WHITE SPIRITS: Leading whites

Vodka remains leader of the white spirit pack, but others, such as gin and Tequila, by virtue of premium extensions, are strengthening their market share, writes Alan Lodge.

There can be little doubt that when it comes to white spirits, vodka is king.

The colourless – and some would have you believe flavourless – spirit sits proudly at the top of the tree thanks in no small part to its almost infinite mixability. You would be hard pushed to find a soft drink that doesn’t mix seamlessly with vodka, and it’s this immense scope for consumption that has led vodka to become the world’s fastest-growing spirit between 2004-09, showing 8% value growth, according to the International Wine and Spirit Record.

Last year, vodka even overtook Scotch as the UK’s most valuable category in both the on- and off-trades, worth £1.2 billion. It had already overtaken Bourbon as the most popular spirit in the US back in 1975 and annual vodka sales in the country now top US$4.5bn (£2.85bn). Indeed, the US accounts for nearly 60% of total premium vodka sales.

It is no coincidence that the top two premium vodka markets – the US and the UK – are also right at the heart of the resurgence in cocktail culture. As barmen seek to find ever more exciting and enticing recipes to offer adventurous punters, vodka is at the forefront of the boom.

Vodka has been the driver of volume growth in the UK spirits market for a number of years. It is now the highest-selling spirit category in the UK by volume and sales value and it has primarily been the growth in vodka that has prevented the decline in revenue growth from being more apparent in the spirits sector.

Within the vodka category, premium brands have performed well, but these account for only some 1% of the market and it has been supermarket own-label vodka that has been the main driver of this volume growth, having developed from a low level some eight years ago to 40% of the vodka off-trade (29% of the total vodka market), according to the Gin & Vodka Association.

However, while vodka might have led the charge, others are now following in its footsteps. Bartenders and home consumers are now turning their attentions to other categories within the white spirits sector, such as white rum, gin, cachaça and even Tequila, to see how they can be put to use in the shaker.

“White spirits are growing everywhere,” says Greg Cohen of Patròn Spirits. “In Asia, for instance, the younger generation aren’t interested in what their fathers and grandfathers consume. They’re looking for new and different spirits – yet still high-quality and sophisticated, and so ultra-premium luxury white spirits like patròn Tequila, Ultimat vodka, and Pyrat rum are well positioned to capitalise on that growing trend.”

There is now real competition in the sector, and brand owners are increasingly buoyant about the opportunities presenting themselves as the gap between vodka and the rest is gradually reduced.

“White spirits are natural partners for cocktails, says Duncan Hayter, international sales director at Gin Mare. “They don’t impart unwanted colour and generally have a lighter, more delicate flavour than more complex brown spirits that tend to overpower many cocktails.

“White spirits have always been popular due to their natural mixability. The latest revival in cocktails, however, has a far more premium and experimental edge to it and this is favouring a whole range of new premium and super-premium variants that didn’t exist before.

“Gin is a category that has seen an explosion of new entrants, many of whom, like the Mediterranean Gin Mare, offer a taste profile quite unlike the classic London Dry Gin style, which mixologists can use to create increasingly exciting cocktail recipes.”

It doesn’t necessarily take over-complicated cocktails to drive growth, either. Michael Laird, partner at db’s thought leader partners Cognosis Consulting, says: “Obviously cocktail culture is important, because it is high visibility, exciting and a great way to show off brands.

“But it is also clear that the majority of fast-growth white spirit consumption is not cocktail driven – it is more simple mixes that are the real key to growth. The underlying growth drivers are more to do with easy-drinking casual mixability than actual cocktail drinking.

"Being a simple bar call with Coke is a pretty powerful growth driver – and allows people to recreate the drink at home within reach of the fridge. With the shift to home drinking in the West right now that really matters.”

Luke Tegner, brands director at Berry Bros & Rudd Spirits, maintains, however, that the barman is still king when it comes to growing a category, regardless of the shift to at-home drinking.

