Germany key to Europe’s flagging spirits volumes
The headline spirits figures are largely uninspiring, but Germany’s preference for international brands is providing cause for real optimism, writes Chris Mercer.
Not only is Germany forming a last line of defence against the euro’s implosion, the land of steins and beer kellers also offers fertile ground to distillers foraging for sales in Western Europe’s withered landscape.
Diageo’s CEO, Paul Walsh, refers to Germany as an emerging spirits market; and he’s only half-joking. The Smirnoff distiller’s relatively high exposure to dilapidated markets in Southern Europe, as well as Ireland, has seen it turn to Germany with increasing vigour since the onset of the economic downturn.
Early signs suggest the strategy is at least mitigating problems elsewhere. Germany helped Captain Morgan to ease past 10 million global case sales late last year, having risen to 400,000 cases in the country from next to nothing seven years earlier. Meanwhile, German volumes of The Singleton single malt Scotch doubled in Diageo’s last fiscal year.
Such optimism is not immediately apparent from the headline figures. Euromonitor says that Germany’s spirits market will continue its slow, steady decline up to the end of 2016, for example. However, German market leader Pernod Ricard pinpoints two reasons why Germany is attracting interest.
“Of course, there is a robust economic situation,” Pernod Ricard’s CEO for Europe, Laurent Lacassagne, told an analysts’ gathering last year. “There is also this ongoing shift from local products to international brands which gives this market a very bright future.”
Just how robust Germany’s economy is remains questionable, particularly as the eurozone debacle drags into 2013 and the Deutsche Bundesbank is warning of a “gloomier” outlook. Still, Lacassagne’s point is also that international brands remain so under-represented in Germany that their potential in the market is decoupled from the economy, to a certain extent.
Euromonitor analysts say that, while consumers are still loyal to large, native brands, such as Jägermeister, more drinkers are enticed by the “exoticism” of premium foreign brands. More specifically, it’s boom time for imported whiskies.
“Whisk(e)y consumption per capita is lower in Germany compared to other countries,” says Beam Global’s MD for Germany and Austria, Manfred Jus. “However, we currently see a huge consumer trend towards whiskies.”
Germany is the world’s number three Bourbon market after the US and Australia, and Jus believes the country “is on track to become Jim Beam’s third million-case market in 2013”. Not bad for a brand founded by a German immigrant. Jus highlights “significant share gains” and double-digit growth for Jim Beam, driven by the original Jim Beam White and a series of innovations such as Red Stag, Devil’s Cut, Jim Beam Honey, (RTD line) Jim Beam Lime Splash and the recently launched Jim Beam Hot Punch.
Brown-Forman-backed Jack Daniel’s is also salivating at Germany’s dynamics, after separating from Bacardi in the country in 2010. “For many years, although one of our largest volume markets, Jack Daniel’s growth was relatively small,” says John Hayes, senior vice president at Brown-Forman (B-F) and managing director of Jack Daniel’s. “Since Brown-Forman established our own company, the growth of Jack Daniel’s has accelerated and we remain very optimistic.”
The group estimates volume depletions – sales from distributors to retailers – on Jack Daniel’s Tennessee Whiskey and Jack Daniel’s & Cola RTD were growing in strong double digits through December 2012. With upwards of 80% of American whiskey sales in Germany currently JD or Jim Beam, watch out for growing diversity as this category develops.
There is already evidence that smaller sized foreign distillers can slip between the cracks of industry juggernauts to build scale in Germany. Stuart Nickerson, managing director of Scotland’s Glenglassaugh Distillery Co, says: “Since we started selling our whisky in 2009, Germany has been our largest export market in each year and continues in the number one position to this day with sales increasing year on year.”
Glenglassaugh’s success is related to broad-based growth for Scotch whisky in Germany. Scotch exports to the country rose by 4.5% in the first half of 2012, hitting £66m and nearly displacing South Korea as the spirit’s sixth largest export market, according to Scotch Whisky Association figures.
