Germany benefits from boost in premiumisation

In a stagnant spirits market, Germany is discovering a penchant for premium products, leaving international and local brands optimistic.

Germany – the Eurozone’s largest economy – has proven robust

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

For years now the Eurozone has been doing little more than treading water in a desperate effort to keep its economy afloat. Germany – the Eurozone’s largest economy – has proven robust, growing 0.7% in the last quarter of 2014 according to data from the Institute for Economic Research, exceeding analysts’ forecasts and quashing any rumours of a possible recession.

When it comes to spirits volumes, signs indicate the German market will continue its slow, steady decline until at least 2018. Eurmonitor predicts overall spirits volumes will decrease further from 477.8 million litres in 2013 to 460.5m by 2018. However, this is offset by predictions that value sales will increase from €15.18 billion (£11.12bn) in 2013 to €16.04bn (£11.75bn) in 2018. As the figures suggest, consumers are switching from quantity to quality and evidently upping their price tags.

Not only this, but although consumers continue their loyalty to native spirits such as herbal liqueurs and schnapps, ever-increasing numbers of drinkers have shunned local produce and found favour with international brands. “There is still a lot of growth for premium brands and this has been happening for several years now,” says Jean Christophe, regional director for Northern Europe, William Grant and Sons. “Younger consumers, especially now, tend to go for more premium products.”
Bourbon premiumisation
Perhaps no category has felt this more so than Bourbon, whose third largest market is Germany after the US and Australia. “The Jim Beam Family with the flagship Bourbon Jim Beam is Germany’s number one-selling whiskey, with a market share of 15% of total whisky [Nielsen],” says Manfred Jus, managing director Germany and Austria, Beam Germany.

He continues to cite flavoured whiskeys as an “important market driver” highlighting strong performances by Jim Beam Honey, Red Stag and Jim Beam Maple. “As the number of Bourbon drinkers in Germany is already large, there is a big consumer group waiting for premium expressions of their standard whiskeys. This is driving premiumisation of Bourbon,” he adds.

Diageo is also reaping the rewards of the country’s Bourbon boom, especially with its Bulleit brand. “Bulleit is a very big brand in our portfolio,” says Veronika Rost, general manager of Germany and Austria, Diageo. “Consumers and bartenders love Bulleit for being different to other brands, which has led to its success.”

Jägermeister is the leading success story when it comes to international recognition

Rum resurgence
Moving on to rum and the story continues much the same, with both volume and value forecasted to grow according to Euromonitor. Germany remains the largest market for Havana Club after Cuba, which also claims the title of the country’s biggest selling rum and second most imported spirit.

“I think it has done so well because of its Cuban origin, which German consumers find very aspirational,” notes Christian Seel, marketing director, Pernod Ricard Germany. “The fact it is made and bottled in Havana, Cuba, makes it extremely credible and authentic.”

So encouraging was the brand’s success that Pernod released Havana Especial in September 2013 solely for the German sector, which Seel enthuses has been well received. “There was a growing trend for aged products that we wanted to meet with something between three and seven- years-old, with a slightly sweeter taste profile” he adds. “This is a global trend really that is still ongoing and will continue to grow.”

Meanwhile, Diageo’s Captain Morgan is providing a healthy dose of competition having amassed sales of more than 600,000 cases in the country. “We are trying to revive and give energy to some of our brands to make them grow,” explains Rost. “Captain Morgan is one of our biggest success stories.”Pusser’s Rum also delights in a market that has “always performed well” for the brand.

Its success is driven mainly by the on- trade – the brand has a dedicated Pusser’s Bar in Munich – but new expressions such as its overproof Green Label have been launched especially for Germany to cater for demands of cocktail culture and entice a new millennial generation of drinkers. “Rum is just having a resurgence all around the world, and Germany is no exception,” remarks Laura Addis, director of marketing Pusser’s Rum. “There’s certainly a strong thirst for rum in Germany.”

Spearheading native spirits

In a market seemingly dominated by imported brands, where does that leave domestic spirits producers? Native spirits tend to be spearheaded by four traditional beverages including Korn, a standard German spirit of at least 32% abv; Doppelkorn, which must be at least 37.5% abv; Goldbrand, a cut brandy; and Obstbrand, a fruit brandy. All four categories have been in decline over the past few years. Their credibility, particularly among younger consumers, has worn thin and exciting foreign brands are swiftly stealing market share.

“Consumers perceive these as rather old-fashioned and designed to be drunk by older consumer groups,” explains Michael Eichel, director corporate communications for Jägermeister. “In the long-term development we see the share of international spirit brands growing and replacing domestic brands. Most German brands belong to declining categories such as Cognac, herbal liqueurs or brandy. “Regional products are gaining relevance again but we cannot see that the rising demand for local or regional products is compensating for the ongoing shift to international products.”

Jägermeister is probably the best-known German spirits brand and undoubtedly the leading success story when it comes to international recognition. No other German spirit has managed to attain the same level of success outside its homeland in quite the same way. As Jus says: “With the exception of Jägermeister, most brands have not continuously invested into the brand equity in recent years.”

This, he believes, is the reason why the share of local spirits is decreasing.

White rum is pipped to be the next big spirits trend

Craft movement
“Germany is not known for brilliant food and perfect beverages,” laments Rüdiger Behn, managing director of Waldemar Behn, rather honestly. “We are known for our cars and machinery. A spirit product won’t be successful just because it’s made in Germany.” He goes on to talk about how in the past three years the craft movement that has swept the US has been slowly trickling it’s way down to Germany. As a result, he notes a growing demand for international-style spirits such as whisky, gin and rum, but produced on a local level.

“We have seen a lot of new very small craft distilleries creeping up in the last few years creating local, premium products,” he continues. “Germans like them because there’s been hype about organic food products from particular regions, so now people are more open to beverages from a particular region too.”
The next big trend
When asked about what will be the next big spirit trend to grip Germany in the coming year or so, a resounding cry of “white rum” resonates across the board. The category has been stagnant so far, says Rost, but with plans to launch Captain Morgan White Rum in Germany in April, Diageo, along with other producers, has faith in the spirit’s potential. “I would bet that white rum is going to have a revival,” asserts Rost. “It’s very exciting. The brand is very strong and it’s just the right time to see what we can do with it in Germany.”

But ultimately it will be premiumisation that will push the German spirits market forward, and international spirits brands could find themselves at loggerheads with native craft producers as they vye for a greater portion of the premium and super-premium categories.

But although the road to growth looks set to be an arduous journey, the craft movement with its innovation, provenance and authenticity could be just the key to get the German spirits market growing again. Dr Tina Ingwersen-Mathiesen, member of the Borco management board, concludes: “Germans increasingly want high quality for their money. At the end of the day, all brands that offer high quality, comprehensible stories and a high value appearance will benefit.”