Eastern Europe: ‘Potential for premium spirits is huge’
Eastern Europe is a budding spirits market, with a growing penchant for premium expressions. While local brands hold sway in some countries, there is room for international marques to make their presence felt.
*This feature was originally published in the April 2018 issue of The Spirits Business
Next year marks the 30th anniversary of the collapse of the Berlin Wall and the unravelling of the Eastern Bloc. For Richard Hayes, group sales and marketing director at Stock Spirits, that signifies “a whole generation or two who don’t see themselves as shaking off the shackles of some grim regime”.
Despite its turbulent history, Eastern Europe offers a dynamic and progressive environment for distillers. “The potential for premium spirits with quality and provenance is huge,” says Miguel Ángel Soto, Edrington’s director for emerging Europe. “There’s huge interest among consumers in discovering different categories and brands than those that have been available in the past.”
The evolutionary theory of emerging markets states that consumers progress from local spirits to international ones in line with increased spending power. “At a topline level that comment is fair,” says Hayes. “It’s true that the fastestgrowing category in Poland is whisky, which is growing at about 14% a year, while traditional vodka is up by 1.2%.” Yet he says ‘clear vodka’ still accounts for 70% of the entire Polish spirits market, and that “premium vodka is on fire”.
With a population of 38 million, Poland is easily the biggest market in the region, discounting Russia, and that number may swell after Brexit. With all the uncertainty in Britain, commentators have wondered how many of the 911,000 Polish-born UK residents will return to Poland, which, in a report last July, The New York Times speculated could be the ‘next economic powerhouse’. Poland’s economy has enjoyed average annual growth of 4% since 1991, and was even growing during the financial crash.
Mark Thorne, director of marketing at Wyborowa Pernod Ricard Central Europe including Chivas Brothers brands, calls it “a fantastic spirits market, dominated by vodka of course, but with a great openness to trying new products”. He says growth in Poland has been “phenomenal”, and highlights Scotch as the “first major category that has been evolving rapidly”. Chivas Brothers-owned Ballantine’s Finest is the category leader in whisky, with a 17.6% share of the Polish off trade, according to Nielsen, with Johnnie Walker and Grant’s in hot pursuit
ADVANCED RETAIL SECTOR
Of course, there’s more to whisky than Scotch, and in equal fourth place are Jim Beam and Jack Daniel’s, followed, at some distance, by Bushmills and Tullamore Dew. As for Jameson, which boasts a mighty 6570% share of all Irish whiskey, there is some catching up to do. “Poland has a very advanced retail sector. It plays a role for us, but it is still small,” concedes Simon Fay, international marketing director at brand owner Irish Distillers. “There’s always a challenge with value that needs to be offset with volume, and because it’s so driven by the off-trade, finding that balance with margin makes Poland a little bit of a difficult market.” Jameson lies in 10th place among whiskies in the off-trade, but grew by 49% last year according to Nielsen.
Irish whiskey benefits from a big Polish community in Ireland, estimated at 150,000, while the country’s unofficial carrier – Ryanair – ferries thousands of Poles back and forth between Ireland, the UK and Poland, increasing their exposure to international spirits. Yet plenty have remained loyal to homegrown vodka, especially the premium stuff. “There’s definitely a high end and it’s not the preserve of multinational drinks operators,” says Hayes – a comment that resonates with Robert Zajaczkowski, global brand manager for U’Luvka vodka. He explains how the brand ignored its domestic market to focus entirely on exports until 2015, when it started to “carve out a beautiful presence in the vodka market in Poland”, becoming the “leader in the super-premium sector” today.
In Poland, he feels premium plus brands should be built first in the off-trade before entering the bar scene, which is enjoying a real cocktail boom, especially in Warsaw. In the country’s competitive vodka market, “even ‘top premium’ is growing double digits”, says Hayes, whose Amundsen brand competes with Finlandia at 35PLN-40PLN (US$10.14-£11.59), priced well above mainstream vodkas such as Żubrówka at 20PLN. In flavoured vodka, which he describes as “a unisex alternative to clear vodka”, there is also decent growth – more than 7% last year.
