Global vodka insights - market forecasts, product innovation and consumer trends - click here for full details

The latest joint report from just-drinks and The IWSR, on the global vodka category , is available now

The latest joint report from just-drinks and The IWSR, on the global vodka category , is available now

The global vodka category continues to experience mixed fortunes, with overall volumes persistently declining, but continued opportunities for higher-priced products, according to the latest joint report from just-drinks and the IWSR.

This vast spirits sector contracted in 2016 by 3.4% to 461.3m cases, but standard-and-above vodka sales were up 2%, reaching 133.6m cases and reversing the losses experienced in 2015. Vodka's most serious challenges are concentrated in the traditional, high-volume markets of Russia, Eastern Europe and the former Soviet states – but there are worrying signs of sluggish demand in higher-value Western markets too.

In particular, Russia's long-term decline (-2.3% CAGR between 2012 and 2016, or -4% for standard-plus over the same period) is the chief contributor both to global volume falls and those within the CIS region.

That said, the report points out that, while most CIS markets are declining, per capita consumption levels remain very high – and will remain so "for the foreseeable future".

"The other big cause for concern is the slowdown in vodka sales in the big US market," the report notes. "While the category is still growing, rising by 2.2% last year (all price segments; standard-plus up 4.1%), the rate of growth is down significantly from the last decade."

Two factors are driving much of this deceleration: the downturn in the US flavoured vodka market, and significant market share gains from whiskey and Tequila, particularly among Millennial consumers.

The mature US market is also an increasingly complex one, in which brands with the right combination of image and value - such as Tito's, Svedka and New Amsterdam - continue to thrive.

The future presents a similarly mixed picture, but again the broad trend is negative: IWSR forecasts for all price categories suggest a shedding of more than 30m cases in the five-year period to 2021, but standard-and-above sales will continue to grow slowly, hitting 135m cases by the end of the forecast period.

Looking at the top 20 markets for all price categories, eight are predicted to decline, with several more essentially flat. The major declining destinations include traditional, low-value countries such as Russia, Ukraine, Poland, Belarus and Kazakhstan.

The US market is forecast to expand - albeit by only a small amount - while Brazil looks considerably more buoyant, poised to break through the 10m-case barrier by 2021.

There's a broadly more positive prognosis for standard-and-above vodka, particularly for second-tier markets such as Israel, Mexico and Spain, but growth in the US will be considerably more subdued, and the UK is poised for a period of considerable volume decline.

In Asia, meanwhile, Vietnam continues to offer solid potential for vodka brands at the lower end of the market - although this is set to moderate in the forecast period - while growth has flattened in India, and is set to be tepid to 2021.

Vodka's challenges are exacerbated by current consumer trends in Western markets, with consumers increasingly seeking out distinctive and characterful spirits, such as whisky and gin. "The gin boom has turned the spotlight onto a product's ingredients - specifically, botanicals," the report says. "But, this is difficult territory for vodka, which is typically made from unglamorous raw materials, such as wheat and potatoes."

This changing dynamic might encourage vodka brands - particularly those in the higher price echelons - to explore new ways of displaying their provenance, character and flavour profile through mixed drinks and cocktails that do not overpower their subtle variations.

But, the report warns: "The trick for brand owners is to explore this new world of fresh expressions and characteristics without sacrificing vodka's most potent strengths; its versatility and flexibility."

As consumer trends shift and evolve, vodka's innovation strategy must adapt in line with the changing world, creating a fresh model when it comes to new product development, the report suggests. This is likely to mean a move away from introducing new flavoured variants, as well as engaging the new generation of consumers with a more craft-oriented approach - both in terms of small start-ups marketing provenance-heavy vodka brands, and products across the spectrum communicating their ingredients, production values and flavour profiles.

However, the report cautions, this evolution may not be a short-term process. "Broadly speaking," it says, "vodka needs to grow up, developing its approach in line with the changes to the modern drinks market.

"Like all good maturation processes, this might take some time."

Global vodka insights - market forecasts, product innovation and consumer trends - click here for full details

Expert analysis

Global vodka insights - market forecasts, product innovation and consumer trends

Global vodka insights - market forecasts, product innovation and consumer trends

Global vodka sales fell by 3.4% between 2015 and 2016 to 461.3m cases, representing a slightly accelerated rate of decline over the 2012-2016 CAGR of -1.3%. The performance of the overall market was m...read more