“The flourishing global cocktail scene has certainly helped establish No. 3 London Dry Gin; in particular, we are making good progress in cities such as New York, San Francisco, Moscow and Hong Kong where cocktail culture is strong,” he says. “In London, leading barmen including Mark Jenner, Alessandro Palazzi, Jason Fendick and Nick Strangeway are at the leading edge when it comes to the art of making excellent mixed drinks and, to do that, they need outstanding premium white spirits.”

It’s not only bartenders who are discovering a greater sense of adventure when it comes to mixing white spirits. Yves Schladenhaufen, marketing director at Havana Club, believes people’s increasing scope and ambition for travel has opened up a whole new world of drinks possibilities for them.

“In terms of tourism, people are now more mobile than ever,” he says. “They travel to the Caribbean, Latin America and other exotic places where they can discover all sorts of new rums, cachaças and cocktails.

“Go back 20 years and people started drinking rum with Coke in nightclubs and bars – and these days that appreciation has extended to the extent that they seek authenticity, heritage and origin, which is why Havana Club pushed its story heavily. In Western societies in particular, the origin is of great importance and we know that the rum produced in Cuba is something better than any other rum produced elsewhere in the world.”

Schladenhaufen agrees that cocktails drive growth, but insists it is as much down to the consumers as it is the bartenders.
“If you have a mixed group of people in a bar, say a collection of 20-something men and women, and one of the girls orders a Mojito,” he says. “Another girl might think it looks nice and order one herself, then the men get curious and want to try one for themselves and suddenly the drink spans both genders.

“The other driver for the category is the evolution of taste. People are now leaning towards lighter, easy-drinking cocktails rather than having ones loaded with alcohol. It’s a more relaxed form of enjoyment and this is helping all white spirits, not just rum, to close the gap on vodka.”

Vodka fights its corner

With all the talk of vodka’s competitors catching up, is it safe to assume that the vodka category has reached a peak? Some might argue that the renewed drive from the competing categories signals that vodka has a real challenge on its hands to maintain momentum. However, Laird argues that there is always room for the category to improve itself.

“It is usually a mistake to think a category has peaked, and there is always room for growth and innovation,” he says. “Vodka has evolved from a homogeneous mainstream spirit into a segmented category and that trend will continue, with premium subsegments and flavours, provenance, etc becoming more important in developed markets.

“Meanwhile there will be some explosive growth for white spirit brands that can capture the aspirations of consumers in emerging markets over the coming years, to be seen drinking the right brand in the right place, served right.”

Ekaterina Egorova, of Soyuzprodexport, shares the belief that vodka will continue to flourish, but admits brands will have to up their game to remain ahead of the competition from other drinks.

“In Russia particularly, even though the consumption of gin and rum is growing, especially among the young, those spirits will never go above vodka,” she opines. “However the vodka producers should put more effort into modern branding and design in order to keep the young audience, clubbers and the growing ‘white-collar’ class.”

Far from viewing vodka as a rival, many drinks producers in the white spirits category view it as a driver for the whole sector. There is also appreciation among its rivals that vodka still has a vibrant and profitable future, despite the feeling others are creeping up behind it.

“Vodka is still showing dynamic growth in many markets around the world so the outlook for the category is very positive,” admits Hayter. “The premiumisation trend of recent years has slowed, however, with the global recession and this may take longer
to recover.

“It also faces new competition from other super-premium white spirits, especially gins and Tequilas that have been slower to develop super-premium variants, but are now making up for lost time.

“Both the gin and the Tequila categories are starting to show the sort of innovation and creativity in terms of liquid, design, packaging and marketing that helped fuel the growth of premium vodka over the last decade.”

Vodka’s key challenge over the coming years is, it seems, maintaining its ability to innovate and set the standard for growth. Joanne Birkitt, senior brand manager for Russian Standard, feels that the resurgence of competitors such as rum and gin might only be a cyclical thing. However, complacency could lead to trouble.

