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Is vodka in a losing battle against flavoured whiskey?

If headlines are to be believed, flavoured vodka has had its obituary prepared for some time – but producers are reluctant to perform their swan song, despite challenges posed by brown spirits.

Flavoured-vodka
As flavoured whiskey grows, analysts have claimed the category is swiping marketshare from flavoured vodka

Over the past two years, the demise of flavoured vodka has been one of the most widely reported trends in the spirits industry, particularly as the segment’s challenges become more complex with the success of its rival brown counterparts. In particular, the tastes of cinnamon, honey and fruit have firmly situated themselves in the American whiskey category, which analysts warn may now be stealing market share from flavoured vodka in the US – where about two-thirds of all flavoured vodka is consumed.

According to a recent Rabobank report, flavoured American whiskey was the “hottest growth segment in the US spirits market” last year, generating more than half of the total volume growth for the industry. Meanwhile, imported flavoured vodka struggled against not only the rapidly evolving popularity of these brands, but also competition with domestic vodka labels and intense pricing pressure.

Cross-category battle

NABCA figures cited by Rabobank show that imported flavoured vodka volumes dropped 5.2% in the year, domestic flavoured vodka grew 3%, while flavoured whiskey soared by a massive 43%.

Beam Suntory – which jumped on the cinnamon bandwagon last year with the launch of Jim Beam Kentucky Fire – said its flavoured Jim Beam expressions accounted for 29% of the brand’s total growth in 2014. Vanessa Jenkins, senior director of Bourbon at the group, believes the category’s popularity shows no sign of slowing down.

“The flavoured whiskey segment continues to grow as consumer demand increases for a variety of unique flavour expressions,” she says. “We are making strategic investments across our portfolio to help drive continued growth and momentum for our flavoured products as well as our premium expressions, newest innovations and established brands.”

Svedka-Mango-Strawberry-Lemonade
Flavoured vodka producers needs to created more targeted launches, according to a Svedka vodka executive

Market widened

However, Jenkins adds that instead of stealing vodka’s flavour fans, the rise of flavoured whiskey has “widened the overall market”, allowing all categories to reap its rewards. This thought is echoed by her Beam Suntory colleague, Jason Dolenga, senior director of US vodka. “We see the flavoured variants of vodka, rum and whiskey complementing one another and providing different tasting profiles that appeal to our consumers’ palates,” he claims. “There is clearly a strong demand among consumers for flavoured spirits across the industry, and we fully expect to see the market continue to expand and grow in 2015 and beyond.”

Flavours now account for 12% of the total American whiskey market (Discus) – up from 2% in 2010. However, prevalence of flavoured vodka is undeniable, with 13m cases sold in the US in 2014.

‘Consumers won’t tire’

Diana Pawlik, vice president of marketing for Constellation Brands-owned Svedka Vodka, says that while the flavoured vodka market is slowing, targeted launches will continue to generate consumer interest. “Consumers won’t tire of flavours so long as they continue to be innovative, flavourful and reflective of consumer demand,” she said. “With so many flavours crowding the market, it is imperative that we continue to create unique, yet familiar, product offerings.”

The “flavour fatigue” phenomenon – think bacon, salmon and “electricity” – has been widely reported. However, many brands claim that we can now see a cyclical shift in the sector, with brands returning to more traditional flavours. While Svedka added a Peach variant to its flavoured portfolio last year, Pinnacle’s fruit flavoured vodkas are growing at “double-digit” rates.

“We can clearly see that the flavoured vodka market has decreased because it has been inundated with all sorts of strange flavours, which I think consumers are fed up with,” believes Johan Jeansson, CEO of Swedish vodka brand Znaps. “But I can also see that classic fruit flavours are getting stronger and stronger. People are going back to basics.”

Znaps
The CEO of Znaps vodka believes consumer interest in “classic” vodka flavours remains

Classic comeback

Znaps produces a range of vodkas that feature two fruits, such as the mango and ginger-flavoured Somerset Medley. “But these are still basic flavours,” claims Jeansson. “We try to use flavours consumers come across all the time here in Sweden, as these are identifiable.” This points to another emerging trend in the vodka market: provenance, a term traditionally associated with brown spirits.

A number of commentators have therefore claimed the malleability of both categories shows that flavoured vodka is not necessarily fighting a losing battle against whiskey – both are simply at different stages in their respective trend cycles.

Justin Smyth, global brand ambassador for Diageo’s Ketel One, says: “Flavour trends outside the vodka category have been underdeveloped. Categories like American whiskey and rum have been catching up very fast with very strong growth rates in the flavour variants. However we cannot determine if these will continue at pace or if they will slow down due to flavour fatigue.”

Emerging market potential

While flavoured vodka has suffered severe declines in its most important market, the US, the sector is still in relative infancy in the emerging markets. Here, consumers appear more open to experiment due to their limited exposure. Furthermore, the category seems to have learned from the success of flavoured whiskey, with brands such as Absolut moving into popular honey variants.

Spiros Malandrakis, senior alcoholic drinks analyst at Euromonitor International, however, claims flavoured whiskey can learn some valuable lessons from the challenges vodka has faced in the US. “Vodka has proven to be a cautionary tale for whiskey,” he states. “Too many flavoured vodkas become detached from their original expressions, but there should be a narrative to follow. With flavoured whiskey, the variants appear to be more relevant to the category.”

Hindsight is, of course, a wonderful thing, and whiskey can indeed learn from the perceived shortcomings of vodka – but the longevity of its flavoured offerings is far from certain.

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