VODKA: A clear point of difference

In these lean times, the vodka category has adopted a strategy of diversification to maintain consumer interest and minimise the risk of failure. Patrick Schmitt finds a raft of new packaging formats, interesting flavours and inventive pre-mixes.

Although generalisations are dangerous, it does appear that specialisation is favoured in good times, and diversification required during the bad.

While focusing on the niche is rewarded when disposable incomes are abundant, as soon the economy slides, one needs to minimise the risk of failure by operating in a number of sectors.

And in drinks, there’s little that’s more flexible, mixable and multifarious than vodka. With a presence at the cheapest end of the spirits scale, as well as luxury labels at the top, not forgetting the many flavours and ready-mix variants, it’s extremely well placed to weather the economic storm.

Nevertheless, to maintain a growth trajectory, internationally, vodka has had to diversify. This has been necessary due
to downtrading and increased at-home consumption – not easy for the spirit that was so closely associated with mixology, the upmarket Martini, and expensive packaging.

Hence the raft of new packaging formats, ever more unusual flavours, and increasingly inventive pre-mixes.

Further, to compel customers who have been going out less and looking for cheaper products vodka brands have been altering their marketing mix. As Richard Brown, managing partner at Cognosis Consulting, witnesses: “Over the last year to two years I have seen a move away from a reliance on the on-trade as the principle brand-building mechanism. Brands are built through experience, but that need not be in the bar.

“As a result there’s been more enthusiasm for integrated campaigns: advertising with PR and sponsorship associated with admired celebrities as well as social networks.”

He does school, however, that, “these need to work in harmony with the on-trade”.

“A good example is Russian Standard, which has achieved a very rapid establishment and growth by getting its advertising right in TV and cinema, doing on-trade events along with on-pack promotions in the off-trade. Together these have driven recruitment and trial.”

Interestingly, upmarket Moët-Hennessy-owned vodka Belvedere has, according to Claire Smith, head of spirit creation and mixology, “had its busiest year in 2009”. Boosting the brand was four different US-based product launches, two of which were unveiled in the off-trade first, “to support what is an interesting market for us”, explains Smith, who admits that “the on-trade has slowed down a bit”.

Towards the end of last year Belvedere launched “Silver”, “a holiday gift pack in a silver bottle” and the year before that, Belvedere Intense – a luxury 100 proof vodka. Talking about the latter launch Smith says: “Traditionally overproof vodkas haven’t fared that well in the US but the liquid is fantastic and it is still very smooth and perfect for Martinis.” Apparently the African American population has adopted the brand extension and as a result, she records, “in places like DC [Washington] it has been flying off the shelves”.

More recently, following its off-trade success, Belvedere has started to distribute Intense in the on-trade too. Here it joins the brand’s other product launches for the bar sector, IX and Black Raspberry – a blend of raspberry and blackcurrant.
“There’s been really aggressive consolidation of vodka on back bars,” says Smith, “and only those brands with a bar call are staying. If you are niche, without a marketing spend, then you’re struggling”.

Smith points out: “There’s also trading over to other spirits and in New York, for example, it’s more difficult to market and sell vodka to the bartenders themselves who are turning to gin or Tequila.” Nevertheless, she says, “they are still talking about products with authenticity and heritage, but less about bling bling brands that are all about the packaging. We’ve always talked about quality and our Polish heritage and been very honest with the bartenders”.

Closer to nature

As for the flavours, Smith stresses: “It’s important to be natural, not artificial, and we’ve had a huge uplift on our macerations which have worked well with females.” As she sums up: “Yes vodka is becoming a commodity in the US but some are withstanding that.”

Similarly, Mark Halgunseth, trade manager at Grey Goose, comments: “Once the recession hit the US there was a pull back in the on-premise, a shift down, and a pull away from synthetic flavours.” But, like Belvedere, Grey Goose has been able to exploit the growth in off-trade sales. “A shift to home entertaining has been beneficial because it has good badge value,” he adds.

Also, “you can get a bottle of Grey Goose or other super-premiums at the price of three or four Martinis in a bar”. And while overall the rate of Grey Goose growth has slowed – “because the brand has got bigger” – the disappearance of more niche upmarket vodkas has boosted Grey Goose sales. “The consumer is questioning why they should pay a super-premium price for an unknown brand.”

He also supports Smith’s sentiments on flavoured vodka. “There’s a shift away from synthetic flavours like bubblegum to core natural flavours such as citron – there’s been a healthy shake-out in the category.”

As for bringing in new consumers in the off-trade, Halgunseth is confident. “It’s easier to recruit in the off-trade because there’s less competition. In the on-trade there’s so much going on, there’s so much noise when it comes to the back bar.”

