2008.
The problems are many and various, and are acknowledged by all the main players. A falling birthrate means an ageing population, which stays in more and both drinks less and goes out less; economically, much of the continent is sluggish, with powerhouse economies like France and, particularly, Germany experiencing growth so slight as to be practically stalled.
Add to the ensuing decline in consumer confidence such factors as the consolidation in the retail base limiting listings and you can see why spirits producers in Europe are facing up to the sort of headache usually only experienced after consuming an entire bottle of one of their own products.
Diageo’s response to this difficult environment has been pragmatic; to grow organically where possible, but essentially to concentrate on “beating the competition”, rather than chasing unrealistic big increases in volume. But rather than pulling up the drawbridge, Diageo has been pouring energy and budget into new ideas. “We’ve put a lot more resources behind the development of an innovation development pipeline and also the capability of taking them to market, trialling them and making them a success,” says Andrew Morgan, president of Diageo Europe. “Innovation is a big focus for us.”
This has largely taken the form of lineextending existing successful brands, aimed at outflanking the competition. Thus, the last 12 months has seen two additions to J&B being test-marketed – Nox and -6°C – Gordon’s Distiller’s Cut, and two new Smirnoffs, Norsk (or North as it’s known in Greece and Spain) and Smirnoff Penka.
The appearance of two new variants of Smirnoff is a clear indication that vodka is the hottest spirit category across Europe at the moment. International Wine and Spirit Record estimates the European vodka market as being well over 35m cases, and its growth in trend-setting markets like the UK (up 7.5% again last year according to the Gin and Vodka Association) has been the undisputed spirits story of the last decade.
The UK remains very much a Smirnoff market, but there have been increased rumblings of interest at the top end, particularly in the style bar market, hence the appearance of Penka. Belvedere, owned by LVMH, grew 50% last year and, having done its four years of meet-and-greet in the on-trade launched into the off-trade through Waitrose at the end of October. “The luxury vodka segment is now the fastest-growing category within distilled spirits,” says Angélique Beziel, brand manager for Belvedere. “Most brands are launched in the on-trade and this is where their awareness is built.
But the off-trade sector is also undergoing more premiumisation and as we go along, we will observe more and more luxury brands in this distribution channel.” But not everyone is convinced that all these pricey new arrivals will find a market. There’s a feeling that much of the category’s deluxification may be more of an expensive dead duck than a golden (or Grey) goose. “The £20 a bottle revolution isn’t happening,” said one market commentator. “I’ve no idea how they’re going to sell all the premium vodkas now arriving.”
Yet such quibbles remain minor. Vodka’s growth remains solid in its mature markets and explosive in new ones such as Spain, Greece and France, where the drink’s relative lack of regulation gives it a big advantage over more traditional spirits.
“There’s a new vodka every week – it’s like with perfumes 15 years ago,” says Caroline Rooryck, marketing manager at Fussigny Cognac. “They’re in every style and at every price point, but we can’t do that in Cognac. Our structure is very rigid.”
Cognac halts decline
Cognac’s more rigidly controlled production criteria might limit the opportunities for product innovation, but this is, nonetheless, a category showing considerably more energy than it has for some time. While Europe might not be seeing anything close to the stratospheric growth achieved in the US, the inexorable downward drift of sales figures has come to a halt and even started to trickle upwards.
The UK, Belgium, Scandinavia and Eastern Europe are all showing growth as the Cognac houses’ belated strategy of luring the kind of young professionals who they’ve been ignoring for decades finally starts to pay off. Promotional work at the VSOP level has also had an impact.
“What’s really made the difference is that we’re investing a lot behind the brand and doing a lot of work with the bars,” says Jean- Marc Olivier, head of Courvoisier. “The problem was that for many years we weren’t communicating to young professionals; they just didn’t think of us as being in their repertoire at all.” Courvoisier has taken its VSOP Exclusif, originally designed as a mixing Cognac for the Asian market, and parachuted it into outlets across the UK.
It’s this kind of behaviour that is turning the UK into a Cognac success story once again. At 13m bottles in 2004, it’s at its highest level since 1990, while emerging markets like Russia (3.4m bottles last year) and Norway (steadier, but still solid growth to 3.8m bottles) provide further optimism. Of cause for concern are Germany, which has been mired around the 7m case mark for years now and shows no signs of shaking itself from its torpor, and the French market, which has lost nearly 30% in not much more than a decade and is as flat as a steamrollered crêpe suzette.
After-dinner drinks in France generally have had a tough time of it recently, with strictly-enforced drink-driving laws radically altering consumption habits in the on-trade. But the drink’s powerful reputation has also worked against it. “The way of consuming Cognac has changed a bit,” says Fussigny’s Rooryck. “It’s no longer seen as an after dinner with a cigar drink; people are using it in cocktails. But in France it’s hard to shake that image because there’s so much emotional baggage attached to Cognac.”
