Research in Focus - White Spirits: Grey Prospects & Golden Opportunities

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The white spirits category is merely an arbitrary pooling together of subsectors sharing some commonalities and more than a few major differences on the basis of the drinks’ primary colours. Euromonitor International’s latest global report ‘White Spirits: Grey Prospects and Golden Opportunities’ offers insights on this most ubiquitous of major alcoholic drinks segments. Senior analyst Spiros Malandrakis provides a brief glimpse of some of the key findings.

In vodka’s shadow

The total of vodka alongside Dutch and English gins did witness a relative resurgence in 2011 and remains positive in 2012. However, taking into consideration the overall category’s breakdown, it becomes clear that it is vodka’s performance that plays the most decisive role in determining white spirits’ fortunes. 

With vodka accounting for 87% of the volumes commanded by the entire white spirits category and both English and Dutch gins only accounting for 7% each, the importance of the omnipresent tipple’s sales in its key Eastern European bastion is self-explanatory. In other words, a slowdown of the chronic declines experienced by vodka in its overly mature Eastern European stronghold is the main driver behind the overall category’s resurgence post the Great Recession. 

All white, all different

It has already been clarified that discussing the performance of the overall white spirits category can end up being confusing due to the diverging and some times conflicting fortunes of its subcategories. This also holds true in the more particular case of gin. 

Dutch gin has historically enjoyed solidly positive if fluctuating growth rates, a performance which has been directly correlated to economic developments in its generally buoyant South East Asian bastion. 

Conversely, English gin has been chronically haunted by its overly mature nature in its key western markets. While some positive signs were witnessed by the end of the historic period – mostly in terms of innovation and the launch of boutique offerings - they were not enough to stem the tide, at least not until 2012 which happens to be the first year of positive growth for the category since 2008. In essence then, when we are discussing gin, English and Dutch varietals should and will be analysed as entirely separate categories.  

Drivers, trends and focus

The UK might be third in the global volume and second in the global value rankings, but it remains the bastion and birthplace of English gin. 

Additionally, a flurry of super-premium launches and new boutique offerings are basing their positioning, advertising and promotional strategies around the signature references and traditional credentials of London’s rich distilling history. This provides solid momentum to the nascent premiumisation trend driving sales in many of the category’s key markets. 

While top line total volume growth rates have indeed recovered from the depths of the stagnation and recession induced slump of 2007, there was a definite ongoing slowdown in 2012.

On the other hand, this fact is just masking a much more interesting narrative that becomes obvious after studying the shifts across different pricing segments. Within that context, slowing down volume growth is more than counterbalanced by a consistent shift to more premium variants. 

If English gin primarily focuses on just a small number of markets, Dutch gin has an even narrower geographic scope. Historically preceding English gin and lacking the latter’s plethora of premium and super-premium offerings, the category’s focus is primarily on the Philippines and the Netherlands. 

While the Philippines accounts for the overwhelming majority of volumes sold, the country comes a relatively distant second in the value rankings, a fact underlining the lower-end pricing and positioning of the category there. 

On the other hand, and while Dutch gin – also called jenever - is still considered to be a cheap and rather out-dated category in the Netherlands, it commands a much higher price tag there than in the Philippines. However, lack of innovation and strong promotional campaigns are pushing the category to the side-lines. While Dutch drinkers are turning their backs on the tipple, export markets are increasingly seen as the only avenue for growth moving forward. Additionally, recent whispers suggesting that Diageo’s innovation department is currently experimenting with the category might be a harbinger of fresh momentum in the west. 

Unsurprisingly, and unlike both Dutch and English gins, vodka boasts an extremely wide geographical scope. The ubiquitous category’s neutrality, versatility and unrivalled innovation initiatives have secured it a place in the vast majority of markets. 

Nevertheless, Eastern European markets still dominate the top of the volume rankings on the back of their historical ties to the category, even if sales in the region have been consistently declining for years. The proliferation of lower cost vodkas in Eastern Europe is also behind the lower shares of value sales of markets in the region, a fact that might soon begin to change as the introduction of minimum pricing hammers the lower end of the market. 

On the other hand, markets like the US, the UK, Canada and Brazil have embraced the premiumisation trend and hence account for greater value than volume shares. While the macroeconomic environment remains challenging in the majority of mature markets, it is interesting to note that premium and luxury offerings are still witnessing healthy performances. 

Flavour sophistication has historically been one of the pillars of innovation for vodka, further expanding its mixability credentials, providing a halo effect for flagship brands and securing an escape from maturity. Its role as an introductory stepping stone for younger and female consumers has also been repeatedly discussed and used as a template for other categories, most notably cider, RTDs and the latest generation of flavoured whiskies. 

The list of strange and exotic flavourings keeps expanding at a frenetic pace. From chocolate to papaya and dragon fruit, all the way to fluffed marshmallow and whipped cream, flavoured varieties might still account for a relatively minor share of overall vodka sales – primarily focusing on the US market – but there is no denying the importance of the segment’s key supportive role in highlighting mainstream brands’ attributes. 

Since polarisation – and its dual forces of premiumisation and economising – appears to be becoming increasingly exhausted and the category’s legendary neutrality is beginning to backfire, flavours will continue to be a primary driver in the short to medium term. Nevertheless, saturation point is already becoming visible on the horizon.

Grey Prospects and Golden Opportunities

Overall forecast volume growth rates for the entire white spirits category look uninspiring at first glance. 

Neither English nor Dutch gin is expected to see any major volume upswing. Additionally, and while English gin appears to be embracing innovation and an increasingly upmarket positioning spearheaded by adventurous small scale start-ups, Dutch gin will continue to become less and less relevant to the aspiring young urbanites in its core markets. 

On the other hand, while vodka’s versatility and mixable character will remain the category’s key attributes, its overly mature nature in its Eastern European stronghold will continue dragging global sales down. Nevertheless, and beyond the obvious headwinds faced by total volume growth, premiumisation and the explosion in micro-distillers with a premium and luxury positioning will continue to provide opportunities for value growth at least in the short to medium term as the orgy of decadent flavoured launches inevitably tests the limitations of the flavour sophistication fad.

Sectors: Spirits

Companies: Diageo

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