Cocktail demand fends off ‘inevitable’ gin fallout

Global cocktail culture is continuing to drive gin sales onwards and upwards, so just when will the industry see its anticipated ‘fallout’?

The popularity of classic and bitter cocktails has bolstered the recent success of gin

*This article was initially published in the February 2015 issue of The Spirits Business magazine

Bitter has long been tipped as the hip new flavour to dominate mature cocktail markets over the next few years. We’ve already seen the rise of the Negroni, the G&T, and the Aperol Spritz, which are now giving way to a wave of signature drinks from top-end bartenders as they experiment with the sheer number of gins and vermouths at their mercy. It’s no surprise then that this flavour trend is giving a serious boost to gin sales in developed markets.

If you remove the Philippines from the picture, then gin sales grew by 2.2% in 2013, according to figures from the IWSR. Once typified as the uncool drink of a past generation, a myriad of new product launches and start-up distilleries are evidently enticing new drinkers to the category. The US has asserted itself as the largest gin guzzling market, shifting 93.5m nine-litre cases in 2013, followed by Spain at 36.8m, which is said to boast in excess of 250 gins nowadays. The two markets are widely different, with Americans exhibiting a preference for gin cocktails while the Spanish have made their feelings for exotic G&T twists very clear.

But even though the sector seems positively fit to burst, there are still more distillers keen to catch a piece of the action before the widely predicted and “inevitable” fallout ensues.

Bitter success

As with any spirits category, success is something of a cyclical occurrence. One need only look at the recent rise and demise of Scotch whisky, or the flavour phenomenon of vodka, to know that a gin fallout is on its way.

“I thought it would have happened already,” admits James Hayman, managing director of Hayman’s Gin. “I am surprised there are still new distilleries being opened up in the UK and around the world. There are a lot of people still trying to join the party, but of course it’s going to happen. History shows it will happen.”

It’s a trajectory supported by Alex Nicol, founder of Spencerfield Spirits, producer of Edinburgh Gin, who swears blind that gin brands will disappear from the market all together once the segment’s growth comes to a halt. Those with provenance and heritage, he says, will be the ones to stick around. “People are joining the gin market who have no collateral,” he says. “There is nothing wrong with going to an independent distiller and creating, say, 500 cases of gin, slapping a name on the bottle and flogging it. If that works, it’s great and expands the category.

“But unless they have got a franchise or USP in the category those will be the first to go. It’ll be a fight for shelf space and the guys with no provenance will be the first to have it taken away from them. At the end of the day, it will be the consumers choosing who will stay, and who will go.”

In addition, he claims several brands will fall away of their own accord as current producers of gin are merely using the category as a “stop gap” until their whisky stocks are good to go.

Brands such as Greenall’s Gin have continued to innovate in the saturated industry

Growth continues

Yet among the many whispers throughout the industry of an impending fall from grace, gin is showing resilient stance against being toppled from its pedestal any time soon. Euromonitor forecasts global volumes (including Philippines) will have grown from 244m cases in 2013 to 251.6m in 2018.

“I think there’s still a lot of growth to be had within gin,” enthuses Johnny Neill, founder of Whitley Neill gin. “I can see gin growing globally and producers adding to the trend. I don’t see it falling off in the next couple of years.”

One factor credited for driving up gin sales is premiumisation of the category. Premium and super-premium products are performing well in both developed and emerging markets, according to Charlie Downing, head of gin for Diageo whose portfolio includes Tanqueray and Gordon’s Gin. Team this with innovation and the category can only soar further, he believes. “The growing trends we’re seeing across the spirits industry for premiumisation of course are applicable to gin as well,” he explains. “People today have better drinking experiences, even from the humble G&T. Plus, as long as distillers continue to respect the craft of the category, then I am all for craft distillers pushing innovation and continuing to tinker.” As if to prove the point, Diageo reported sales for Tanqueray Ten shot up by “double-digits” in nearly every region during the first half of 2014.

