Spiritual Leader

The UK vodka market is still growing, while also becoming increasingly sophisticated. However, the first signs of a backlash against super-premium brands are emerging in the US, says Ian Wisniewski

It’s true. You are what you drink, and with vodka now the most fashionable spirit, your brand choice makes the ultimate statement.

“Imported vodka is simply the most fashionable drink on the market, and this will not stop for some time. People in the drinks industry say ‘blah blah is the new vodka’. It never is – vodka is still the most fashionable spirit,” says Elwyn Gladstone, new brands development director at William Grant & Sons.

With growth projected at 20% per year, imports create plenty of excitement. But with premium imports at around 250,000 cases, and super-premium imports at 20,000 cases, it’s not much in a market in excess of seven million-cases. Meanwhile, domestic brands dominate, and they are growing at a rate of around 10%.

Imported or domestic is an elementary way of dividing the market, but it’s not a distinction all consumers make. “I don’t think the UK consumer is that clear on which brands are imported and which aren’t,” says Hugues Pietrini, vice president of marketing for Stolichnaya Brand Organisation.

Brand attributes
Greater clarity should follow from various imports focusing on provenance and production. But this approach depends on who wants to listen, and the length of their attention span.

There’s no problem communicating with style bars, where brand image and awareness is initially built, and where knowledgeable staff always want to learn more.

“The trade customer is really interested in knowing the area from which the grain grows, how we filter our water or the fact that we own our water source,” says Belvedere’s brand manager Angelique Beziel. “Comparative tastings, cocktail demonstrations and distillery visits have always been the mainstay of Belvedere’s communication within the trade.”

Some consumers are also turned on by knowledge, with provenance increasingly a lifestyle issue in various product categories.

“The message to the trade and consumers is the same – we are Russia’s leading, and most authentic, premium vodka. What changes is the focus. With the trade we focus on production, with consumers we try to show a more emotional side, whether it’s origin, provenance or quality,” says Chris Lucas, international marketing director for Russian Standard. “We work hard to educate both the trade and consumers about the attributes of the brand, and why brand matters. It’s our responsibility to communicate this to consumers so they can make informed decisions.”

James Pennefather, brand director for Smirnoff at Diageo GB, comments, “In December, through our marketing activity, we focused on the lengths we go to to achieve purity, and that’s worked really well. Smirnoff has always been famous for very strong emotional advertising, but the technical side plays an important part too, and it’s a question of finding the right balance. Our latest advertising has included the Love interactive TV ad and also the quality through purity campaign, which focuses on the fact that Smirnoff is triple distilled and 10 times filtered. Consumers are definitely interested in the lengths we go to to achieve purity.”

Sharing stories
Meanwhile, to cater for consumer interest in vodka that ranges from in-depth to more lifestyle criteria, offering different angles and knowledge levels is a real asset.

“What is so exciting about our brand is that there are a huge number of different stories to tell:  a) the provenance of Iceland with its fascinating lifestyle and environment; b) the fascinating production story – everyone loves a good, small-batch, hand-crafted story; c) the environmental angle – we are the first geothermally heated still; and d) the luxury angle – super-premium vodka from Iceland,” says Gladstone for Reyka, the first Icelandic vodka.

With packaging a primary means of conveying brand credentials, vodka has become the most innovative category, turning bar shelves into a fashion show. But an amazing line-up also provides a prompt, as asking “Which brand should I choose, and why?” is a great way for consumers to begin a vodka dialogue with staff.

“Back-bar discovery is about having amazing packaging stand out, being differentiated (which too few brands are) and of course getting lots of PR. Even if people don’t specifically remember where they saw it, it is often stored somewhere in their random-access memory,” says Gladstone. 

Meanwhile, brands are now being discovered in retail, which is a notable departure from the traditional approach of seeding in the on-trade before building volume in the off-trade. The same consumers frequent style bars and specialist retailers, for example, and as shopping has become more of a lifestyle rather than a purely functional pursuit, informed staff and in-store sampling activity can drive brand awareness. This has also been bolstered by recent growth of drinking at home before going out for the night.

“The classic vodka moment five years ago was clubbing and dancing to electronic music; that sector has fragmented and it’s no longer the  mainstream release moment. People are now choosing a wider range of activities, and at-home drinking is growing faster than on-trade drinking, partly due to the increase of home technology,” says Pennefather.

Appropriate pricing
Price positioning is another primary aspect of branding. In terms of consumer retail, premiums are around £14, super-premiums £20-£25, and ultra-premiums anywhere above that.

“Justifying the price point is not about billboard advertising; it’s more PR and word of mouth, with very strongly targeted distribution, and getting people to taste it,” says Pietrini.

