UK RETAIL SPIRITS: The all clear
Vodka is still dominating the spirits sector, its sales having toppled long-time leader Scotch. Patience Gould looks at homegrown brands versus imports, the influence of the Big Four and the problem of aggressive spirits pricing
The winds of change are beginning to sweep across the UK spirits market and once again it’s vodka that is proving to be the catalyst. This relatively tasteless and odourless spirit, produced all over the world, is now the number one spirits category, having toppled Scotch whisky – the long-time ruler of the waves. Growth was over 7% in 2005 against 2004, and last year it was in the order of 10%. It’s big business too, worth £670 million in the off-trade, and a colossal £1.164 billion in the on-trade, where there are more brands and where higher prices prevail.
While over the last two years there has undoubtedly been an increase in imported vodkas, notably from central and eastern Europe, such is the power of home-produced spirits, across all the categories, that the imported spirits category in the UK remains relatively small.
In recent times the on-trade has weathered much of the imported vodka onslaught, while along the High Street its impact has been much more muted, though behind the scenes the competition is fierce – indeed it is reckoned buyers are inundated with between 20 and 30 new spirit brands every month.
The High Street is completely dominated by the big multiples. Led by the Big Four – Tesco, Sainsbury’s, Asda and Morrisons – they now account for almost 70% of spirits sales, worth almost £1.84bn (MAT June 07). Tesco completely dominates the action with a 31.7% cut, followed by Asda (16.7%), Sainsbury’s (16.4%) and Morrisons (11.3%). These are value shares and it’s interesting to note that volume-wise (see box on page 46), while there’s no change to the order of things: Asda boasts a 17.8% share – a clear indication of the cut-price nature of this retailer – and interestingly, Sainsbury’s volume share is over 1% less, which perhaps highlights a more reasonable pricing strategy. Whatever the case the stark fact remains that pricing is a critical factor when it comes to spirits retailing in the UK.
“It must be very difficult for an imported brand without a main distributor, because while retailers are now looking for vodkas with a difference, it’s pretty much on their terms rather than brand builders’ terms. They not only dictate on price but can be pretty choosy when it comes to packaging too,” says one commentator. “It’s tough. Very, very, tough.”
Another player highlighted competition waging between the retailers themselves, which further adds to what is almost an insurmountable challenge. “They are so obsessed with tracking each other on prices that overnight your careful brand building strategy goes straight out of the window.”
Faced with these Herculean hurdles one wonders why brand owners bother – but a listing in a major multiple is considered to be the holy grail; such is the strength of their market clout that to get a brand on shelf in just one of these retailers can hoist it into the top 10 sellers league. However, a brand has to sell either as a brand, so that it has consumer recognition, or it goes on price; quite often it’s a mixture of the two.
A tale of two vodkas
It’s worth comparing and contrasting the case histories of two imported vodkas, one from Poland, Soplica, and the other from Ukraine, Nemiroff, as the two have adopted very different strategies. Soplica has gone for listings in the off-trade, while Nemiroff has elected to seed its brand in the on-trade.
“We didn’t touch the off-trade for three years,” says director of import company Alcomm, Pleurat Shabani. “Instead, we concentrated on getting listings in the top 30 bars around London. After these had been secured we then concentrated our sights on Manchester, Leeds, Glasgow, Edinburgh and Brighton. We’ve got to get brand loyalty, to get on the shopping list.”
Nemiroff is currently listed with Waitrose, and the two are working in tandem with in-store tastings, and price promotions are the introductory orders of the day. “The brand owners don’t like these but we have to recruit consumers. Nemiroff is more and more recognised but there is still, after three years, loads of work to do. There are no overnight miracles,” says Shabani.
The strategy of the Polish contender Soplica could not be more at odds with Nemiroff’s and the company doing the business, Ocean Spirits, is in a confident mood. The brand has been listed in 500 Somerfield stores, a multiple which has around 4.7% of the UK spirits action. In addition it is in 1,850 Threshers outlets, enjoys a listing in Costcutter and is in Scotland through Spar.
“We are sticking with our initial strategy,” says Ocean Spirits’ managing director Michal Gierak. “The off-trade is where all the volume is and working with the multiples we can be more brand focused. In the on-trade brand loyalty is not that great.”
There’s little doubt that Soplica’s drive in the UK has been aided and abetted by the huge influx of Polish consumers, a factor which the supermarkets are beginning to take note of. For starters vodka is now “booming” in Ireland, where an estimated 300,000 Poles currently reside – a significant ethnic group considering the country’s own population of around six million.
“There’s great potential, a lot of Polish products are coming on to the retailers’ shelves and this is helping tremendously,” says Gierak. “Now we are looking at the Big Four, while tackling the independents.” It’s early days but Soplica’s high risk, high investment strategy appears to be paying off – the brand is the third best selling imported Polish vodka in the UK, behind Wyborowa and Belvedere and the 14th imported vodka overall.
But as a recent Datamonitor report points out: “It takes a lot more to find a new customer than keep one… Brand loyalty is a factor that has a strong influence on purchase decisions. Although product categories may vary slightly, it is widely accepted that it costs less to retain a customer than recruit a new one. According to some estimates it costs nine times more to attract a new consumer than retain an existing one.”
“However big an advertising campaign is, in the wrong hands, it’s a waste of time. Consumers need to be educated before laying out £12-15 for a bottle of spirits; they need the brand story. Consumers don’t understand vodka in the UK; it’s odourless and colourless and mostly drunk in cocktails while in eastern Europe it’s drunk neat,” says Nemiroff’s Shabani.
