SPIRITS: The map of luxury

Premium spirits have weathered the global economic storm well, but there is a clear divide between East and West when it comes to the character of these high-end products, writes Alan Lodge.

The very notion of luxury – and what constitutes a luxury brand – is vague at best. Some might say that products costing above a particular price point should be considered a luxury purchase, whereas others will point to the craft involved in the product’s creation or, with drinks, the quality and taste of the liquid in the bottle.

Then there are packaging cues, such as special-edition bottles, which attempt to convince the consumer they are buying a product that is worth far more than others alongside it.

Whatever the true definition, the slackening of the global financial crisis – coupled with the relentless growth at the top end of the market in Asia and the Far East – has witnessed a dramatic upturn in sales at the upper end of the drinks spectrum. Categories such as Cognac, which was struggling in its traditional established markets, now has something of a crutch upon which to support itself, while top-end whiskies have also capitalised on the demand for quality in the region.

To fully understand the appeal and recent success of luxury brands, it is important to discover what the brand owners themselves think constitutes “luxury” and how they feel their own brands fit in to the category.

Neil McDonald, brand director at Chivas Brothers, admits it’s tough to pin down a definition for luxury spirits “There are, quite simply, multiple definitions of what luxury is,” he says.

“The classical definition involves beautiful craftsmanship and aesthetics, such as that seen in Cognac, whereby rarity and craftsmanship hold the category up. However, we are increasingly seeing whisky come under the luxury umbrella and it’s doing so in different ways, such as emphasising age as an indicator of quality.

“It’s a bit like comparing dinner at the Ritz to a meal at the River Café. With the Ritz you will have all the showy, glitzy presentation, while at the River Café it’s all about the flavours and the quality of ingredients against a more basic backdrop. This is the case with malt – it’s all about the flavour rather than the show.”

The main themes in luxury are commonly accepted among the industry’s big players.

“Luxury spirits are about authenticity, craftsmanship and provenance,” claims Andrew Fell, commercial director at Diageo’s luxury brands arm Reserve. “They surpass others in their category in terms of experience, quality and taste. From the quality of the raw ingredients to the final packaging, the processes involved in crafting a luxury spirit require care and absolute precision.

"Luxury brands offer the consumer clear ‘perceived values’ of craftsmanship and heritage and give consumers value for their extra spend across geographies and varying economic climates.”

Aside from authenticity, craftsmanship and provenance, there is the rather grey area of price. More often than not, it is easy to guess a product’s position in the market through simply looking at the price tag. The likes of Louis XIII, Royal Salut and other fine products reflect their place on the ladder through the fact they cost an awful lot more than other products.

“Luxury spirits are the most expensive in any given spirit category which reflects the quality of the product through the type and amount of production and is consequently often contained within very expensive packaging,” agrees Jenny Gardener, head of brand development at Vanquish Wine.

“For example, a Tequila producer (Dos Lunas) I know discovered a very old batch (10 years) of Tequila and given the rarity and limited nature of the liquid he decided to make a very special bottling. He commissioned Baccarat Crystal – a first for Tequila – to design and make the bottle and only had enough liquid to produce 1,000 bottles, each of which is numbered by hand and is housed in a very ornate lockable case.

“This Tequila costs £1,500 and has become a big hit with collectors because when it has gone it has gone, which will be soon. The price of this Tequila will only go up in value as the numbers available decrease and the ultimate luxury has to be to not only own one but to actually drink it.

“This definition works for the luxury spirits sector as a whole but there is no commonality of price across categories because of the differences in quality and production. For example a rare, single cask Cognac from Grand Champagne will warrant a far higher price than the most luxurious vodka.”

These high prices might well add appeal to those who place heavy importance on status and looking the part when trying to impress people – particularly in Eastern markets – but they also limit the number of consumers to whom the brand appeals. This is not necessarily a problem though, as it helps to further build the exclusive image of such drinks.

Richard Brown, managing partner of strategic consultancy Cognosis, says: “Luxury spirits target a small and exclusive sector of the market – people who can afford and demand the very best in terms of product quality, exclusivity, craft skills, provenance, and deep authenticity.

“The category is also defined by the drinking occasion – special or exclusive occasions set in prestige surroundings with highly personalised service. Luxury spirits brands have a powerful emotional appeal because they perfectly blend premium product cues with the drinkers’ need for personal reward/indulgence and strong social signalling.

“They symbolise achievement and signal status, affluence and special knowledge, reinforcing the drinkers’ sense of self worth or fulfilment and conveying a very special sense of ‘fit’.”

Looking good

Despite the claims by producers that the liquid is the most important part of any luxury spirit, there can be little doubt that half the battle to attract consumers is fought in the packaging arena.

Whether you’re looking at a hand-blown bottle, a crystal decanter or a gold-plated special-edition bottle, the packaging is the first thing to catch the eye and, either consciously or subconsciously, shape the consumer’s initial impression of the drink.

This presents something of a dilemma for drinks companies. Where do they focus their efforts? Should the effort go into creating a truly stand-out package that will stand out from the crowd, or do they go for an understated style which communicates a brand content with its standing as a luxury spirit.

