Flavoured vodkas have been a major success story in the US where they have prospered on the back of strong sector growth and premiumisation. With European markets also showing consistent growth and some trading up, Parita Chitakasem, of industry analysts Euromonitor International, assesses the future for premium flavoured vodkas in Europe.

Vodka has enjoyed solid year-on-year growth of over 4% since 1997, with most markets, led by the UK and Germany, showing consistent growth. On the back of a robust and growing market, vodka marketers are now assessing the further potential for full-strength flavoured vodkas which have performed well in the US in similar market conditions.

However, since Absolut launched Absolut Citron back in 1988, full-strength flavoured vodkas have been slower to take off in Europe. But European markets are being encouraged by the shift towards premiumisation, a key catalyst in flavoured vodka growth in the US. There, phenomenal growth in super-premium brands such as Grey Goose was further spurred on by the introduction of new flavoured line extensions.

Having seen premiumisation across other spirits sectors in Europe, 2004 also witnessed the penetration of premium and super-premium vodkas in Europe, albeit to a still small degree. Spirits market leader, Diageo, released Smirnoff Penka through UK "style bars" from mid-2004, while US success story Grey Goose is now available in the UK, not only in upper-end bars and clubs but also in the off-trade channel.

Campari's premium-positioned vodka brand Skyy, one of the first brands to capture the high-end market in the US, has already established niche demand in some Western European markets including Italy, Germany and the UK.

With Bacardi's acquisition of Grey Goose and Allied Domecq's ownership of the international rights to Stolichnaya, major spirits groups clearly see opportunities for premium/super-premium vodka in Europe. It seems that spirits groups are pushing for a similar cycle to that seen in the US, with flavours following on from the establishment of premium vodka.

"The Western European market is some way behind the US market in terms of flavoured vodka, and consumers still lack the knowledge of how to mix and use them," said a representative of Maxxium Deutschland, Absolut distributor in Germany. "But further usage education is one key success factor for future growth."

However several obstacles remain. In several markets, particularly Germany, Italy, and Austria, the main barrier is the presence of a well established "low-strength" vodka sector, including prominent brands such as Bacardi's Eristoff, Diageo's Ursus Roter and Eckes' Keglevich, available in a wide range of flavours.

Although not technically vodkas, as their alcohol content is lower than the 37.5% abv, they are often used in drinks mixed with vodka, including the leading bar call, "vodka and red bull".
So "flavours" are far from a new or innovative phenomenon, but brands such as Absolut and Smirnoff cannot hope to establish a presence if they rely on the "flavoured novelty" trend, one of the main factors which captured consumer interest in the US.

Another challenge to premium flavoured growth is the dominance of discounter chains and economy brands, including private label, particularly in the UK, Germany and France, where private label commanded 28%, 26% and 10% of total vodka volumes respectively in 2004.

Therefore very few players have launched flavoured variants in Europe so far. The general consensus amongst industry players is to take the "wait and see" approach and observe how existing brands such as Absolut and Smirnoff fare.

Euromonitor predicts that Western Europe will not witness the kind of growth in flavours seen in the US, with sales peaking far earlier, owing to a far less established cocktail culture which formed a springboard for flavours in the US.

Furthermore, unlike in the US, where vodka remains the nation's most popular spirit, Western European markets have many other spirits, including gin in the UK, bitters in Germany, Italy and Austria, and dark rum in Spain, which will continue to compete directly with vodka and flavours.

The success of flavoured vodka in each market will ultimately depend on the outlook for premium vodka and its potential success over the next year or two. Countries where there is a developing cocktail culture concentrated in the cities, including the UK and France, offer more potential over the next year or two.

On the hand, growth in "vodka belt" countries will continue to be dampened by maturity, and the ongoing trend to opt for cheaper brands, particularly in Sweden and Norway, will make it highly unlikely that fashion-orientated premium spirits will enjoy strong growth in the short term. Nevertheless, with countries such as Estonia having joined the EU, and an expected increase in cross-border trading in alcoholic drinks putting pressure on alcohol taxes in Norway and Sweden, the outlook for premium and flavoured vodka may be more upbeat in the medium to long term for these markets.