Another factor to throw into this complicated retailing pot pourri is the actual time a consumer spends on the buying decision. According to research carried out by the William Grant-owned UK distributor First Drinks, it’s less than one minute – which is decidedly alarming for all, but underlines the importance of the brand message, its packaging and ultimately the price. All this is digested in under 60 seconds and if there’s no appeal the consumer moves on, or back to the tried and tested.
First Drinks currently boasts two vodka brands in its portfolio, William Grant’s premium Icelandic contender Reyka and the Russian mover and shaker Russian Standard – both with very different positions and ways of coming to market. “With Reyka it’s all about seeding in the on-trade,” says the company’s commercial director Rita Hill. “Whereas with Russian Standard we are launching it across all the trade channels supported by big advertising. This is a premium vodka but not a niche brand – it’s authentic, which we have to justify, but it’s accessible.”
Right in the thick of the action is the Warrington-based G&J Greenall, as this company is a quality supplier to the big chains for their white spirit own-label requirements – huge in itself – as well as a brand owner with its eponymous gin, and G&T premixes. “It is integral to a business plan these days to develop a collaborative relationship with the retailers,” says the company’s Steve Ferris.
While for the lone brand owner this is a classic understatement considering that supermarkets own-label “brands” and cheapest on display lines account for a mighty 60% of the gin and 74% of the vodka market in the UK off-trade, it is of course great news for G&J. Furthermore, it is this end of the market that is fuelling the growth, but of course heightening the level of competition particularly when it comes to price at the same time.
A broad offering
However, wearing its two hats as supplier and brand owner G&J has been extraordinarily successful in the UK retail sector. Its gin Greenall’s is not only the number two but also the fastest growing gin brand, while its London Dry G&T is now sixth in the RTD brand league, and the leading G&T premix. Furthermore, the company is now turning its attentions to the vodka side of its business and to good effect too; the Morrisons brand Moskova, and Tesco’s relaunched Selekt are both showing good potential, adding up to over 1m litres worth of production for G&J this year alone. Buoyed by this the company is looking to develop future brand opportunities.
Having a foot in both camps is clearly working well for G&J and only enhancing its position in the white spirits overall, and its success underlines how important it is to broaden the offering when visiting today’s retailer. For other companies, the Diageos and Pernod Ricards of this world, they have a portfolio of spirits to put on the table. This goes some way to explaining why Diageo, with its core UK brand trio – the Scotch whisky Bell’s, the vodka Smirnoff and Gordon’s gin – rules the roost on supermarket shelves and these are the benchmark when it comes to pricing in their respective categories.
“Category management, and range management of the portfolio is critical,” says First Drinks’ Rita Hill. Aside from its vodkas, the company boasts a broad category line up from Scotch, gin, rum, brandy and liqueurs. The blend Grant’s, together with single malts Glenfiddich and The Balvenie, along with the latest introduction Monkey Shoulder, the blended malt fronts the company’s Scotch business. Add to this the premium gin Hendrick’s, Three Barrels brandy, and the liqueurs Amarula, Disaronno, De Kuyper, as well as Benedictine. All of which allows for some juggling when it comes to sorting out business plans with the multiples.
“We do have to be quite careful as, for instance, we have a policy not to price promote Hendrick’s; if it’s too mainstream you can lose kudos,” says Hill. As a result the brand is in Waitrose and in Tesco’s premium outlets. “Here we concentrate on adding value through the likes of gift tins,” continues Hill. “The trick here is to avoid price comparisons through differentiated offerings on the brands.”
While as a rule of thumb Waitrose and specialist off licence Oddbins are generally conceded to be the best retail outlets for testing brands, it’s notable of late that Tesco, Sainsbury’s and Morrisons are tailoring their ranges according to local demographics in a number of their outlets. Traditionally Waitrose is considered more upmarket and as a result attracts the more top-end consumer and clearly the other multiples are applying a similar template in selected outlets.
Getting into the spirit
This bodes well for the future, as it not only aids and abets the move upmarket, but further expands the test bed opportunity for spirit brands. “There is an opportunity for premiumisation – but this has to be explained to the average person,” says Hill. “Spirits are crying out for innovation – but it’s still much harder to get consumers to try new spirit brands than wine because the unit price is that much higher. We have to broaden the drinking occasions and get people making cocktails at home, so that something like Disaronno can be consumed before a meal, and not solely after it.”
It basically comes down to education, education and education. A well-educated consumer base would realise why brands and different qualities within a brand range are necessarily more expensive.
“It’s a shared challenge – but we have to try and get beyond price as the be all and end all,” says Maxxium UK’s Gordon Muir, who tends to Rémy Martin and Piper Heidsieck. “Generally price is a primary concern but it’s less of an issue at the luxury end. At the end of the day, aggressive pricing may encourage footfall – but I’m never sure if it encourages repeat purchase when prices revert back to normal.”
It’s a moot point, too, when it comes to Christmas, when most would be prepared to pay that bit extra for a festive treat. Brands certainly come to the fore then in order to encourage traffic in-store, but mercifully it is unlikely that the two-litre promotions for £20 which were on offer last year will return. As one pundit noted: “This was not on. A responsible drinking focus will come into the off-trade sooner rather than later.” While this is unlikely to drive prices upwards it may well put paid to vodkas retailing for under £7 for a 70cl bottle, which, after all, is not much more than a packet of cigarettes these days.
© db August 2007