Why does Australia love RTDs and Bourbon?

A buoyant economy, thriving bar scene and an increasing consumer preference for premium and super-premium spirits, not to mention RTDs and Bourbon, suggest a bright future for spirits in Australia. By Andrew Catchpole.

Australia’s drinking culture is well established across RTDs, Bourbon and out of home

Australia’s economy, fuelled by demand for raw materials from growth in China and elsewhere, has escaped relatively unscathed from the Global Financial Crisis (GFC) of the past few years.

This has resulted in a historically strong Australian dollar against the currencies of many of its trading partners in the Western world, meaning that purchasing power for overseas goods is high. This, in turn, suggests a buoyant consumer sector, and while Australians have not been immune to the wider world picture, the overall scene is one of opportunity and potential for growth.

A fair test of this buoyancy is the spirits market, which arguably provides a clear barometer of consumer purchasing habits and related confidence in the general Australian economy.

The most recent figures for 2012 show continued volume and value growth in the overall spirits category. This follows a 50-year trend, which has seen beer consumption fall from 76% to 42% of alcohol consumed, with wine rising from 12% to 37% and spirits (including RTDs) from 12% to 20% (Australian Bureau of Statistics).

“Drinking less, but better”

Even more significant, though, is that this spirits growth is increasingly coming from the premium and super-premium end of the market, with Australian consumers buying into higher quality brands both via off-trade sales and in the booming bar culture.

“While total alcohol consumption in Australia is flat, generally people are drinking less but better and there is definitely a broad trend of ‘premiumisation’ across all spirits categories,” says Tim Salt, managing director of Diageo Australia, which accounts for some 33% value share of the spirits category and 30% of the RTD market.

“We are extremely pleased with the growth we are seeing across the premium and super-premium segments of our business, these delivering 48% net sales value growth in H1 (the first half of Diageo’s fiscal year), which is outstanding.”

Backed by independent category research from Euromonitor, which similarly identifies “evidence of consumers generally trading up to premium and super-premium spirits at the expense of standard and economy expressions”, Salt talks about a “macrotrend of consumers seeking quality, authenticity and craftsmanship in the products and experiences they choose”, which is seeing people trade up to the “affordable luxury” offered by premium spirits.

The desire to become knowledgeable and learn to mix quality drinks at home has caught on in a big way, with this trend is being reinforced by the cutting edge bar scene.

Jim Beam Devil’s Cut is one of the group’s most successful launches in Australia

Ready-to-Drink country

RTDs remain a relatively buoyant category, but as Salt and others agree, the imposition of a 70% hike in tax on the category by the federal government in 2008 has had the effect of switching some consumers to full-strength bottled spirits – although evidence suggests that there has been a trickle back to RTDs as consumers have grown accustomed to the higher prices.

RTS, or Ready to Serve, pre-mix drinks such as Smirnoff’s Signature Serves range have benefited from the ease of allowing consumers to plug into the cocktail culture with classic combos at home.

At the pinnacle of the spirits category sits whisk(e)y, accounting for 45% of the total market in 2011 (Euromonitor), with Scotch still slightly ahead of the growing Bourbon/US whiskey share, each accounting for 49% and 46% of the category respectively. Salt confirms that Scotch remained a strong performer for Diageo through 2012, with the Johnnie Walker Platinum, Double Black and Blue labels all seeing good growth.

Beam Global, whose portfolio includes Jim Beam – Australia’s largest selling spirit and RTD brand, and Canadian Club – the country’s fastest growing spirit, describes the market as tough but offering opportunities for brands with strong provenance.

“Australia is certainly a challenging trading environment so it is pleasing to be able to report that Australia outperformed the market in volume and value growth,” reports Steve Inch, Beam Global’s Oceania director. “Premiumisation and innovation will continue to drive growth and it is also key to recognise that branded companies such as Beam continue to lead and invest in the market to stimulate consumer purchasing while supporting customers.”

Premium brand extensions

For Beam, in 2012, such innovation centred on its Devil’s Cut Full Strength and RTD launch, which Inch describes as “one of the most successful brand launches for us” and a genuine highlight of 2012. A premium blend of extra-aged and barrel wood-concentrated whiskey, Devil’s Cut Full Strength clearly highlights the market’s acceptance of premium brands and their extensions.

