SPIRITS: The more the merrier

Vodka still holds centre stage in the UK spirits market, but rum and gin also want a slice of the action, reports Alan Lodge.

The UK spirits market, like the vast majority of the alcohol sector, is currently enjoying much greater success in the off-trade than in the on-trade. The obvious reasoning behind such a performance is that people have scaled back on their spending and nights out in the aftermath of recession.

Yet the economic troubles have served another purpose, in that consumers who were forced to rein in their pub and club visits sought to recreate the best bits of their social life in their own homes. Suddenly everyone wanted to mix their favourite cocktails or mixed drinks in their own kitchens, with the off-trade reaping the benefits of a jump in the sales of spirits such as vodka, rum, Tequila and liqueurs.

Michael Laird, partner at industry consultant Cognosis, says: “Obviously cocktail culture is important, because it is high-visibility and 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.”

In total, the UK off-trade spirits market witnessed a rise of 1.5% in volume sales in 2010 to 4,177.7 million litres, while the on-trade suffered a 4.1% decline to 3,025.2m litres [Euromonitor].

Yet there are signs that the UK consumer’s tastes are changing, and the traditional powerhouses of whisky and vodka are coming under increasing threat from emerging or re-emerging drinks. The widespread down-trading that was anticipated in western economies might not have reached the depths that many had feared, but the door has been left ajar for individual brands and drinks categories as a whole to capitalise on the faltering market leaders.

Some drinks, such as Tequila, have suddenly found themselves talked of as growth drivers for the spirits category, just a few years after they were viewed as a fading force. Indeed, Tequila and mezcal saw off-trade volumes leap 6.1% in 2010, consolidating on an 8.8% rise the previous year.

Richard Brown, managing partner at Cognosis, says: “Tequila is an interesting category at the moment with great opportunities to create heritage stories. Patrón is an example of a Tequila brand which has come apparently from ‘nowhere’ to major brand status, drawing new drinkers into the category.

“I expect Bourbons to grow in the near future too, because Jack Daniel’s is doing a fantastic job in introducing new drinkers to American whiskey world-wide. Dark rum is certainly enjoying growth in several major markets now, and I expect that will trigger more branding opportunities in the future than in the past.”

Rum gains ground

Rum is indeed enjoying a buoyant period of growth. Sales grew by almost 7% in the UK off-trade last year, comfortably outperforming the spirits category as a whole.

The performance and prominence of Bacardi – by far the biggest-selling rum worldwide – helped white rums gain plenty of traction, while the dark category was boosted by brands such as Wray & Nephew’s Appleton Estate and Rémy Cointreau’s Mount Gay, which was repositioned this year with the introduction of Mount Gay Eclipse, Mount Gay Eclipse Silver and luxury blend Mount Gay 1703.

There were also healthy performances by spiced rum brands, with the re-emergence of Captain Morgan and the continued growth of Sailor Jerry, despite a fan backlash in the UK over an overhaul of the drink’s flavour profile last January.

This growth follows a sustained period of reinvention and growth for the category in the US. The UK, perhaps influenced by the aspirational lifestyles of television characters the younger generation grew up watching in programmes like Sex & The City, tends to take its lead from the US when it comes to adopting new tastes and trends.

The growth of rum in the off-trade offsets a slight dip in on-trade performance, but that’s not to say that rum is not growing in popularity among mixologists – indeed, the use of rum in cocktails is widely credited with generating brand awareness and popularity among consumers in both the on- and off-trades.

Diane Edwards, general manager at J Wray & Nephew, says: “Bartenders are slowly communicating this rich category through cocktails and concepts such as prohibition-themed bars and tiki drinks. This trend is now starting to reach a mainstream audience.”

Yves Schladenhaufen, marketing director at Havana Club, adds: “The increased scope of global tourism has definitely helped the category. People are more mobile and able to travel to more places than ever before.

“They’ve come over to the Caribbean and to Latin America, where they have discovered a whole new world of rums and cocktails. Cuba, for example, has built a great reputation for tourism and that has definitely helped us as a brand and the Cuban rum category as a whole.

“In western markets, the origin is of great importance and they know that rum produced in Cuba is as good as, if not better than, that produced anywhere else in the world. They are learning these lessons and taking them home with them.”

As a direct result, rum ranges in supermarkets have grown accordingly to accommodate the plethora of styles, with golden rum in particular now receiving plenty more shelf-space.