Jan-Roman Potocki, founder and owner of Potocki vodka, who revived an old family tradition, adds, “The big problem is that often price positioning is either too ambitious or not rigorously maintained, often resulting in discounts due to lack of consumer demand for the smaller brands, or as part of a strategy to increase volume (especially in the US). Such a strategy is dangerous for brand equity in the long term, although it offers obvious short-term advantages.”

Consumer acceptance of price-positioning is also fundamental to drive trading up, and for recruiting directly into premium or super-premium.

Another aspect of trading up is staying within a brand franchise. “There are two sets of consumers for Stolichnaya Elit: vodka connoisseurs who might be trading up from Stolichnaya Red to Elit, looking for the ultimate taste experience. The other is people who can afford to buy a bottle at a nightclub, as there’s a definite status attached,” says Pietrini.

Positioning and perception
While exclusivity is integral to the appeal of super-premiums, this has to be balanced by the commercial necessity of generating volume.

“The super-premium market is limited by definition, as ensuring exclusivity requires a pricing model which omits many of the potential audience. Higher pricing in return reflects the quality of the product and the presentation, as well as the effort required to position it at the top-end of the market,” says Alex Claos of The Jewel of Russia vodka (Allied Continental Brands Ltd).   

Whatever knowledge consumers have, everyone knows vodka means mixability. However, the irony of supreme mixability means that it’s difficult, if not impossible, for consumers to appreciate a brand’s character and quality. In that case, what’s it all about?

“For consumers it is a matter of perception which is based largely on marketing message and price. Consumers en masse are not that experienced, because of the lack of a genuine vodka-drinking culture in the West. However, their awareness is growing,” says Natasha Kuznetsova, Ivan The Terrible’s marketing director. 

The formats in which consumers can readily evaluate brands, sip and savour and the dry martini, account for only a fraction of consumption. However, “there is some growth in sipping neat vodka in the US, UK and Europe, which is seen as cool and a sign of knowledge and sophistication, whereas 10 years ago drinking neat was seen as passé,” says Lucas.

Market forecast
With the premium and super-premium sectors evolving rapidly, optimistic new contenders keep arriving. Meanwhile, some imports return home, unable to achieve real volume in an already saturated, intensely competitive market.

“I think the market will become more sophisticated over the next five years, particularly in the 30-something plus bracket, where people want a better quality product, whether they are drinking out or buying for home,” says Matthew Barnett, director of Blue Planet Spirits, which imports and distributes Dovgan.

Kuznetsova adds, “There will be a move towards quality vodkas with heritage and style. Consumers still believe country of origin matters, be it vodka, Champagne, Cognac or whisky. Consumers in general find it difficult to tell the difference between vodka brands, therefore heritage and provenance are important elements.” 

With the US the largest Western vodka market, it’s an ultimate destination, with imports exceeding the growth rate of domestic brands. “Domestic vodka accounts for 71% and imported vodka accounts for 29%. We are noting a strong rise in imported vodkas and more consumer interest in these products,” says Bob Nolet of Ketel One.

American dream
These consumers are also the most aspirational, with the super-premium category more mature in the US than in any other market. “I think the majority of US consumers are driven by the style credentials of the vodka brand – a) who they see drinking the brand (celebrity endorsement); b) where they see the brand being drunk (seeding into the right bars),” says Gladstone. “The beautiful thing about the US market is that consumers and trade are much more willing to give new brands a try.” 

That’s vital, as last year around 100 new brands aimed to achieve the American dream, which means that establishing brand identity, and  loyalty, is far more challenging. Moreover, the market has also taken a significant turn.

“After a long period of proliferation – where bars took every flavour imaginable from a number of different brands – you really get the sense that bars and retailers are beginning to cut back,” says Gladstone.

Potocki adds, “Trading up is certainly part of the movement benefiting super-premium vodka brands. There is also a backlash, however, especially in the US from some consumers questioning the perceived benefits of trading up, and choosing to either exit the category or going back to basics.” 

Flavoured Vodkas
While representing a only fraction of the market, flavoured vodkas are showing dynamic growth, which includes far more choice.

“Flavours already play a significant role in the on-trade and are a great tool for mixologists, as flavours are really about cocktail usage,” says Hugues Pietrini of Stolichnaya.

Flavoured line extensions also play a strategic role, as some consumers enter the category through flavours, then work through the range to the “mother” brand. For existing consumers, flavoured line extensions provide new opportunities within a familiar brand franchise. And if the flavour happens to be a rarity, then the benefits can be so much greater.

“We’re the first and still the only major mango vodka brand, which brought a lot of new consumers into the brand; and once consumers are in they move around the range,” says Tomas Manasek, vice president and global creative director for Finlandia. “Adding flavoured line extensions is definitely a way to build a brand, though five to six flavours is about the limit, otherwise you end up with diminishing returns and there’s no incremental volume.”

db March 2006