RESEARCH - Vodka market set for ultra-premium boost

The constant growth that has made the vodka category one of the most vibrant and exciting sectors of the drinks industry for a number of years stems in no small part from the development of the premium and ultra-premium categories by trendy, upscale brands such as Absolut, Grey Goose and Belvedere.

But a new report from just-drinks suggests there is another growth engine revving up in the vodka market - namely the ultra-premium category - which could be set to have a significant impact on this key spirits sector going forward.

According to the just-drinks Global Market Review of Vodka - Forecasts to 2013, the vodka market could be set to follow a trend already seen in the Tequila category. "The (vodka) category may now be poised for its next evolutionary step," the report states. "The dramatic success of the Tequila brand Patron at the ultra-premium price of US$45 and higher indicates to some marketers that there may be a potentially significant market for ultra-premium vodka.

Given that both rum and Tequila, along with other smaller white spirits categories, have looked to follow marketing examples set by the vodka sector, it is interesting to note that Tequila is seen as being in the vanguard in this area.

"Given the success of Patron it indicates that there is not only a market at that level, but a market with volume,"  Imperial Brands president Chester Brandes is quoted as saying in the report. "It is one thing to say that you are US$50 a bottle and sell 500 bottles, but it is another thing to turn it into 250,000 or 500,000. A vodka brand is going to crack that at some stage."

The growth of the market and the increasing sophistication behind marketing strategies and consumer profiling in the sector have resulted in the firm establishment of three distinct premium categories. Super-premium vodka brands sell for more than US$19.99, while premium vodkas sell for above $12. These are the fastest growing segments in the market globally, with super-premium rising by 39% in 2006 and the premium bracket by 17%, according to the just-drinks report. Combined, the premium-and-above segments had global sales of 20.3m cases in 2006, up from 15.7m cases in 2005.

As Diageo's recent purchase of Ketel One and the ongoing auction for Absolut only serve to confirm, there is plenty of growth potential left in the premium and super-premium categories but clearly the major brandowners see potential to build meaningful sales in even higher price niches.

Stolichnaya tested the water in 2006 with the launch of Stolichnaya Elit which retails at around US$80 depending on individual state US state taxes. Stolichnaya Brand Organisation president Ian Jamieson says: "Elit is now the very top end of the vodka category. It is aimed at the top-quality on-trade outlets which specialise in bottle service. It is all about getting in the right places." 

Pernod Ricard states that it doubled the sales of Elit in 2007 to 10,000 cases. "We are not talking about hundreds of thousands of cases, but the potential is there," says managing director Pierre Pringuet. "These volumes are being achieved through selective distribution in key on-trade outlets."

Meanwhile, there is also potential to establish and build the premium and super-premium categories in less developed vodka markets. "As the interest for vodka grows in Asia and Latin/South America markets there is an opportunity for the emergence of a new premium tier given the penchant of consumers in these regions for premium purchasing," the report suggests.

But the degree to which sizeable premium and super-premium categories can be developed in other markets remains the key question facing vodka marketers according to the report. The US currently accounts for 61% of global premium-and-above vodka sales, while Russia accounts for a further 28%. Canada with a 2.2% share, and travel retail 1.8% - the third and fourth-largest markets - trail by a large distance.

To expect the US model to be replicated elsewhere is arguably too much to hope for as the US is seen as something of a one-off. But if premium and super-premium niches can be steadily fostered both in other mature vodka markets, as well as in emerging white spirits markets, the implications for the category and the major brands would be extremely positive. However, at present, outside of the US and Russia, high-end vodkas remain a relatively small niche.

For more information or to download the just-drinks Global Market Review of Vodka - Forecasts to 2013, which includes extensive reports on all the major vodka markets worldwide, the forces driving change and key market trends, along with comments from prominent executives in the sector, go to http://www.just-drinks.com/store/product.aspx?ID=58609