Interestingly, while a fair bit of the Cognac renaissance can be attributed to increased flexibility in consumption habits, Martell in the UK has elected to focus on the more traditional after-dinner environment. Working on the assumption that entertaining at home is the new going out, it rolled out its Let The Conversation Flow campaign across national print media in August. “It’s all about people with busy lives sharing special time with friends; about contemporising an already-existing occasion for Cognac,” says John Grieveson, marketing manager for PR UK. “There’s a huge amount of flexibility in the UK about how Cognac is drunk, but we wanted to anchor our brand in that special occasion, post-prandial moment.”
This is an example of Pernod Ricard’s decentralised structure at work, with regional brand managers having a certain amount of autonomy when it comes to deciding brand strategy in their market. While the ad itself will be developed in conjunction with the continent, the impetus for its execution will come very much from the satellite office, in this case the UK. “It allows us to be more flexible in meeting local market needs,” says Grieveson.
Scotch suffers in Spain
If ever flexibility has been needed anywhere in Europe over the last 12 months, it’s been selling Scotch in Spain. This is the drink’s biggest market by value, but overstocking problems in the years after the millennium, coupled with two duty rises this year (the second, of 10% in September) and an ageing population more interested in drinking at home than in bars at 3am have hurt the category.
The Scotch Whisky Association puts the market down 17% by value to £107m, and in five years it’s fallen from 13.2m cases to 9.4m. Even allowing for the 2000 figure as being something of a blip, the trend is still downwards. “If people generally are tightening their belts on discretionary spending, and within that your category is getting more expensive due to taxation, the combined effect makes it a tough market,” admits Nik Keane, J&B’s global brand director. “Our key is to compete with and gain share against brands like Ballantines. There’s plenty of room there. I don’t feel constrained by issues like taxes or demographics because they affect the whole market.”
Spanish consumers, it seems, aren’t really migrating out of the Scotch category (though dark rum is a fast-growing competitor in both Spain and Italy, it remains small) but they are drinking less than before, and the move to the off-trade is very real. For a brand like J&B, half of whose sales are made between 11.00pm and 4.00am, this is a problem, and the creation of J&B Nox last year, a blended malt that’s more about sipping than mixing is designed to address this very concern. It isn’t likely to be huge, but it does have the advantage of being positioned above the €10 price point. This used to be the price Rubicon for standard Scotches, but following the government’s 10% duty rise in September, many brands that used to retail between €9 to €10 have gone crashing through it. At the time of writing, no figures are available to show the effect this has had on sales, but it’s hard to see how it could be anything other than negative.
No wonder, perhaps, that Diageo is rethinking its Spanish strategy. “There are some markets where standard Scotch is a bit of a struggle,” says Diageo’s Morgan. “We’re generally holding onto our business with J&B and Johnnie Walker Red, but the area we’re targeting with quite a bit of investment is premium and super-premium from Johnnie Walker Black upwards.”
This is a good example of the benefits of Diageo’s restructuring, introducing regional brand directors, who have been given increased influence over key brands in Europe. Working with the Diageo Europe team, and local markets, their job is to develop a more pan-European approach for their brands, and put into place targeted local strategies.
By driving individual brands through this approach, the intention is to usher in not just more flexibility, but to allocate resources more rapidly to the areas of highest growth potential. Thus, the same market trends that are giving problems to standard blends simultaneously offer opportunities to the premium sector, with brands like Johnnie Walker Black, though the latter hasn’t been the only blend to cash in. “Chivas has exceeded all expectations,” says Paul Godfrey, global brands director for Chivas 12. “We set some quite ballsy objectives at the time of acquisition and we’ve smashed those out of the water. We don’t have our fair share of Spain yet, but I think that will change as we move forwards.”
With the acquisition of the Allied Domecq brands, Spain has become PR’s most important market. But while Beefeater and Ballantines may be huge and wellestablished brands there, both are in need of a little love and attention. The former’s attempt to go up against Tanqueray and Bombay as a trendy top-end gin was misguided, while the Ballantines’ Go Play campaign simply lacked resonance. There remains vast potential in the country for both brands, but much work needs to be done to reinvigorate them, and this could test even a company with Pernod Ricard’s impressive track record at brand resurrection.
Lost in France
Nor are Scotch’s problems confined to Spain; as a category, there are depressingly few high points in the mature markets of Europe, and while a 19% rise in sales in Poland is good news, it doesn’t come close to making up for the fact that, following a recovery in 2004, the latest six-monthly figures for France show the market is down again, -4% to £114m. Much of this may be down to France’s drink-driving laws, which have hurt the entire after-dinner sector. But it doesn’t alter the fact that, allowing for the odd peak and trough, value and volume in Scotch’s number two market, remain flat.
Europe might be a tough market at the moment for a whole host of social and economic reasons that are out of the control of the drinks industry. But the success of vodka, premium Scotch, single malts, dark rum and even Cognac over the last 12 months shows that there are still opportunities out there for brands that can really connect with the public. Proof, even, that the spirits industry frankly hasn’t been that creative in wooing consumers.
“When you see what’s happening to spirits versus beer in the US, with the category growth and the whole growth of cocktails, there’s no reason why we couldn’t aspire to that kind of move back to spirits in western Europe,” says Diageo’s Morgan. “But you’re not going to get it if you don’t make the category interesting.”