Nordics thirst for premium brands and booze cruises

Far from being a homogenous area, the Nordic countries offer a diverse array of challenges and opportunities, as Chris Mercer discovers

Great Danes: venues like Salon 39 in Copenhagen are leading a regional bar renaissance

A cocktail culture reverberating out of Copenhagen and a rising thirst for international brands offer pockets of opportunities for distillers in Scandinavia, but there is no one-size-fits-all approach that applies to spirits sales in the region. “Whilst we cluster the markets together, each have their significant differences in regulations and routes to market,” says Philip Ainsworth, Chivas Brothers’ regional director for Northern Europe.

That said, there are some obvious similarities. Sweden, Norway and Finland all operate monopoly retailers in the off-trade, with high duty tariffs on spirits to deter over-consumption. At least the retail contracts tend to be long-term once signed.

Another potential bind is that those three countries, plus Denmark, all spent 2011 enduring a decline in consumer demand in many major spirits categories, according to Euromonitor International statistics.

However, headline figures appear to hide a broad, if slowmoving, drift towards international brands, predominantly at the expense of traditional spirit aquavit. Opportunities are diverse, covering most whiskies, gin, rum and some vodka, with a supporting role for Tequila and Japanese whisky in Norway, Baileys in Finland and Jägermeister in Sweden.

Cognac is big in this region, too, particularly in Norway, but the fabled French spirit has lost kudos on the domestic market in the past five years, Euromonitor figures show.

Across the Nordics, “growth is stable, single-digit but from a good base”, says Ainsworth. He name-checks labels such as Ballantine’s blended Scotch, The Glenlivet single malt and highend gin brands Beefeater 24 and Plymouth.

Western Europe’s star performer
In Sweden, Chivas draws extra benefit from its parent group, Pernod Ricard, having acquired Absolut vodka owner Vin & Sprit in 2008. This has strengthened links with monopoly retailer Systembolaget. “Outside the monopolies, we have been able to build on the bartender relationships strongly forged with Absolut,” Ainsworth says.

Bo Lundberg, Diageo’s Nordics director, sees potential for more premium spirits, particularly Zacapa rum, Tanqueray gin, Johnnie Walker blended Scotch and single malts Lagavulin, Talisker and Singleton. Presently, Diageo’s biggest brands in the Nordics are Smirnoff, Captain Morgan and Baileys.

Lundberg says Diageo is taking share from major competitors in the region, which is important for “driving profitable growth” and is “one of the best-performing regions within Western Europe”.

It’s all relative, of course, but the Nordics continue to draw commitment from major distillers in the midst of Europe’s malaise. Average disposable income per person is ahead of much of southern Europe, topping US$30,000 in Norway and sitting at around $23,000 in Denmark.

In 2011, William Grant & Sons set up a permanent outpost in Stockholm, while a spokesperson for Edrington Group explains that the distiller can also see plenty more room for premium brands in the region.

However, barriers to premiumisation range from high income tax to a ban on spirits marketing in Sweden, Finland and Norway. Restricted space in monopoly retail stores and high taxes can make even the cheapest brands appear expensive. In Finland, one of the only sectors in growth in 2011 was “cut brandy”, a mix of vodka and brandy. Try premiumising that.

William Grant opened a specialist whisky shop on-board Nordic cruise ship Viking Grace in January 2013

Booze cruises
At Systembolaget stores in Sweden, “the most expensive vodka you can find in the shops is Absolut at around £22 to £23”, explains the master blender for Sweden-based Purity vodka, Thomas Kuuttanen. “The cheapest vodka sells for around £19,” he adds. “You would never see Grey Goose or Belvedere on the shelf; these have to be specially ordered and collected.”

Then there are the grey and black markets, long underlined by tales of Scandinavians distilling moonshine in the bath. Unrecorded alcohol sales are disproportionately high in Nordic countries, estimates the UK-based Institute of Economic Affairs. Cross-border booze cruises are common, the Swedes heading over Øresund Bridge to Denmark, who in turn travel to discount loving Germany. “In Denmark and Sweden, one-quarter of spirits consumed are bought outside the consumers’ own member state,” says Paul Skehan, director general of Spirits Europe, the European spirits trade body. In a similar way, Finns raid Estonia for bottles of Viru Valge vodka. Spirits Europe says spirits tax in Finland starts at €43.40 per litre, excluding VAT, with Estonia at just €14.91 per litre.

With domestic sales tightly controlled, travel retail has a growing role to play, particularly for non-EU Norway. Euromonitor believes volume declines of more than 5% in several spirits categories in Norway last year are explained by a shift to duty-free channels.

“There is a direct correlation between the performance of spirits in Norway and the numbers of people travelling abroad,” the market research group says. “More Norwegian people than ever before are travelling abroad for business purposes as well as for leisure.”