The big players continue to dominate, but their work has allowed smaller producers to capitalise on this move to more premium spirits. Bert Cason, of the boutique Tasmania Distillery (one of Australia’s few home-grown distillers, producing Sullivans Cove), elaborates.

“We are certainly finding that the premium single malt market is growing steadily, but then premium spirits across the board are doing well and the introduction of new premium and super-premiums are well received,” he says. “Australians love American whiskey. However, at the top end, single malts outperform their premium and super-premium American peers and while sales of boutique producers including Sullivans Cove are small in comparison, there has been consistent high double-digit growth over the past two years.”

With both whisky and premium spirits as a whole, Cason claims that a new, younger crowd of drinkers are driving the market, “typically 23 to 45-year-olds”. He adds this is backed by a thriving bar scene which has seen the proliferation of both whisky-themed bars and cutting-edge cocktail bars across cities such as Sydney and Melbourne and beyond.

Zeta Bar in Sydney offers ‘Experimental’ cocktails with Blumenthal-esque foams

Cocktail culture

This assertion is backed by recent Euromonitor research. This reveals a “steady” spirits market, with stable average unit pricing and a modest 2% value increase in sales annually.

However, “the spirits category is nonetheless appealing to new drinkers, according to a longer-standing trend in which spirits are more of a focus than beer or wine, and with more women drinking spirits more regularly, sampling different tastes, brands and drinking experiences, such as cocktails or liqueurs.” What also emerges is that consumers are not necessarily spending more, but “spending better”, as Salt puts it.

It’s this demographic shift in spirits drinkers, coupled with the culture of bar and cocktail drinking, that is in part driving the growth in premium brands. It is most noticeable in the vodka category which has been achieving 8%+ volume growth year on year to 1.4 million cases, with premium value growth at 10%.

“The economy remains very strong, there was no GFC here, and we have experienced one of the longest, sustained economic booms since the Victoria Gold Rush,” says Gregg Ainsworth of Renaissance Brands, importers of super-premium vodkas including Cariel and Aivy.

“In real terms spirits are expensive versus the OECD average, but the ad valorem component is not large. In fact it makes premium spirits seem ‘better value’ and here there is an on-premise bias (75% of volume) with a very vibrant mixology and elite bartending scene,” continues Ainsworth. “This continues to be a vibrant, brand-building environment and the core vodka consumer is 25 to 35, urban, with a 50/50 split male to female. Vodka is also the most profitable line in most bars.”

North American influence

The impact of the Australian bar scene cannot be underestimated. Bar maestro-turned international consultant Angus Winchester, in his Bar Trends Around the World series, describes Australia as “one of the most creative cocktail cultures on the entire planet”. And as someone that’s put in a fair few hours after dark in both Melbourne and Sydney myself, I can also attest to the quality and innovation of mixology Down Under.

Head to the swish watering hole that is Sydney’s Zeta Bar and you’ll get a pretty clear idea of what’s making waves in Australia. The cocktail menu features headings such as Signature, Experimental, Deconstructed, Twisted Classics and Forgotten Classics, with the Experimental section name-checking chefs Ferran Adrià, Thomas Keller and Heston Blumenthal as it announces its culinary cocktail wizardry that includes airs, foams, grilled fruits and much else besides.

“Rye and Bourbon are hot in Sydney due to the different North American themed bars that have been opening throughout the Central Business District, such as whisky bars, dive bars, prohibition and rockabilly themed bars – this in conjunction with the influx of restaurant openings that specialise in American/Southern American cuisine,” says Zeta bar supremo Colin Tam, who says that the broader trend cocktail-wise is a return to “classics with a modern twist”.

It’s a similar story in Melbourne, where the cocktail culture is equally vibrant in the hands of bars such as Black Pearl, Hell of the North, Lily Blacks and many others besides. Rum, Tequila and a raft of liqueurs are also in growth, again fuelled by the demand for premium drinks. It seems that only Cognac and brandy are missing out on the party, partially because they are considered to be “an older generation drink”, according to Tam.

In many ways this ties in with the modern Australian consumer’s expectation of quality food and drink. Spirits and cocktails are seen as an extension of this scene, with the quality and provenance of a particular brand as important as the freshness of its fellow ingredients in a cocktail.

Which goes some way to explaining why Australians have developed a taste for premium and super-premium labels – a trend that has clearly begun to transfer into off-trade consumption as people have embraced the culture of premium spirits in bars and have taken it into their homes.