Sector innovation

With such a vast array of styles sitting beneath the gin umbrella from traditional London Dry gins and Old Toms, to those toying with rare and unusual botanicals and even barrel-aged expressions (let’s call them ‘contemporary’), it has never been more important for brands to differentiate themselves from the masses.

One brand endeavouring to do just that is Greenall’s Gin, which launched two new flavoured expressions towards the end of last year – the first from the brand in more than 250 years. Greenall’s Sloe Gin and Wild Berry variants were described as “the biggest innovations” in the brand’s history, which dates back to 1761.

Lizzy Johnson, international marketing director of Quintessential Brands, owners of Greenall’s Gin, says: “We wanted to play with flavours looking at English botanicals while ensuring we kept the unmistakable taste of Greenall’s,” she divulges. “It was the right opportunity to release the new flavours and we were happy we were giving our consumers more choice.”

The scope of styles on offer across all brands should, hypothetically speaking, be cause for more consumers to stick to gin rather than search for alternative spirits to satisfy their palates. But while the majority agree experimentation is an exciting and positive addition to the category – provided the gin is still juniper-forward, of course – looking ahead, producers predict gin drinkers will want to revert to the more traditional styles and flavours. “People drinking gin will come back to the more timeless classics,” says Downing.

Producers such as Whitley Neill are confident the predicted fallout will not happen for at least two more years

Expansion plans

Over the next 12 months, distillers are eyeing up potential new markets spanning from Australia and New Zealand, to European countries such as France and Germany, South America and Africa, in an effort to capitalise on the category hype while it lasts. “We might be surprised by the growth of premium and super-premium gins in some European countries with strong industry influencers,” notes Ibolya Bakos-Tonner, global brand manager of Caorunn Gin.

Though when it comes to Asia – which is renowned for its love affair with aspirational dark spirits such as Scotch and Cognac – it seems a slow and steady race will ensue to convert a new generation of drinkers to the bitter flavours of a complex spirit like gin. While the multitude of gin brands that have already launched in Asian markets, such as Hong Kong and Japan, have largely noted little to no movement in these regions, D1 gin is nothing but excited about the area.

“There is far less proliferation of gins in Asian markets,” says Dominic Limbrey, managing director of D1 Gin. “Asia is getting to a point now where there are a lot of high quality cocktail bars and hotel bars. The consumer demand for these types of venues is really growing, and the bartenders working these establishments are discovering new spirits like gin. Through them, consumers are able to sample some really lovely gin-based drinks and develop their taste for the category.” For D1, China will be a strong focus in the coming year. But overall, it does not seem likely that Asian consumers will be splashing the cash on a white spirit in the near future.

Barriers to growth

In India, the age-long debacle surrounding spirits taxes has once again posed a problem. The country has a staggering 150% import tariff on spirits, as well as additional state tariffs and taxes. As such, spirits producers, including those of gin, have struggled to find a viable way into the market. Spencerfield Spirits’ Nicol says: “India might do well if we can reduce the tax barriers there; that’d be really interesting. It’d be great news for everyone – especially gin. If we can crack that, then we’re really talking.

“India is already familiar with white spirits; producers won’t have to introduce new ways of drinking. They already know about G&Ts, it’s just the quality isn’t there.”

The British gin market is also burdened by high taxes, which according to research by the Craft Gin Club account for 61% of the cost of a bottle of gin. For small independent distillers – which for gin there are many – this has a huge knock-on effect. “In the UK there is a duty reduction for craft brewers, but not distillers,” says Nicol. “If the government wants more people to do better in business and encourage us to grow, then stop taxing us so much.”

While distillers will of course have differing views on where the next big gin break is going to hit, one thing is certain for the coming year – more gin producers entering the market. But as long as Spain continues to favour G&Ts and consumer interest in developed cocktail markets such as the US and UK do not waver, the gin boom will live on. As Caorunn’s Bakos-Tonner concludes: “As in everything else it will be survival of the fittest. Those doing things properly, whatever the liquid is, will hopefully reap

the rewards of their passion and dedication and will increase the size of the gin category overall.”