Why do the wealthy spend so much on spirits?

Catching the attention of the high-end, high-flying consumer will only get more challenging as personal wealth increases, writes Becky Paskin

Jay-Z and Beyonce may splash the cash on exotic islands, but other wealthy individuals have their eye on luxury spirits

Last year rap star Jay-Z reportedly purchased an island in the Bahamas for his wife, Beyonce, for a cool US$4 million (£24m). “If you’ve got it, flaunt it,” as the saying goes, which couldn’t be truer for some high net worth individuals (HNWIs) looking to splash the cash.

While most of us struggle to scrape together a few hundred quid for a weekend by the sea, let alone millions on an occasional private island retreat, the richest among us view the concept of luxury as consisting of a significant number of extra zeros. So long as there are plenty of wealthy individuals like Jay-Z happy to spend it, there are spirits companies producing luxury and prestige products to meet their every whim. And the trend is showing no signs of slowing down yet.

The total number of millionaire households in the world grew by 2.6m in 2013 to 16.3m, according to Boston Consulting Group. North America currently leads the way with US$50.3 trillion in private financial fortunes, followed by Western Europe at US$37.9 trillion. But by 2018, Asia-Pacific is expected to have tallied up US$61 trillion, accounting for more than half of the world’s global personal wealth, with China fast catching up to the US as the second-wealthiest nation.

Heavy Asian focus

As far as the ultra-premium and prestige spirits categories go, austerity measures and aggressive discounting in China are thought to have impacted headline figures, with volume down 19% and 18% in 2013 respectively (IWSR). The bulk of the measures hit baijiu and Cognac the worst; global sales of the latter were down 10% in the 12 months to July 2014, according to the Bureau National Interprofessionnel du Cognac.

But despite some prestige spirits’ woes in the region, drinks companies are still investing heavily in Asia. “We’ve seen an increase in demand for prestige spirits and emerging markets remain at the forefront of growth, particularly in the single malt category,” explains Kirsten Grant Meikle, director of the newly-created Prestige arm of William Grant. “Regions such as Asia, North America and Eastern Europe are expanding the geographical footprint of the category, enabling consumers to engage with it through increasing levels of affluence.”

However, she warns against taking a blanket approach to the region when it comes to pursuing HNWIs; she believes the key with luxury goods is to discover more about their intended audience and develop a more targeted attitude. “The world’s luxury map is shifting, in that geography doesn’t so much define the opportunity and therefore thinking must shift to focus on consumers, not markets, and understanding the lifestyle journey and needs of HNWIs,” she adds.

How best to capture the attention of the rich and famous?

London a “hotbed” for HNWIs

The majority of personal wealth may well come from Asian citizens in the future, but many of those people who have amassed their fortune through running their own companies will no doubt be well-travelled.

Doing business has become an international affair now after all. “You have to think about cities as opposed to countries and nationalities, as although people speak about the wealth in places like China and Russia, a lot of wealthy Chinese and Russians don’t buy in those markets; they buy on their travels in Europe,” adds Kevin Abrook, global whisky specialist for innovation at William Grant.

London is one city constantly identified as a hotbed for high-end sales to HNWIs, who frequent Harrods’ newly-fitted wines and spirits department, Selfridges or The Whisky Shop Piccadilly to source rare and prestige products for three reasons: convenience, they can’t locate the item in their home market, and the experience of shopping in the historic capital. “They probably could get it in their market if they want, they are billionaires after all, but there’s nothing like getting a Gucci bag from Florence or going to Paris to pick up some haute couture stuff,” adds Abrook. “The sense of place and provenance plays a huge role.”

In some cases it’s convenience that really matters. Fine wine and luxury spirits store Le Clos, which operates in Dubai International Airport, is one retailer benefitting from a high volume of HNWI traffic. It recently broke its own single day sales record which tipped AED500,000 (£82,000) from the sale of the Macallan in Lalique 62 Year Old, Highland Park 50 Year Old and The Balvenie 40 Year Old. Scotch aside, the group is also seeing increased interest in Japanese whisky from established brands like Nikka to rare bottlings from Karuizawa.

Convenience matters

The BNIC has also picked up on the necessity to offer HNWIs convenience by allowing online bids for its Cognac-based annual La Part des Anges charity auction for the first time this year. Those unable to make the trip to France are now able to bid on lots such as the Hennessy Edition Particulière, which carries a top-end guide price of €20,000.