Meanwhile, never one to miss a party, Irish whiskey is one of the fastest rising spirits segments in Germany. Unusually, Jameson plays second fiddle to Tullamore Dew. “They sell three or four times more than us and we recognise that they’ve done a very, very good job,” says Simon Fay, international brand development director at Jameson’s owner; Irish Distillers.
Yet, within Irish whiskey’s growth trajectory, Fay says: “Jameson is one of the strongest drivers, with monthly annual trend (MAT) data to the end of November showing us up 32%”. Does Jameson have designs on Tullamore Dew’s crown? Fay is cool on the idea. “What we won’t do is compete from a price perspective. If they wanted to get into a market share game, we won’t do that.”
That said, avoiding price promotions can be tricky in Germany’s hard-discount retail environment. Despite a shift towards premium international brands, discount retail channels still represent around 44% of spirits volumes in Germany and around a third of whisk(e)y sales, claims Fay. Euromonitor analysts say this is more of a problem for vodka, where private label offers stronger competition to branded players than in whiskey.
Still, German retailers are not scared of flexing their muscle, as Campari found to its cost last year when a commercial dispute stunted Aperol’s impressive growth in Germany and dented the Italian distiller’s overall sales in Europe.
Beam’s Jus says how demographics are changing things. “Discounters’ growth driven by new outlets is slowing down, and with the trend towards smaller households living in urban areas we see that premium city supermarket concepts can generate growth even at higher prices.”
Although it isn’t all doom and gloom today in retail, he adds that “discounters such as Lidl, which has a huge assortment of strong brands, are seen by consumers as regular shops, which will not necessarily deteriorate the image of a brand if sold there.” To build that image, brand owners look to the on-trade.
Jameson is focusing most of its energy on Berlin’s trend-setting bar scene, which Simon Fay slots in alongside the likes of London’s Shoreditch, Williamsburg in New York and Portland in Oregon. In key German cities, the bar scene is also benefiting from a blossoming cocktail culture. If the Beatles were partying in Hamburg today, you might find them in Bernstein Bar sipping fresh Caipirinhas.
Interest in the annual Bar Convent Berlin (BCB) expo is “exploding” amid a stream of bar openings and overseas visitors, says BCB co-founder Helmut Adam. For Adam, who also co-founded German language trade magazine Mixology, growing consumer interest in cocktails has dovetailed with a new generation of bar, hotel and restaurant owners “who have embraced the modern bar” and see value in employing skilled bartenders. This is offering opportunities for white spirits, such as rum, vodka and Tequila, in particular.
At last October’s BCB, Mexico was the chosen “guest” country and impressed everyone with its the level of engagement. “They had a big table loaded with agave spirits, including lots of mescal and lots of raicilla,” says Tomas Estes, international Tequila ambassador and the founder of the Ocho brand. “I thought, ‘this could be extremely messy’, but everyone respected it. No bottles were pinched and it was a great way to promote the categories.”
Behind Germany’s cocktail culture, a fledgling craft spirits sector is emerging in Germany, which only seems natural given that the country makes stills for most craft distillers elsewhere. There is more to this trend than a couple of bartenders pouring spirits over the breasts of supermodels (Google ‘G-Spirits’).
“The figureheads of the new boutique distillery boom are British style gins with a local twist,” says Adam. German farmers already distilling their fruit or barley “are waking up to new opportunities now as they see people like Alexander Stein (Black Forest Distillers) selling a 0.5-litre bottle of gin for €40.”
Look out for craft vodkas as the next trend, Adam adds. For foreign distillers, the rising popularity of British-style gins sets up obvious opportunities for premium, international brands. Beam’s Jus is careful to show some caution on Germany’s prospects.
“The key challenge for Germany is that available household income isn’t growing as fast as living costs,” he says. Right now, though, Germany offers a relative oasis in Europe’s economic desert.