Heading south, Ryanair brings its packed planes to the Czech Republic, whose capital, Prague, received 6m foreign visitors in 2016, and not all of them on stag parties. This huge influx of people to a country with a population of 10.6m has doubtless boosted international brands, with tourists seeking familiar names. Rum fans won’t be disappointed, this being the country’s favourite spirit, with off-trade volumes at 1.57m cases last year compared with vodka on 1.21m. Much of it is the local ersatz rum called Tuzemák, distilled from sugar beet, and a quarter the price of a brand like Havana Club whose international marketing director, Nick Blacknell, sees no real crossover between the two categories.
“The Czech Republic has been a long, stable area of growth for us,” says Blacknell. “[Havana Club] was imported during the Communist era, so it has always been a well-known brand.” In the off-trade it has been eclipsed by Captain Morgan, distributed here, like all of Diageo’s brands and those owned by Beam Suntory, by Stock Spirits, the leading spirits business in the country. Richard Hayes is puzzled by the Czech fondness for rum, this being a landlocked country with no tradition of naval rum, but says the category grew 7.5% last year. He says Czechs enjoy a range of rums, both local and international, if they can afford them. And for those who can’t, Stock has just launched Republica, a mid-priced cane rum, under its Božkov label. Stock also dominates the country’s sizeable herbal bitters market with Fernet Stock and its new smartly packaged Black Fox brand, which could be the next Jägermeister in the region.
“The Czech Republic is the most successful market for us of the Eastern European countries,” says Ruslan Grigoryev, Ladoga’s export director, referring to the group’s Czech subsidiary, Fruko Schulz. “The sales here are actively developing, not only for the Tsarskaya and Imperial Collection vodkas, but also for Roullet Cognac and Barrister Gin.”
When it comes to gin, Pernod’s Mark Thorne sees clear potential for Beefeater, despite gin being a tiny category in Eastern Europe and one largely dominated by local products. That said, he recently stumbled on a dedicated gin bar in Poland – it may have been small, and possibly the only one in the country, but its presence is telling.
Whisky remains the big opportunity, however, with firms such as Chivas Brothers seeking to replicate its success in Poland in other markets. Curiously, in the Czech Republic, the Irish got there first with Tullamore Dew, which is way ahead of its nearest rivals – Jack Daniel’s Tennessee Whiskey and Grant’s blended Scotch. Close behind them is Jameson, which has been reaching out to Czech beer drinkers with its new IPA and stout-finished Caskmates series, and is about to benefit from the brand’s global ‘Taste, That’s Why’ campaign.
Throughout Eastern Europe, Thorne suspects there may be some confusion between different types of whisk(e)y. As he puts it: “The interest is phenomenal, the knowledge… we’re working on it.”
Edrington’s Miguel Ángel Soto is likewise impressed by consumers’ thirst for discovery. He says: “Whisky festivals, for example, were rare a decade ago, but today they are frequent and vibrant, and attracting consumers of both sexes. Bar shows, food fairs and a developing premium on-trade sector all present opportunities to reach consumers and establish a dialogue and a relationship with them.”
Since Eastern Europe contains dark markets such as Poland, where alcohol advertising is banned or heavily restricted, mass education is difficult. “A consumer here has less access to information, so they need to have some curiosity – it becomes a dialogue versus a true marketing push towards consumers,” says Thorne.
This means sales teams and brand ambassadors get through a lot of shoe leather, but he reckons this one-to-one approach suits Scotch, especially when it comes to premium blends and single malts. Thorne predicts markets will grow darker and taxes will rise, though not too dramatically, hitting price-sensitive local spirits a lot harder than international brands.
LATVIA LOVES SCOTCH
In the Baltics, a tax hike in Estonia has boosted business in neighbouring Latvia, reports Grigoryev. Meanwhile, figures from the Scotch Whisky Association (SWA) show Scotch shipments to Latvia are even higher than Poland (see table above). Then again, the SWA reckons a significant percentage of these imports are probably reexported to Russia, whose conflict with Ukraine has hampered a promising market for international spirits.
But Simon Fay believes Ukraine is starting to bounce back, though for now he is more excited about Kazakhstan, whose favoured beverage is Kumis, made from fermented mare’s milk and with a taste said to lie somewhere between yoghurt and stomach bile. If he can give Kazakhs a taste for Jameson, they may be grateful.