Brown suggests that the answer to this question varies around the world. “In Western developed markets there is clear trend towards understated luxury, particularly post recession; ‘bling’ and showy displays of wealth are considered tasteless, and many luxury consumers are looking for more subtle forms of signalling,” he opines. “They are also looking for luxury brands that give them a rational, justifiable reason to indulge – one that provides a ‘social alibi’.

“But the situation is quite different in the fast-growing markets. In Asia, India, Russia and Latin America, vast numbers of newly affluent consumers are entering the market, and the culture allows and expects more ostentatious displays of wealth and status. These markets respond to unequivocal packaging cues, it’s culturally ingrained, and I can’t see this changing for decades at least.”

The tendency to lavish bottles with all manner of decoration in order to improve its visibility is the result of overindulgence by vodka brands seeking to improve their stand-out in an increasingly cluttered marketplace, according to Zach Brinley, president of Brinley Gold Rum.

“In my opinion, gold-plated and other extravagant designs are overdone,” he says. “I think it’s basically an offshoot of a competitive, but lucrative, vodka market where image is nearly everything. However, the younger market is looking for simplicity and purity these days.”

Does the vodka sector agree with such an assessment? After all, producers these days are by and large playing down the significance of packaging cues in white spirits and preferring instead to focus on the quality and craftsmanship of the liquid.

Andrey Skurikhin, partner at Stolichnaya owner SPI Group, says: “For discerning consumers, the quality of the product is more important than fashionable packaging. We believe that packaging should reflect the excellence of the spirit within the bottle.”

Reserve’s Fell, however, agrees with Brinley’s assessment that the demands of the luxury consumer are polarised depending on which part of the world you are selling to.

“High-end gifting will always have a place in the world of luxury. While the image of a luxury brand is consistent throughout the world, within each market consumers have varying demands. Our strategy is to protect the inherent credentials of a brand while playing to the strengths and cultural differences that are unique to each country.

“Within mature markets luxury packaging is more about discernment and understated elegance, which underpins the integrity of a brand and its heritage. However, in emerging markets we recognise that luxury tends to be more about status and elaborate gifting solutions. In short, we closely guard the global image of our brands and through innovations endeavour to attract luxury consumers across all markets.”

Spiros Malandrakis, drinks analyst at Euromonitor International, supports the view that understated luxury is now the way forward.

“While the ongoing recession is not affecting the upper socio-economic strata’s demand for exclusivity and  aspirational credentials, a more subtle yet significant change is gradually being witnessed in the way luxury is portrayed, justified and promoted. Gone are the days of tacky extravagance, ‘bling’ and gimmicky selling points, which are gradually giving way to inconspicuous luxury, with more emphasis being placed on quality, craftsmanship, tradition and authenticity.”

Standing up to the challenge

As we mentioned earlier, the performances of top-end spirits over the last few years have defied expectations. Sales are up and appreciation is growing. It seems odd at a time when practically the whole world was tightening its purse-strings to ride out the economic crisis – with some still stuck right in the mire – that products at the very top of the price spectrum remain largely unaffected.

“Luxury spirits have performed better than we expected during and after the financial crisis and the subsequent recession,” confirms Cognosis’s Brown. “This is largely because they’re growing most strongly in the emerging markets, where the downturn has been far shorter and less severe. But we also believe the ‘luxury mindset’ is now sufficiently ingrained in Western markets to make it less sensitive to recession than in the past.

“Cognac is performing extremely well in Asia, while premium and super-premium Scotch is growing rapidly in both Asia and Latin America, especially Brazil. Super- and ultra-premium vodka still looks set for rapid growth in the US, and the continuing appearance of niche, luxury gins and the success of Patrón Tequila in the US and UK shows that high-end luxury cues can transfer readily across different spirits categories. It seems there’s an insatiable demand for high-end spirits by those who can afford it.”

In the vodka category, sales of Grey Goose – the most popular of the perceived “luxury” vodka brands – enjoyed a sales rise of 26.2% in the global travel retail sector alone in the first half of 2010 compared to the same period last year, according to IWSR. However Cîroc, Diageo’s US-based, P Diddy-backed brand, suffered in the same period, losing 12.2% in total travel retail sales.

Rums, Tequilas, gins and a host of other categories are also making significant traction, however, as consumers broaden their horizons to experiment with other drinks.

Fell admits: “Vodka and whisky show most potential in the luxury sector; however, emerging spirits are rum and Tequila due to increased awareness of drinking rituals associated with these categories and greater understanding of these liquids.”

It’s clear that the big hitters readily accept rum and Tequila are a threat to the supremacy of long-established luxury favourites. The creation of niche categories within the sectors has allowed for discerning and experimental drinkers alike to pin down a particular style of drink that they enjoy, and seek out others under a similar umbrella.

For example, Sailor Jerry or Morgan Spiced might not exactly be “luxury” brands per se, but they have served to introduce a raft of new drinkers into the rum category by providing them with a drink that takes rum beyond the boundaries to which the consumer might previously have been accustomed.

