Vodka extends global reach
Outside the traditional vodka strongholds producers are looking to pastures new and potential in countries such as India and Korea is immense. Alan Lodge reports.
The outlook of the major players in the vodka industry has changed significantly over the past couple of years as they were forced to reassess their options and drive growth into new markets.
With major developed markets having long-since reached maturity, and the level of saturation coupled with tightening consumer purse-strings proving obstacles to recording significant growth, the spotlight has been shunted to emerging markets in which the opportunities to attract new drinkers into the category remain vast and potentially extremely lucrative.
Some might look at the slowdown in growth in major markets as evidence that the popularity vodka may have peaked, but while it might be witnessing its rivals such as gin and white rum making up ground in the US and western Europe, elsewhere vodka is emerging as a major contender in regions where brown spirits tend to rule the roost.
People are also increasingly drinking it at home rather than purely in bars. Looking at the fastest-growing off-trade markets for vodka over the past five years, the likes of India, Korea, Dominican Republic and Azerbaijan are proving that the appeal of the spirit is finally penetrating regions which have been rather slow on the uptake in the past, while the value of the Venezuelan market has grown 43.7% over the past five years,
“It is usually a mistake to think a category has peaked, and there is always room for growth and innovation,” says Michael Laird, partner at industry consultants Cognosis.
“Vodka has evolved from a homogenous mainstream spirit into a segmented category and that trend will continue, with premium subsegments and flavours, provenance and such like becoming more important in developed markets.
“Meanwhile there will be some explosive growth for brands that can capture the aspirations of consumers in emerging markets over the coming years, to be seen drinking the right brand in the right place, served right.”
The need to build in developing markets is not lost on the industry’s biggest names, who are refusing to rest on their laurels and be content with strong performances as presence in traditional vodka strongholds.
Marco Ferrari, chief marketing officer at Stolichnaya, confirmed to The Spirits Business that the company’s focus no longer rests on the likes of the UK, the US or Europe and is instead seeking ways to build its reputation elsewhere.
“Among the crucial markets for Stolichnaya are Brazil, India and China,” he says. “The newly-signed distribution agreement for Brazil opens the doors for Stolichnaya to execute dynamic plans with new partners, find new routes to market with significant investment support from SPI Group.
“We also place a huge emphasis on further development for the brand in India and China this year in order to meet our global objectives. PR events, pouring contracts with major outlets, Stoli signature cocktail promotions and wholesaler promotions are planned for 2011 and are expected to increase brand awareness, distribution and visibility.”
In an effort to build its own presence in developing markets, Diageo currently looks set to swallow one of Poland’s largest vodka companies as it continues its acquisitions spree. The group is thought to be bidding around £500 million for Stock Spirits, whose brands include Czysta de Luxe.
Diageo splashed out £1.3 billion on Turkish spirits maker Mey Icki last month in an effort to capitalise on growth in the Turkish market, and chief executive Paul Walsh froze share buybacks in order to build a warchest for takeovers this year as he seeks to address the firm’s reliance on European and North American markets.
Taking Stock
However it remains a fact that the recent performance of Stock Spirits provides evidence that, while we may all be raving about Asia and the opportunities offered over there, there is plenty of buoyancy in both central and eastern Europe as far as vodka is concerned.
Indeed, according to recent statistics, it owns the top two fastest-growing vodka brands in the world in 2009.
Czysta de Luxe shot to prominence in 2009 as the fastest-growing vodka brand globally after a record breaking year which saw the Polish vodka record 188% growth as 5.39 million nine-litre cases were sold. Stock Spirits also obtained second spot in the rankings as 1906 vodka and achieved sales of 1.39 million nine-litre cases with 67.5% growth from 2008 to 2009.
1906, a clear vodka which is produced through a process of quadruple distillation, was created to honour the 100th anniversary of the foundation of the original spirit production plant in Lublin – Rektyfikacja Lubelska. Since its launch in 2006, 1906 has gone from strength to strength, commanding 6% vodka market share in Poland while also being SSG’s third best selling vodka behind Czysta de Luxe and their market-leading flavoured vodka Zoladkowa Gorzka.
Czysta de Luxe is the market leading clear vodka in Poland with 19% market share and has surged into the global list of top 20-selling vodkas. It has already taken 8th place in this global list and is the youngest vodka in the top 10.
Commenting on the results, Chris Heath, chief executive officer of Stock Spirits Group, said: “We knew that Czysta de Luxe had enjoyed an excellent 2009 but these results confirm the exceptional success of this brand when compared to the performance of its peers and against a backdrop of tough trading conditions in 2009.
“It is also very encouraging to see 1906 vodka entering the Millionaires Club for the first time and becoming the second fastest vodka brand globally. These results justify our strategy of investing in new and exciting brands in Central and Eastern Europe.”
What of the top-end vodkas? Is the demand for luxury as strong in emerging markets as it is in the west? Grey Goose, for many the ultimate in status-symbol vodkas, has rolled out is brand ambassador programme around the world in an effort to ensure it enjoys strong relationships with key influencers in all major markets.
While the brand is clear about where it enjoys the most success in the current climate, it too is looking forward to making traction in other parts of the world.
“”Beyond the US, important export markets for Grey Goose are Canada, Mexico the UK and travel retail, but possibly the market with the most long-term potential for Grey Goose is China,” says Jonathan Morley, global vodka category director at Eristoff. “By 2015, China will be the number one luxury market in the world and, as a luxury spirit, Grey Goose is in a strong position to serve this market.
“As Grey Goose continues to strengthen its global luxury brand status it will play a role in developing China as a luxury market and, in turn, China will help establish the luxury credentials of Grey Goose in the region.”
The opportunities for vodka in China and other emerging markets have come about, according to Morley, through shifting consumer behaviour in regions where brown spirits have traditionally reined supreme.
“Consumers in emerging markets are now open to brands that have a younger, more sociable feel,” explains Morley. “They are seeing how luxurious and exciting events are associated with vodka and are wanting to enjoy those experiences themselves.”
Eristoff vodka itself enjoys a market-leading position in the Dominican Republic – the fastest-growing market in the world, according to the Euromonitor statistics accompanying this report.
It has continued to outperform the category in the majority of key markets and continues to be the market leader in Austria, Portugal, Belgium and Chile as well as in the Dominican Republic, with expansion continuing in the key Asia-pacific markets of India and Australia.
Though the brand did indeed see strong growth in established vodka markets – recording 49% volume growth in the US, Europe and Asia – this was backed up with 29% growth in the former CIS markets.
The brand also reinforced its positions in markets including Turkey, China and South Africa, which it had only ventured into quite recently.
Nemiroff chairman Alexander Glus says: “While the company has been highly successful during the past five years, the year 2010 was the most productive and efficient over the course of its history.
“The brand has significantly increased its power in external markets, while in Ukraine (where the brand is now the market leader) the company gained the lead due to substantial improvement in all its financial figures for the first time in its history.”
Growth percentages always look good on paper and they offer companies and their investors confidence that the inevitable slowdown in growth that accompanied the global economic crisis in major economies can be countered elsewhere.
Stolichnaya’s Ferrari, however, warns that growth statistics in developing markets can look misleadingly impressive.
“There are areas in the world that will naturally experience exponential growth because they are operating form a smaller base,” he says. “This is true not only for the Asian markets or South America, which are developing very fast, but also for more mature vodka markets where Stoli has so far not manifested its full potential like France.”
Much will depend on the rate of economic recovery in Europe and the US as to how reliant the vodka industry becomes on emerging markets, but there is certainly a buzz in places where dark spirits, and whisky in particular, once seemed untouchable.
