Are we kidding ourselves over craft spirits? - Comment
This month, Richard Woodard drills down into the perceived threat of craft spirits and finds more than just a load of small-scale brand names to worry about.
I guess it was only a matter of time before the backlash started. From being the darling trend of the 21st Century drinks industry, craft spirits are suddenly being derided as over-hyped and all but irrelevant – from Rabobank reports, to commentary on this very website.
Far from transforming the global spirits industry, the argument runs, they’re likely to fade away faster than absurdly huge facial hair and the latest superfood fad. This argument has merit – but it’s also ignoring the bigger picture.
First, the facts. Something is happening to big spirits brands in the US. More than half of the top 100 posted sales declines in the year to July (according to NABCA data), and marquee names including Smirnoff, Captain Morgan, Bacardi and Absolut are continuing to underperform the market.
Rabobank’s point is that it’s not craft spirits that are eroding the big guys’ market share, but nimble mid-sized companies with ‘disruptive’ brands such as Hendrick’s, The Kraken and New Amsterdam.
My response is that we’re getting too caught up in the terminology. The fact that New Amsterdam is part of E&J Gallo's empire is irrelevant to the target consumer, who perceives a fresh young vodka brand offering a sexy new alternative (and at a competitive price) to the likes of Smirnoff and Absolut.
‘Hand-made’ semantics aside, isn’t Tito’s doing exactly the same thing? Saying that the craft spirits segment is not stealing share in a market the size of the US is self-fulfilling and verging on the tautologous: by their very nature, they’re simply not big enough, and nor are their marketing budgets. Furthermore, their increasing numbers simply create greater fragmentation in the market.
But, this presents very real challenges to major spirit brand owners, as senior executives recognise in the recently-published just-drinks/The IWSR Future Growth Opportunities for Global Spirits 2015 report.
Here’s Pernod Ricard CEO Alex Ricard: “We’re monitoring craft very closely. The question is: Is there a fragmentation of the market in the US? Secondly, is it our responsibility to make sure we engage with the consumers?”
And Conor McQuaid, the same company’s global business development director (sales & marketing): “It’s leadership versus challenger, to a point where it’s almost easier to be a challenger brand, specifically in the zeitgeist at the moment, where the proliferation of craft distilleries is nipping at the consumption base.”
The metaphor of craft resembling an irritating, snappy and yapping terrier getting under foot is an apt one, but it shouldn’t distract us from the broader consumer changes at work here. Particularly in the US.
In the same report, Pennfield Jensen, executive director at the American Craft Distillers Association, points out: “The customer base in the US is such that people want to know what is local and being made regionally, who is making it and what’s in it. The whole aspect of adventure and discovery is part of what’s happening with craft beer and is going on in a big way in the US.”
His second sentence stands out for me. Craft spirits are part of a much larger consumer movement that also encompasses beer and food. If big spirits companies ignore this, they will indeed face a very real threat from craft and other disruptive or iconoclastic brands.
But, they can learn from this too. Sometimes this results, disappointingly, in the lazy adoption of the craft vocabulary with nothing of substance to back it up. How many press releases currently include a tedious tick-boxing exercise of shoehorning into the text the words ‘hand-crafted’, ‘artisanal’, ‘rigorous’ and ‘painstaking’?
Sometimes, the established players take the easy (but expensive) route: buy ‘em out. We’ve seen this in recent months/years with Heaven Hill and Deep Eddy, William Grant & Sons and Hudson/Tuthilltown, and Bacardi and Angel’s Envy and Banks. We’ll see it again and again in the years to come, as well.
And, just sometimes, the bigger guys are inspired by the ‘craft threat’ to try something a little disruptive themselves, and do it well. For instance, Pernod’s Our/Vodka concept, which I’ve praised in this column before.
For me, this is all evidence of a shifting world, where consumer desires and expectations are materially different to what they were a generation ago, and the responses of brand owners have to evolve in line with that. The threat from craft distillers – if we can call it that – is just part of this bigger picture.
And, should it be regarded as a threat anyway? Back to that Rabobank report: “Craft spirits companies are engaging and educating consumers, creating excitement around the category.”
Exactly. These changes may result in Smirnoff and Bacardi dropping a few points of market share, but the overall market gains could dwarf those losses. And, only the most insecure and defensive of brand owners would worry about that.
Future growth opportunities for global spirits
This latest report from just-drinks and The IWSR highlights the essential drivers of future growth for the global spirits industry. Our analysts have considered the opportunities available across the ...read more
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