World Spirits Report 2023: Vodka

As the spirits industry recovers from Covid-19 lockdowns and the effects of Russia’s invasion of Ukraine, we examine the state of the industry around the globe, beginning with vodka.

The global spirits sector is continuing to recover from the pandemic, Russia’s invasion of Ukraine, and the cost-of-living crisis. The decades-long premiumisation trend also ‘significantly weakened’ in the first half of 2023 as consumers tightened their spending, IWSR Drinks Market Analysis noted.

During the first six months of 2023, consumption of premium-and-above spirits went into reverse compared with the same period in 2022, in markets including Brazil, Colombia, and the UK. The IWSR also noted volume declines in premium-plus Cognac and Armagnac, as a result of a double-digit drop in the US, despite Cognac’s recovery in China. However, premiumisation endures in Asia, with high-end baijiu performing well in China, and markets such as India, the Philippines and Thailand recording ‘dynamic growth’ in high-end spirits consumption.

During the financial crash of 2008-09, consumers traded down to value-priced products, but premium-plus offerings proved to be resilient, the IWSR explained. “Despite the overall downturn, there is still evidence of premiumisation in H1 2023, particularly in spirits and beer,” says Emily Neill, chief operating officer research, IWSR.

In terms of the performance of categories, Spiros Malandrakis, head of research – alcoholic drinks, Euromonitor International, says Tequila will “most likely continue to lead the race even when faced with headwinds”. Spirit-based ready-to-drink (RTD) products “have potential for massive momentum”, Malandrakis says.

The RTD category is also booming, with its value estimated to reach US$40 billion by 2027 across 10 key markets. Spirits-based RTDs are leading the category’s growth, and the US and Japan will remain the sector’s leading markets.

Meanwhile, gin, which has struggled in the UK, has the potential to grow in Europe and emerging markets, he adds. “Whisky is growing in emerging markets and doing well in India.” However, Malandrakis notes a “bleak outlook” for Cognac because of economic pressures.

“The alcohol industry is under immense pressure,” he warns, adding that the on-trade is “missing significant volumes” and is behind pre-pandemic levels, as drinkers have less disposable income and are switching to home consumption. He expects the gap between the on- and off-trade to widen, with the latter growing. Data from the IWSR noted that the global on-trade accounted for 29% of total beverage alcohol volumes in 2022, down from 35% in 2019.

Looking forward, super-premium-plus agave spirits volumes are poised to grow roughly twice as fast as whisky between 2022 and 2027 in the US, the IWSR noted, meaning the subcategory will have increased fivefold in a decade.

Vodka

Vodka remains the leading spirit in sales and volume in the US, according to data from the Distilled Spirits Council of the US. The vodka category in the US generated US$7.2 billion in revenue in 2022, down by 0.3% year on year, while its volume fell by 1.5% to 76.9 million nine-litre cases.

Despite the decline in the US, the category globally is estimated to be worth US$40.25bn by 2030, according to a report by Research and Markets. The report predicts a compound annual growth rate (CAGR) of 5.6% for the forecast period. The IWSR said the premium-and-above segment has seen more positive growth, expanding in volume consumption by 6% in 2022, with an expected CAGR of 3% in volume from 2022 to 2027.

“The category is now normalising following the Covid-induced supply chain challenges and sales channel shifts, in line with the total spirits category,” says Debasree Dasgupta, vice-president of marketing, at Absolut. “On-premise and travel retail sales, which were impacted by the lockdown restrictions, are on a rebound, and in the vicinity of pre-Covid levels. So, while the category is stabilising in the supply and channel side, we are still navigating the rather dynamic and inflationary environment.”

Spiros Malandrakis, Euromonitor International’s head of research – alcoholic drinks, believes ready-to-drink products could “reopen the gateway for vodka to come back” and “provide momentum” for the category. Vodka is the most popular base for RTD cocktails in the US [CGA data], with brands including Absolut, Grey Goose and Ketel One bringing out line extensions. As for trends in 2024, Dasgupta highlights nostalgia as driving the resurgence of vodka in classic cocktails. “The Espresso Martini is taking the world by storm, the Cosmo is on trend as a bar favourite and is back in all shapes and forms. Martinis and Bloody Mary have always been crowd-pleasers,” she adds.

Brands to watch in 2024

Meili Vodka

Co-founded by actor Jason Momoa, Meili became a new entrant to the vodka category in January 2023. The sipping-vodka brand has already expanded to New Zealand and Jamaica, and is set to launch nationwide in its home market, the US, next year. Launches are also planned for the UK, France and Germany in due course.

Three Olives Vodka

The major vodka brand has sat under the radar for a number of years, but a recent redesign and new recipes for the range could mean a renewed push in the US by brand owner Proximo Spirits. With a lower ABV of 30%, and a move to zero sugar, the 12-strong portfolio could attract a generation of mindful drinkers.

Finlandia

With Coca-Cola HBC as its new owner following its sale by Brown-Forman, the brand could benefit from a wider distribution footprint outside of its core European markets, as well as the company’s focus on mixability opportunities and the on-trade. Co-branded products in the RTD space could be on the cards.