“Vodka continues to be the most important spirits category with robust long-term performance and an enduring consumer appeal,” she says. “Some other spirits such as golden and white rums have enjoyed recent success, but there are often cycles where categories enjoy short-term popularity, which may then tail off.

“Having said this, vodka brand owners can’t afford to be complacent. With so much choice for consumers across spirits, it is crucial to continue to invest, engage with your audience, innovate with brand associations and educate on new serves to ensure vodka remains the number one spirit.”

Andrey Skurikhin, partner at SPI Group, which owns Stolichnaya, agrees that the need to keep on its toes can only be of benefit to the vodka category. “Although we don’t believe that gin and white rum are the main competitors for Stolichnaya or the vodka category, we do believe that they add excitement and variety to the white spirits category,” he says.

“However, any new entries will motivate and challenge us to keep Stolichnaya top of consumers minds by remaining true to our innovative reputation.”

For the greater good

Any fears vodka companies might have about other white spirits stealing their market share are offset by the knowledge that the white spirits sector in general is, through its association with cocktail culture, effectively stealing drinkers away from the dark spirits category.

“A more vibrant white spirits sector, competing strongly, will inevitably take growth from other less exciting categories,” says Laird. “In the long term competition drives quality, and quality will win out with the consumer.”

Indeed, Schladenhaufen is of the belief that the drinks populating the white spirits category are team-mates rather than rivals in the battle to gain market share.

“There is definitely a trend from dark spirits to light spirits in Western Europe,” he says, “and I see the white spirits category as working together rather than in competition. Working personally in both the rum sector and on Absolut vodka, we see our activities as complementary rather than in competition. Rum is stealing consumers from the whisky category rather than pinching from vodka.”

Cohen adds: “People like to have a variety of spirits in their repertoire, for different occasions. Tonight might be vodka, tomorrow Tequila. Growth of different brands in different white spirits categories is a good thing for the spirits industry.”

So where in the world are white spirits truly taking charge? From a vodka perspective – and Stoli in particular – Skurikhin believes the strength of the brand should be enough to see it hold off the challenge posed by other white spirits, but admits people are starting to open up to other categories.

“Consumers within more stable economies are experimenting most with other white spirits,” he says. “While the market is and will continue to be highly competitive, Stolichnaya is an original, internationally recognised brand with product credentials that differentiate it from others.”

Birkitt adds: “There still remains growth opportunities in the vodka category. The category as a whole has proved highly resilient in the face of the economic downturn, experiencing solid growth over the last two years. Premium vodka has been particularly successful with consumers becoming more discerning, switching to premium brands.”

For gin, Hayter is very clear on where the biggest opportunities for growth exist. “Despite its economic difficulties Spain is the place for premium gin and tonic at the moment,” he claims. “Gin has always been an important category in Spain but the arrival of so many new premium gin brands and new tonics to enjoy them with, has given the category a tremendous boost and specialist gin bars are appearing in most major cities.

“Gin & tonic has always been a favourite of Spanish chefs. Perhaps it is no coincidence that the renaissance of the classic G&T in Spain coincides also with the promotion of Spanish cuisine around the world, with many of the leading protagonists such as Ferran Adrià achieving near cult status both at home and abroad.”

Berry Brothers’ Tegner, however, feels that the gin category can throw its net even wider to broaden its scope for growth. “I prefer to think in terms of cities rather than markets; San Francisco, New York, Seattle, Barcelona, Madrid, London, Moscow, Hong Kong and Singapore are all exciting places to be,” he says.

Vodka, gin, white rum, Tequila, cachaça and a plethora of other light spirits seem to be on an upward trajectory around the globe. A couple of minor blips brought about by the global recession aside, all can look forward to a period of growth and consolidation. Far from viewing each other as competitors, it is the dark spirits category that should be the most worried about their resurgence.

Alan Lodge, November 2010