Flavour fatigue appears to have hit in the US on-trade

Flavour fatigue appears to have hit in the US on-trade

Flavoured vodka may have hit a bump in the US, but there's a major opportunity in global markets for the sub-category, argues Richard Woodard. 

They’re calling it “flavour fatigue”. The days when American consumers would swallow (literally) every last blue sky thought from the guys in vodka NPD are, it seems, numbered.

US on-trade sales of flavoured vodka slumped by 11.7% in the third quarter of 2013, according to figures from Restaurant Sciences; the torrent of flavour launches of the past few years has eased to a steady trickle, and flavour pioneer Stolichnaya is to weed out the under-performers in its 17-strong line-up.

It was fun while it lasted.

Cupcake frosting? Glazed doughnut? Bubble gum? Menthol tobacco? Even, in one post-modern moment of (perhaps rather flawed) genius, rum-flavoured vodka? How we all laughed – in the case of the brand owners, all the way to the bank.

But if boom really is turning to bust, should we be surprised? We may not have been able to see lavender lemonade vodka coming, but the essentially ephemeral appeal of vodka infused with such delights as rootbeer and bacon should hardly come as a shock.

It’s stating the obvious to say that flavoured vodka is big business in the US. It accounts for more than one-fifth of the overall vodka market, and its value share far outstrips that. The segment has scale, and it has margin.

What’s more, the barriers to entry are relatively low. And you don’t need to age it, like whisk(e)y. 

But, in the super-saturated marketplace that this lack of regulation creates, you have to make a lot of noise to stand out. Hence the wacky wave of vodkas flavoured with dill pickle, popcorn and cookie dough.

These are novelty products, whose best hope is to carve out a lucrative temporary niche before bowing to the inevitable and withdrawing from the market – or moving onto another improbable combination of ethyl alcohol and commercial flavourings.

But if consumers are growing increasingly unsure of the appeal of cake- or double espresso-flavoured vodka, the same can’t be said of the flavoured spirits market in general.

Products such as Jack Daniel’s Tennessee Honey are still enjoying double-digit growth nearly three years after launch and, while Brown-Forman CEO Paul Varga has no hard data on the subject, he’s hearing anecdotally that part of that growth has come from migrating vodka drinkers.

While the flavoured vodka market is phenomenally fragmented – there are reckoned to be more than 600 variants in the US on-trade – the same can’t be said for the flavoured brown spirits segment, for all the bandwagon-jumping of the past few years.

What’s more, the brands making inroads here – Jack Daniel’s, Jim Beam, Wild Turkey, Bushmills – have way more history and provenance than the majority of the vodkas out there. Palate-friendly flavours and heritage all in one glass: if you’re a modern consumer, what’s not to like?

So, where does flavoured vodka go from here? The number of new launches is already diminishing, and a “one in, one out” trend is developing: some companies admit they can only get listings for new variants by removing one of their under-performing products at the same time.

I can think of two possible responses – and both favour big brands with money to invest and heritage to call upon.

First: raid the history books. Vodka’s early years were full of flavour, not least because the distillation techniques of a few centuries ago were rather hit-and-miss, and the judicious addition of a few berries or herbs would help to disguise those off flavours.

Some of these products persist to this day, usually produced in Polish polmoses or obscure Russian distilleries for local or ex-pat consumption. But they could easily be reproduced by established brands.

And if the likes of Smirnoff or Stolichnaya can tap into their own heritage to find proprietary flavour recipes, that could provide brand owners with an interesting new story with which to reinvigorate consumer interest.

Second: go global. Flavoured vodka in the US is mature now, but it’s hugely under-developed in other key markets. Only in the past few years has Diageo given Smirnoff flavours a concerted push in the UK, where until recently the segment accounted for scarcely more than GBP100m in annual revenues.

The US is responsible for 60% of global flavoured vodka consumption, according to 2012 IWSR figures. While three out of the top five global markets for flavours are the traditional (but either mature or declining) vodka heartlands of Poland, Russia and Ukraine (the fifth is India).

The rest of the world accounts for just 13.5% of flavoured vodka volumes, although the core category is well-established in markets from Western Europe to Australia. In other words, the opportunities for flavoured vodka outside the US are huge.

Huge, however, for products with established brand equity, money to invest and the necessary local routes to market. Smaller players may never have that opportunity, or will have to wait some time yet for these markets to mature and diversify in their flavour palettes.

But, for the moment, the appeal of vodka flavoured with peanut butter and raspberry jelly/jam may be somewhat limited, even in the until recently highly excitable US market.

And those blue sky thinkers in NPD may just need to find a new drawing board altogether.

Expert analysis

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