VODKA: Style versus substance

10 March 2008 By db staff writer

d=”standfirst”>It’s been on a seemingly unstoppable upward curve for the last decade, but with the current unstable market what does the future hold for vodka? Patience Gould casts her predictions for the coming year

It’s going to be something of a curate’s egg year for vodka – that is, good in parts. For starters there’s the unease about the US economy and then of course there’s the eagerly awaited V&S sale, which includes key brand Absolut. All the big names – including the multinationals – have thrown their hats into the bidding ring. That is until now.
In a move that has surprised some, Diageo has set up a 50-50 joint venture company with the Dutch company Nolet of Ketel One fame, and in so doing has signalled it is no longer interested in Absolut.
Instead Diageo has splashed out US$900 million for an equity stake in the super premium vodka, and while Nolet will retain the trademark, Diageo is all set to become the global distributor of this highly successful super premium vodka. Ketel One boasts annual volumes of 1.9m cases, with the lion’s share in North America – ideal for Diageo as it is a prime stomping ground – and in terms of positioning it will fit in well between Diageo’s existing vodkas, principally Smirnoff and the “ultra premium” Cîroc.
So why buy into Ketel One and not Absolut? It’s a moot point whether Diageo would have been successful in its bid for the Swedish vodka – as the brand and range are a mite too close to Smirnoff and its line extensions, although not in terms of volume. Smirnoff’s annual tally is well over 23m cases these days, making it easily the world’s largest selling vodka, while Absolut is heading towards the 11m case barrier, but that said it is way above Ketel One in the pecking order.
While there was much excitement in the early days about Absolut going under the hammer a sense of realism seems to have crept into proceedings. Maintaining a brand like Absolut on a growth path would require ongoing investment and as one industry pundit put it: “The core brand itself is not doing that well, much of the growth is driven by line extensions.” At the same time owner V&S is in the Maxxium distribution partnership, along with Edrington, Beam Global, and Rémy-Cointreau, so a compensation payment would be required to get out of this – Rémy is leaving next year and had to fork out e240m – but to date V&S has remained tight-lipped about any settlement that may or may not be required on the distribution front.
All of which perhaps goes some way to explaining Diageo’s move on Ketel One, but nonetheless $900m is a fabulous sum to pay out for global marketing, sales and distribution of a brand when profits are to be shared “broadly equally” between the two parties. Additionally, the US is its heartland – development potential elsewhere is obvious – yet the outlook for North America is decidedly uncertain. It’s election time for one thing and the economy is faltering – and in terms of spending power this is not good news.
The US is the hub of the global vodka brandwagon, and of the world’s top 30 brands it is cited as the main market by almost half – so if there’s a wobble here it will undoubtedly affect business. However, if there is a squeeze on spending it is likely to affect the middle brands, as consumers trade down while the super premiums will be more resistant.
There are also signs of a deepening polarisation between west and east European styles of vodka and this is set to become more apparent. Vodkas from Russia, Poland and the Ukraine have excellent provenance as well as more taste characteristics – while those from the west are distilled to be as neutral in taste as possible – and clearly do not have the heritage.
“Heritage is very important for consumers in the UK and Europe,  but in the US it’s a completely different ball game – style wins out over heritage – and it’s a question of which celebrity is endorsing a brand,” says vodka consultant Pleurat Shabani. “That was certainly the case three or four years ago – but heritage and provenance are both coming to the fore.”
This is showing up in marketing strategies employed by brand owners around the world – and interestingly it all started with the renaissance of Stolichnaya, the quintessentially Russian vodka, which is now handled globally by Pernod Ricard (for more on the Stoli strategy, turn to Campaign Critique on page 57).
“There is a certain type of customer who veers away from mass-produced brands towards those that offer more in terms of heritage,” says Stoli’s global brand ambassador Cairbry Hill. “Being Russian is a big advantage – the US is a very, very huge market and so there’s a massive spectrum of consumers who are looking for something beyond image. Vodkas from Russia and Poland also have character in terms of taste and this is particularly important at the top end of the spectrum.”
Stoli stages tastings throughout the year in all its key markets, which are geared to both trade and consumers – and the company is finding increasingly that the difference is being noted. “It’s being picked up 100% of the time,” says Hill. “We’re very proud of the product story and what goes into the making of Stoli, from the wheat in the field to the water, and through to distillation.”
“Choose authenticity” is the compelling banner of Stoli’s global advertising, while rival vodka Russian Standard’s heritage-style campaign comes under the more aggressive copyline: “It’s time to set the standard”. Even Smirnoff is entering the Russian heritage fray with its latest blockbuster advert, “Sea”, which harks back to the brand’s Russian roots of yesteryear.
Another brand looking back in time is Bacardi’s Eristoff. Its relaunch onto the world stage is being supported by advertising, which stresses the brand’s Georgian heritage. The campaign ends with the strap line: “Vodka from the land of the wolf – original recipe Georgia 1806”. Georgia was the original birthplace of the brand but, as with Smirnoff and its Russian heritage, it is stretching a point. Nonetheless it’s proof that in today’s climate provenance and authenticity are riding high on consumers’ shopping lists.
This type of activity is very different to the marketing message perpetuated by producers in the West and nowhere is it more typified than when it comes to Finlandia. Here the emphasis is on purity, with the brand set against the icy waters and snowscapes of its native Finland. Finlandia’s message has been consistent over the years, supporting the brand through various packaging changes and it’s clearly beginning to work. In the Brand Champions League (see The Spirits Business, March) this vodka is the star performer among international vodkas, with case tally of 2.75m in 2007, up almost 20%.
So it’s purity from the West and provenance from the East – but at the end of the day it’s the taste that counts, certainly for bartenders who are the best brand ambassadors. “If a vodka has been distilled, say 10 times or more, the character of the product will be lost, so when it comes to a cocktail it brings no added character to that cocktail and this is especially true when it comes to something like a Martini,” says Shabani. “With Eastern European vodkas you still get the bite.”
Little wonder then that Stoli has long been a favourite of bartenders the world over. “Bartenders champion Stoli because as experts they recognise that the spirit is more characterful,” says Hill. “In Martinis this makes a big difference.”
With all the talk though about vodka and its spiralling popularity over the last decade it’s interesting to point out that there are only seven global brands (over 20% exported) selling over 1m cases. Furthermore the top three, Smirnoff, Absolut and Grey Goose, are produced in the US and Sweden, which just goes to show the power of marketing – and these brands, respectively owned by Diageo, V&S (for the time being at any rate) and Bacardi, have that  in spades.
© db March 2008