Continued growth in the US and the prospect of an increasingly prominent position in the global travel retail sector augur well for premium vodka brands, according to a new report from just-drinks and IWSR.

The news last week that Swedish vodka brand Purity is to expand its operations in the US suggests there is still plenty of growth potential in the US vodka market in spite of the difficult economic conditions, and that optimism is underlined by a recent just-drinks/IWSR report.

In fact, according to the Global Market Review of Vodka – Forecasts to 2015, the US vodka market even managed to maintain growth during the recession, although the super-premium category was hit hard as a result of the contraction in the on-premise market.

The report states that “the biggest cause for optimism” in the vodka sector is the continued growth in the US. Vodka sales in the US grew by 13.9m cases between 2004 and 2009 to reach 58.4m cases, continuing to grow through the recession. Moreover, the report says that “much of this was at premium pricing levels”.

However, the recession did hit the super-premium vodka category in the US and the big question is whether this sector will recover to pre-recessionary levels.

“Super-premium sales in the US were hit hard by the economic slowdown and the contraction of the on-premise market,” the report states. “What is not known is if the super-premium vodkas will regain volumes when the on-premise recovers. IWSR believes it will, although it is likely to be different brands that make the running if the switch from Cognac to premium vodka continues.” So no surprise perhaps that Purity sees this as a good moment to step up its operations stateside.

By late last year, the report continues, there were signs of “an encouraging rebound” in the super-premium sector although prices have yet to recover to pre-recessionary levels.

The continued health of the US vodka market is critical in sustaining the premiumisation trend in the white spirits market, just-drinks and IWSR suggest. “The US remains the paramount market for premium white spirits despite the country’s protracted economic downturn over the past two years,” the report states.

To put the importance of the US market in some perspective, it accounts for as much as 86% of the total super-premium-and-above market, representing a volume in the region of 4.8m cases. The next largest market is Canada with a 3.1% share. Between 2004 and 2009, that part of the market achieved a compound annual growth rate (CAGR) of 12.8%.

The constantly rising demand for premium vodka in the US has prompted some to speculate that the growth will inevitably flatten off. However, as the report points out, so far the market has failed to plateau. “Despite repeated claims, there is little evidence that vodka is showing any signs of imminent decline. Its neutral taste and mixability make it an ideal drink in the current US market.”

Taking the premium-and-above market as a whole, the US is even more significant with total volumes of 15.7m cases, according to IWSR data.

By contrast, European markets are heavily skewed toward the standard-and-below segments, with premium and super-premium vodka representing just 0.25% of total vodka sales in the region.

Nevertheless, both segments have been growing from that small base over the past five years and vodka marketers interviewed in the report appear confident that premium-and-above vodka will eventually extend beyond the US and become a factor in other markets.

The development of the premium vodka categories in the US could also have a positive impact on another important and influential premium arena, namely travel retail. Moreover, in turn growth in travel retail could be a catalyst for the development of premium vodka generally.

As the report explains, the creation of so many premium offerings has transformed how vodka is being viewed in travel retail.

Traditionally, white spirits have had to play second fiddle to brown spirits in travel retail, where Scotch whisky for example outsells vodka by a ratio of more than two to one. But, the report points out, vodka is “certain to play a larger role in the channel in coming years”, and the key is the presence of brands which look the part in the luxury-orientated travel retail market.

“The real limiting factor historically has been the dearth of premium and super-premium offerings compared with brown spirits,” the report states. “Vodka didn’t offer the consumer savings over the domestic market and the retailer sufficient margin. This has changed in recent years with the development of the super-premium vodka segment. Vodka is now more relevant in travel retail.”

Brands such as Grey Goose and Belvédère are equivalent in price to VS or VSOP Cognac which makes them far more viable in travel retail than traditional vodka offerings.

That said the development in travel retail will be dependent on a continued recovery in the travel retail spirits market which has been hit across the board. According to IWSR’s Duty Free/Travel Retail Report 2010, global duty and tax free vodka sales fell by 11.1% to 2.73m cases in 2009, having grown strongly for four consecutive years. Like most other sectors in the travel retail wines and spirits market, the category was hit by the recession-induced downturn in travel and passenger spending in 2009.

However, the report points to a recent recovery in the super-premium vodka segment in travel retail, where Grey Goose, Belvédère and Cîroc have so far led the development.