Cesare Vandini, global marketing director of Gruppo Campari, owners of Skyy, highlights the need for new pack formats and flavours to stay ahead of the competition in an increasingly consolidated market. “In the US the focus is on innovation and our infusions have been very successful – we have just launched Ginger – and they now account for around 11% of our sales volumes.” The Campari Group-owned brand has also increased its emphasis on bigger bottles “because it means a lower price per litre [on shelf]”, explains Vandini.

Elsewhere, Pernod Ricard introduced in February this year Absolut Berri Açaí for the US market. As Laura Stephen, global marketing director for Absolut flavours and extensions, says: “Creativity is what drives this brand forward. That applies not only to our marketing and design, but also to our product development. When launching a flavour, we want to make room for new cocktail experiences. With Absolut Berri Açaí we hope to inspire bartenders and consumers, showing them how easy drink mixing can be.”

In the same month Diageo’s luxury vodka Cîroc unveiled its first brand extension – Cîroc Red Berry and Cîroc Coconut. The new flavours were launched by Sean “Diddy” Combs at a party in Miami featuring a concert by Wyclef Jean.

“I spent a considerable amount of time working with Cîroc liquid specialists to create two bold and unexpected flavours,” Combs explains, who entered into a strategic marketing alliance with the vodka more than two years ago.

Aside from product launches and new flavours, in an interview with the drinks business last year, in the depths of the downturn, Andrew Morgan, European president at Diageo, outlined his plans to capitalise on the altered sales environment for the vodka category.

He talked of closer collaboration with retailers and cross merchandising to make cocktail creation as easy as possible for consumers – for example the citing of a base spirit, the likes of lemons, bags of ice and salty snacks together.

But the world’s biggest spirits company has also been busy offering even greater convenience for those spirits drinkers who can no longer afford to regularly go out. In particular Diageo has added a range of Smirnoff pre-mix cocktails in a bottle designed to resemble a cocktail shaker. So far there’s Grand Cosmo, Mojito & Pomegranate, promising “the complete cocktail experience for the consumer without leaving home”.

It’s also added a flurry of pre-mix Smirnoff variants in a can. Last year came Smirnoff and Ocean Spray cranberry juice and this month marks the arrival of Smirnoff and cola in a pre-mix 250ml can. “Pre-mixed cans represent a key driver in making spirits as convenient as beer and wine in the homes of consumers,” says Ros Healy, senior innovation manager at Diageo GB, and it’s interesting to think that the recession is bringing back investment in the ready-to-drink sector, even if it’s now called pre-mix.

For example, Diageo is promising a £5 million marketing campaign to raise awareness of the category from April to mid-summer. This will be supported by in-store “loyalty-card activity and POS” as well as a £450,000 range sampling investment across 4,500 stores. Already the company notes that the pre-mix category is worth £26m in UK retail sales and growing at 48%.

Overall, vodka is trying hard to adapt to the trend towards increased at-home consumption and bringing back the RTD – even if it now has a different name – is one seemingly successful reaction. The latest pre-mix launches are an attempt to emulate the cocktail experience, as well as offer a convenient, low-cost and consistent taste of well-known combinations.

But retail is a tough market even for the biggest of brands. Influencing the major grocers when it comes to merchandising techniques or price is a challenge, while there’s always the nearby competition of own-label equivalents at extremely low prices. Only last year Diageo sued Sainsbury’s over its private-label Pimms lookalike called Pitchers.

Ranges are also narrow in supermarkets, the cost of trial for customers is higher – a 75cl or one-litre bottle versus a single serve bar or pub measure – and then there’s the frequency of visit. Consumers might go to the spirits aisle no more than once a month, and there’s unlikely to be anyone to advise them when they get there.

Know your market

Price promotion is also the primary volume driver in mainstream retail, but while deep-cut discounts shift stock, they don’t leave much profit for brand building – and they may damage a carefully nurtured quality image.

Vital, as identified by Cognosis Consulting’s Brown at the outset, is the marketing mix. Without word of mouth recommendations from barmen, brands must get to know their consumers better, spot trends earlier and work harder to connect with drinkers, be that in their homes, on their phones or though social networking sites.

Further, off-trade exclusives, new launches and different formats are crucial to retain interest. The role of flavours, as identified above, is particularly important, proved at present by Bakon, which has taken the concept of bacon-flavoured vodka to a widening market, but primarily for a single purpose – it’s the perfect base for the Bloody Mary. In essence, the diversification is accelerating, although the motivation is specialisation.

Patrick Schmitt,  March 2010