Regardless of the shopping location, be it London, Dubai, New York, Paris or even online, one thing is clear: consumers are now seeking an experience when making an elaborate purchase. Le Clos ensures its staff are WSET qualified and are combined able to speak over 20 languages to enable them to service its clientele. “The idea of luxury is not only about the exceptional quality and provenance of a product but also the unique and personal experience attached to it,” says Ben Odgers, general manager. Le Clos offers a bespoke engraving service free of charge, while global purchasers of The Balvenie 50, a £20,000 bottle created to celebrate malt master David Stewart’s 50^th anniversary with the distillery, are invited to “meet the maker” himself.

“Aspiration is still the overarching need driving luxury purchasing and a shift is occurring from ‘owning’ to ‘experiencing’ luxury, particularly in more developed markets,” Grant Meikle adds. “For luxury consumers it’s more about mirroring back to them either a lifestyle they feel fits them or one they would like to aspire to. This is why provenance and authenticity are really very important.”

The fine wine and spirits store in London’s Harrod’s is a favourite shopping destination for the world’s elite

Attention!

We hear it said all the time, but consumers really are becoming increasingly discerning, even those with enough money to buy their own private island. Purchases are more considered and elements such as provenance, craftsmanship and rarity appeal to those seeking an elaborate item. But as Stephen Marshall, global marketing manager of malts at Bacardi, discovered when developing the group’s new single malt Scotch whisky portfolio, HNWIs, just like anybody else, also want value for money.

“If super rich folk see an item as good value, then even if it costs £10,000, it’s still good value for them. I have the same thing myself with records. To me, spending £300 on a 7-inch is nothing if it’s super rare, no matter if you can buy that song for 50p on iTunes. It might seem ridiculous to some folk but to me it’s not.”

Offering a sense of provenance, heritage and craftsmanship in both the liquid and packaging has become par for the course, but as more products enter the category, how can brands continue to capture the attention of wealthy spenders in the future?

“Innovation will become increasingly important in the luxury space,” predicts Neyah White, brand ambassador for Suntory Japanese whisky. “It is not enough to just be old and rare anymore as the whisky consumer is becoming very educated.” White notes a trend of “more open-mindedness” among luxury consumers, who are showing signs that experimentation within the prestige end of spirits is welcome.

Equally discerning customers

Bob Dalrymple, global marketing controller for malts at Whyte & Mackay, mirrors the sentiment, adding that staying ahead of the game, even for a globally established brand like The Dalmore, will be a key focus in the future. “One of the challenges for the brands who have been doing it for a while is to ensure our high-end innovation is continually interesting and pushes the boundaries, and that’s a big responsibility,” he says.

The Dalmore’s biggest – and most expensive – innovation to date is The Paterson Collection, a £987,500 range of 12 rare Scotch whiskies presented in an oak display cabinet that was unveiled in Harrods in July 2013. While the piece is yet to find a buyer more than a year later, Dalrymple claims its mere presence in the prestigious store has had a halo effect on the rest of The Dalmore portfolio. “We’ve seen increases across our range and the new Constellation Collection in Harrods has had some early success as well,” he says.

Perhaps mirrored by The Paterson Collection’s continued occupation of Harrods’ Fine Spirits room, is the notion that price is less important to HNWIs than before. An increase in personal wealth over the years coupled with the world’s sheer number of millionaires may have something to do with it, as higher priced items are not as unattainable as they used to be.

“HNWIs don’t easily spend as much on spirits as we non-HNWI like to think,” explains Nick Morgan, head of whisky outreach for Diageo. “For anyone, whether you’re loaded or not, £500-£1000 is a lot to spend on a bottle of whisky and if you’re spending that sort of money you want to know that what you are getting is something that is genuine, authentic and the highest quality liquid for what you’re spending. Consumers in all these different income groups are not mugs; they know what they are buying. They understand where the value is in these products.”

Morgan adds that truly understanding the prestige spirits market, and the people purchasing those items, will become increasingly important in time. As the world’s wealthy population multiplies, spirits companies will find themselves competing more for their attention, as focus shifts from extravagant, headline-grabbing prices to authenticity, rarity, heritage and the experience surrounding the purchase itself.