Six years ago, it was arguable that the golden rum category did not exist at all in the UK, with the category simply split into white and dark sectors. This is clearly no longer the case.

Cocktails a tonic for gin

Within the gin category, the UK has seen growth across all price segments after sales started to slip in 2008. In a similar vein to rum, the trade credits this success to the growth in cocktail culture, both in bars and in the home. This has, in turn, led to a raft of new releases – including seasonal variants such as Beefeater Winter Edition – in order to capitalise on the growing demand for something that little bit different.

However, not everyone in the industry is convinced that gin’s growth is sustainable. Ibolya Bakos, brand manager at Caorunn Gin, says: “The hot summer had brought a lot of new, great, boutique gin brands to the market. There seems to be an increasing excitement among bartenders and mixologists; they love the versatility and unique flavours of gin. They enjoy working with such a rich category and might switch some vodka consumers to gin that could contribute to category growth.

“On the other hand, I’m not convinced yet that it will be a significant and sustainable growth. There are only a certain number of gin cocktails on menu listings, using only a few of the numerous gin brands. I can see some of these great gin brands on the back-bar of top-end bars, but achieving a healthy rate of sale seems to be a bigger challenge than availability.

“The ultimate question is how individual gin brands can influence consumers to order a more expensive back-bar gin instead of the house pour.

“Off-trade listings are an even bigger challenge. The number of brands within a category is limited and they might replace old ones with some of the newcomers if they see revenue potential, but these rarely seem to enlarge the category itself.

“However, the old-fashioned, dusty image of gin belongs to the past. If the category can maintain being dynamic, consumer-focused and build insight-driven brands, I think gin can have a prosperous future.”

Luke Tegner, brands director at Berry Bros & Rudd Spirits – which launched No 3 Gin in 2010 – agrees that the gin market is prone to fluctuation, but feels that the category’s current success is indeed sustainable.

“Gin has been around for so long that it’s bound to go through ups and downs, but we believe it’s here for a sustained period,” he says.

“The classic G&T is a simple drink that everyone can enjoy, and with new, better mixers there is no reason for that to change. Gin, as the base of many classic cocktails for those (barmen and consumers) who prefer to experiment, has longevity too.

"Gins that are unashamedly gin-flavoured (ie evidently juniper with the freshness of citrus and a spicy bite) will probably outlast the neo-gins that are experimenting with non-traditional flavours (like coconut, tea, blackcurrant, rose petals, etc). These are intriguing but may not all stay the course as more traditional gins will.”

It has been suggested that vodka is facing an ever-increasing challenge to hold on to its crown as the likes of gin and Tequila make their way from the cocktail list to the home spirits cabinet.

It is true that the category has suffered slightly declining volumes globally over the past five years, but a drink with such versatility and prominence at all levels of the market can surely relax a little, safe in the knowledge it will always have a huge market share.

“Vodka is still showing dynamic growth in many markets around the world, so the outlook for the category is very positive,” says Duncan Hayter, international sales director at Gin Mare. “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 which helped fuel the growth of premium vodka over the last decade.”

Darker days ahead

The dark spirits sector, rum aside, cannot claim to be having as good a time as its white comrades. Whisky, brandy and Cognac are all slightly down on the year, but the fans are still there.

Ultra-premium launches have been the theme this year, with the likes of Highland Park 50 whisky, and L’Essence from Courvoisier in the Cognac category, stealing the headlines away from declining sales across the sector. Such a performance has prompted something of a re-think about which consumers to target and which retail channel should be focused upon in order to restore growth.

“The trend for stay-home drinking would suggest that the category should be focusing on the off-trade,” says Richard Paterson, Whyte & Mackay master blender. “However, I still think it is a necessity for brands to develop marketing initiatives for the on-trade to get people into bars and keep the on-trade sector alive.

“The off-trade remains a great place to introduce new brands, products and presents the best opportunities for growth, but we shouldn’t completely forget about the bars and pubs that give us a sociable place to meet our friends and enjoy a drink.”

The pace of change in the ways and places in which the UK consumer imbibes will not relent in 2011 – if anything the shift to at-home might become even more pronounced following the introduction of the 20% VAT rate in January. Brand owners may well have to redouble their efforts in the more lucrative on-trade in order to plug the difference.

Alan Lodge, taken from the drinks business Trends Report 2010