Similarly with Tequila, a general growth in interest among the wider drinking public has helped to alter perceptions of a drink which perhaps suffered from something of an image problem.

Gardener at Vanquish Wine, explains: “Luxury aged rums and Tequilas are both becoming far more prevalent than they once were, which is testament to the growth in interest generally in these categories.

“With whisky and Cognac there are clear definitions of what constitutes quality with agreed age statements, this makes it easier for consumers to make informed choices with the price usually reflecting the age.

“Rum, however, is a disparate, international category with no global uniformity of age statements, which can be slightly confusing for consumers. There can be no doubt though that with the rising popularity of rum in both the on- and off-trade, we are seeing a far more educated general public making those informed choices and consequently an increase in luxury rum brands is inevitable.

“The creation of the extra añejo category in Tequila has helped brands to differentiate from the traditionally younger styles and hence give legitimacy to the luxury status, again I think we’ll be seeing a rise in the number of luxury Tequilas available.”

The places to be

As mentioned earlier, the vast majority of luxury drinks brands want to see themselves build a significant presence in the duty free and travel retail market. Having a strong presence at the likes of Dubai International, London Heathrow, Incheon International in Seoul and Singapore’s Changi Airport – the four top-grossing destinations for travel retail and duty free shopping in the world – is vital for brands seeking to capitalise on the growing consumer demand for spirits which go beyond the ordinary.

With the global travel retail market on the rebound after struggling through 2009, when global travel retail sales of wine and spirits plummeted 9.3% in light of the recession, the accepted opinion is that 2010 is going to bring a return to growth. Indeed, early figures suggest that the major brands have all made significant headway in clawing back volumes this year.

The glamour and adventure associated with travel simply aides the message that luxury brands bought through travel retail outlets are a step above the standard fare people might enjoy regularly at home.

Duty free is and will continue to be a window to the world, allowing brands to showcase products to a global audience, says Skurikhin. “Without a doubt, it is one of the most important channels to establish luxury brands.

“Consumers have more time to browse and learn about new products in comparison to a typical off-trade convenience environment.

Brands within the duty free market have time to educate consumers on a product and are able to encourage them to trial something new.”

McDonald is in full agreement that travel retail is the key area to establish a luxury brand within. “Retail environment is critical to building and maintaining image,” he argues. “Where we see opportunities we grasp them. In duty free, we see that people have the time to be able to browse and learn more about and experience the brand.”

With this said, however, the big mark-ups in price are to be found in the on-trade. Elite nightclubs have shifted their stance from offering Champagne as the ultimate expression of opulence and style to offering magnums of vodka such as Grey Goose and Cîroc.

It presents something of a tough call for producers. Where do they focus their efforts to establish a premium brand? Is it better to get your products behind the bar of a top nightclub, or on the shelf of a busy duty free store?

“It’s important to do both, but ultimately it depends on the market,” says Brown. “The standard Western model is to develop a luxury brand in the on-trade before extending this into the prestige off-trade. However, this model is not necessarily applicable in every market. In Latin America, for example, a lot of luxury consumption is done at home in private house parties.”

McDonald agrees: “Both on- and off-trades are equally important. A lot of very important brands will often gear their business towards gifting through the off-trade, but on-trade allows people to be introduced to great brands and displaying in bars allows exposure. The way the brand is served can really enhance a brand experience. It can be infectious.”

Gardener, however, is pretty clear in her view that bars and restaurants beat shops when it comes to expressing a luxurious image. “I would always say the on-trade, she says. “As I’ve previously stated – luxury is very much about exclusivity and if a product is made available to all – price point aside – it has a certain ‘common’ image, which is the exact opposite of luxury.”

White lights

Much talk over recent months has concerned the potential of white spirits to catch up with or even overtake the likes of whisky and Cognac at the top of the luxury tree. Vodka, Tequila and white rums have all enjoyed strong growth over the past year and their continuing march into the consciousness of Asian drinkers can only stand them in better stead. However, much more needs to be done if whites are to catch up with dark spirits, according to Cognosis’s Brown.

“I don’t see any reason why luxury white spirits shouldn’t enjoy very rapid growth in Asia and in other developing markets,” he says. "But there is no reason to assume that they will challenge or replace dark spirits – Scotch and Cognac – over the next decade or so.

In many ways, dark spirits have an advantage over white spirits in creating authentic luxury brand credentials – they can draw on their provenance and heritage, and the more complex production and ageing processes involved give substance to craft-based brand promises.”

Gardener, however, is not convinced. “The very nature of whisky and Cognac suggests that white spirits will not overtake dark,” she says. “A white spirit is traditionally younger than a brown spirit, even if it has been aged and then filtered and the brown spirit has had caramel added.

“The rule usually applies, the rarest of whiskies and Cognacs are old and therefore they will always be higher up the status tree.”

Whatever traction is made by white spirits in the world of luxury drinks, the very fact that “bling is back”, at least in Asia, cannot be disputed. Expect to see further growth as Asia and the Far East support the industry against the troubles in Europe. The world might have witnessed a far-reaching recession, but those with money are less afraid than ever to spend it.

Alan Lodge, December 2010