And it’s not only the airports. Earlier this year, William Grant & Sons opened a Glenfiddich Lounge aboard Viking Line, while Maxxium Travel Retail debuted Laphroaig Brodir exclusively with the ferry operator.

Viking Line’s tax free sales and purchasing manager, Kim Engblom, says its new ferry, Viking Grace, which was launched in January 2013, will have a dedicated single malt whisky store.

Grace will also house seven bars and restaurants, including a cocktail bar and club. Meanwhile, those targeting domestic market success in the Nordics should consider the on-trade, with a cocktail culture rippling outwards from Copenhagen. “Spirits are cheaper here and a lot of Scandinavian bartenders are coming to Copenhagen to challenge themselves,” says Zander Hansen, CEO of the Drinksmeister blog and website. “We can clearly see that trends in Scandinavia were started somewhere in a local bar in Copenhagen.” Nothing delights Danes quite as much as putting one over their Nordic cousins, and particularly the Swedes.

Culinary capital of Europe?
Copenhagen bartenders are combining molecular mixology with a taste for retro. Unusual ingredients foraged from nearby woodland, such as buckthorn or horseradish, are in vogue. “A lot of cocktails are based on ingredients people would have used 100 years ago,” Hansen says.

In terms of spirits, he sees gin resurfacing at vodka’s expense, plus greater interest in dark rum. Both Hansen and Sune Risum-Urth, bartender at Copenhagen’s award-winning Ruby bar, draw comparisons between the city’s cocktail trend and its arrival at the top table of fine dining. Noma has been ranked the world’s number one restaurant for three consecutive years now.

Risum-Urth explains how food plays a role: “Copenhagen is finding its role as a culinary city. We see an endless stream of gastro-tourists, who are used to eating and drinking well. It naturally raises the bar for what is served.”

On-trade opportunities are clearly more extensive in Denmark. Lower tax rates here contribute to an on- to off-trade split of 33% to 66%, while the on-trade only accounts for between 10% and 15% of spirits volumes in Norway, Finland and Sweden.

International spirits brands may be seeping into Scandinavian drinking culture, but not all “local” brands are sullenly sinking into the mire, according to regional powerhouse Altia Corp. “Quite a number of brands demonstrate a strong performance, including Koskenkorva vodka, Renault Cognac, Xanté liqueur and Latitude 55 blended Scotch to name a few,” Altia’s CEO, Antti Pankakoski, explains. “I believe that this market will see a combination of the national heritage brands continuing to show the way.” Finland-based Altia saw net sales rise by 7.6% in 2011, to €524.8m.

At the other end of the market, a new generation of Swedish distillers has emerged from the wreckage of state monopoly spirits production, which ended in 1995. Local whisky is an emergent category, led by the likes of Mackmyra and Spirit of Hven, although the latter is located in the Öresund strait between Denmark and Sweden.

“I see more and more micro-distillers popping up, which is a good thing,” says Thomas Kuuttanen, who spent 10 years perfecting organic vodka Purity. “We have too few competitors and I invite any competitor to come visit us. We recently had a team from Absolut over.”

This resurgence of distilling shows that Scandinavians’ interest in spirits equals the determination of authorities to withhold them. The northern fringe of frugal Europe is worth a second look.

From local to global: Nordic vodka brands

Finlandia
The brand was created by Alko, Finland’s state monopoly alcohol producer, in around 1970. Since 1994, it’s been part of Finlandia Vodka Worldwide, under US parent Brown-Forman. Best known for its range of flavours, a popular annual cocktail contest and the subject of a recent luxury launch, Finlandia Platinum.

Purity
An award-winning organic vodka created in Sweden by Thomas Kuuttanen after 10 years of experiments, Purity has scooped around 50 awards in past two years. Currently planning a rebrand to highlight small-scale production with batch  numbers on bottles.

Svedka
Owned by Constellation Brands since 2007, Svedka claims to be the second best-selling imported vodka in the US, thanks to edgy ads and a typical flavour range. Founded in 1998 by Vin & Sprit.

Absolut
Traces its roots back to Lars Olssen Smith in 1879. Produced in Åhus, southern Sweden. Swedish monopoly producer Vin & Sprit created modern-day Absolut in 1979, to target a US market sceptical of Swedish vodka. How things change. Pernod Ricard bought Vin & Sprit for €5.7bn in 2008.

Danzka
Danish vodka founded in 1989 and best known for its eye-catching aluminium bottle and duty-free presence. Danzka was bought by France-based Belvedere SA from Sweden’s Vin & Sprit in 2006. More recently, chronic financial troubles for Belvedere have prompted sale rumours.