Flavoured vodka not dead but market ‘evolving’

Despite mixed results across a variety of markets, flavoured vodka still has a future – as long as producers learn from their mistakes in this field.

Producers have claimed that the flavoured vodka market is not necessarily failing, instead the broader vodka industry is evolving

*This article was first published in the January 2015 issue of The Spirits Business magazine

That old adage about lies, damned lies and statistics can be recycled yet again when discussing flavoured vodka. Glance at the headlines and you’d think flavours were yesterday’s fad – when in fact they could be tomorrow’s hero, particularly in vodka’s emerging markets.

Figures quoted by Bacardi’s Grey Goose suggest that global flavoured vodka volume growth has slowed in the past three years, with performance altogether static in 2013. But value still rose by 6.5%, and some brands – Grey Goose included – are driving up volume and value alike.

The negativity surrounds the US, where roughly two-thirds of all flavoured vodka is still sold, and where the back-bars and retailer aisles are groaning with everything from everyday fruit to whipped cream and bubblegum flavours.

“The fatigue is mainly a retailer phenomenon caused by SKU proliferation and loads of slow-moving inventory taking up valuable shelf-space,” reports Carmen d’Ascendis, global MD of Finlandia Vodka at Brown-Forman. “Because the obvious flavours are well-represented in the market, any new offer is either the eighth or ninth of its kind – how many citrus-flavoured vodkas does a retailer need? – or are so niche as to be meaningless.”

Market evolution

But for most, recent events do not signal the death of flavours, but an evolution of the market. “The dynamic of the category is changing as consumer trends of premiumisation and authenticity are driving a demand for more natural and refined flavour options,” says a Grey Goose spokesperson. “It is true to say that the success of the more outrageous flavours, such as popcorn and candyfloss, that once drove recruitment, are now waning.”

For a brand with a large portfolio of flavours, such as Pinnacle, these changing trends can drive opportunities as well as challenges. So, while the whipped cream/dessert variants that drove the brand’s success in the past are falling away, others are taking their place. Jason Dolenga, senior brand director of vodkas at Beam Suntory, says: “We’ve seen a significant increase in the sales of our fruit flavours, like peach and raspberry. There is clearly a demand among consumers for flavoured spirits across the industry, and we don’t see that changing any time soon.”

Demand for more “wacky” vodka flavours such as popcorn and bubblegum is waning in the US, but there is still potential in the emerging markets

Demand for natural flavours

Indeed, flavoured spirits growth outside vodka is having an impact on consumer flavour preferences within the category as well. “The huge variety of flavours that were introduced to the market over such a short period, such as bubblegum, may demonstrate that this growth was very much a trend,” says the Grey Goose spokesperson. “With all trends, they have a finite lifespan and what we can see is that consumers are returning to natural ingredients, locally sourced products and going back to basics.”

The changes to the consumer landscape are clearly doing little to slow the NPD production line at Pinnacle, however. “Pinnacle is recognised as a leader in flavour innovation,” says Dolenga. “We will continue to release innovative flavours as long as we see consumer demand and desire for them.”

But he is at pains to point out that this is not flavour innovation for innovation’s sake – again hinting at an evolution in the dynamics of the segment. “Instead of rolling out flavour after flavour, we differentiate ourselves by focusing on the quality of our vodka, understanding what the consumer is really interested in, and then creating a top-quality expression of our product to meet that demand,” he says.

Niche global appeal

In line with the global market for flavoured vodkas, roughly two-thirds of this article has been about the US. But what about the rest of the world? For the most part – Poland being a notable exception – flavoured vodka has in the past remained relatively niche.

But now that might be changing as emerging markets open up and diversify. “We have seen some fantastic developments in Asia, where up-and-coming bartenders in cocktail lounges and up-scale hotels are really pushing the boundaries,” reports Alexi Lambrou, Stolichnaya global brand manager. “The base spirit is therefore the champion, so they can experiment with a range of ingredients and garnishes.

“In developing markets, flavours represent a great way to build brand awareness and in regions where we have been growing, we’ve actually seen a solid appreciation of flavours and not so much fatigue – such as in Latin America.”

Pinnacle, meanwhile, has plans to target Australia, New Zealand and South America, where Dolenga sees “lots of untapped potential”, in addition to the brand’s activities in Canada and Mexico.

We do, however, need to keep some perspective here. Trends may be promising, but volumes are tiny compared to what can be shifted Stateside. “In the markets with a budding flavour segment, you do not see the same scale as you see in the US,” cautions d’Ascendis. “Brands may have three to five flavours, when in the US they may have as many as 20 flavours on the shelf. So it is still primarily a US story.”

For more information on the flavoured vodka category see The Spirits Business‘s April 2015 issue