How ripe is the gin segment for future growth?

How ripe is the gin segment for future growth?

As one of the drinks industry's more unpredictable booms continues, have we reached 'peak gin'? Not yet, suggests Richard Woodard, but new market entrants will have to be smart – or have deep pockets – if they're to cash in.

I've just returned from the launch of Ki No Bi Gin at the Japanese Embassy in London (where the ambassador really was spoiling us). 'When I heard that somebody wanted to make gin in Kyoto,' he told the assembled throng, 'I thought it must be a mistake. Sake in Kyoto, yes. But, not gin.' Skimming over any thoughts about what constitutes a joke in diplomatic circles these days (there was a smattering of polite laughter), did Keiichi Hayashi have a point?

After all, gin in Kyoto? Made from a rice-based spirit and using local ingredients including sansho, hinoki, green tea and two types of yuzu? As the craze for ever-more bizarre botanicals intensifies, could this be gin's shark-jumping moment?

I don't think so, and for two reasons. First of all, based on an initial taste, and the way in which Ki No Bi has been created and brought to market (by Number One Drinks Co, a pioneer of rare Japanese whisky), the product is right. Secondly – and more importantly since, however good your product is, you can't change the market – because I believe we're yet to reach 'peak gin' in most countries around the world.

That might come as a surprise to drinks industry folk bored of hearing about yet another 'craft' gin with ever more outlandish botanicals, but it never hurts to remember that the trade tends to weary of trends just as the public is catching onto them.

What is more, this impression of a gin boom that is still waxing, rather than waning, is encouraged by the latest Global Gin Insights report from just-drinks and the IWSR.

While global volumes are rising only slowly – up 2.5% in 2015 to about 52m cases - this distorts the true picture for international brands operating in the major Western markets. Strip out the low-priced gins of commodity-led markets such as the Philippines, and gin volumes were up 4.1% to 31m cases.

Drill down further into individual markets and the performance becomes ever more impressive. The UK: four consecutive years of growth; Spain: still the dream gin market, but one that is becoming broader-based; Germany, Belgium, France, Italy, Portugal, Greece, Turkey: all on the rise.

While these buoyant trends will calm slightly in the coming years, according to The IWSR's predictive data, many of these markets will continue to surge for the next five years or more. Europeans, it would appear, are falling in love with gin all over again.

And, it's not just Europeans. Many other markets report similarly positive growth – or at least signs of optimism – from South Africa to Japan to Australia. The 'ginnaissance' is Europe-centred, but increasingly global.

The elephant in the gin room, however, is the US. The country's gin sales dipped below 10m cases last year, and will fall further to less than 9m cases by 2021.

What's going wrong?

As I've argued previously, if you're a premium-and-above 'craft' or imported gin brand, absolutely nothing is going wrong. Gin's losses in the US are closely connected with the dominance of standard and value domestic products such as Seagram's, Gordon's, Barton and Gilbey's.

At a super-premium level, meanwhile, William Grant & Sons' Hendrick's is flying, and gin is firmly on the radar of retailers and bar owners. In other words, the US market for premium-and-above gin is primed to explode.

Where's the catch? Well, amid all the excitement about premium-and-above gin, don't forget that this is still a small niche within the spirits market, dwarfed by similarly-priced rivals in vodka or Scotch whisky.

It's also a niche that owes much of its success to the never-ending wave of new entrants to the market: While the boom has benefited most, including big brands, much of the dynamism has come from products that measure success by the tens of thousands of cases, rather than the millions.

What will happen to the many hundreds of gin brands launched over the past decade? Darwinian forces will out: While the strongly-branded and financially heavily-backed will survive, those lacking a credible USP and wherewithal will drop out of the market or, at best, be picked up by a corporate sugar daddy (see Pernod Ricard's stake purchase in Monkey 47).

Would I launch a new gin at a time like this? Yes, I would, but with several caveats. Don't mimic others; make your identity a strong, distinctive one, and support it with a credible back-story that plays on consumer-friendly notions of provenance and authenticity. Use your botanical ingredients to reinforce this; use your packaging to reinforce this; use everything – marketing, name, the way you talk about your brand to the trade and to the consumer – to reinforce this.

In theory, the barriers to entry for gin are low – all you need is a distillery (not necessarily your own), a few botanicals and a brand name. There's no having to wait years for maturation, and no costly barrels to have to buy.

But, building a successful gin brand in today's market, unless you just want to sell the odd case to your neighbours, is not that simple. The rewards are there – and I think they will be there for some years to come – but it's not cheap, and it's not easy.

To view just-drinks and The IWSR's series of Spirits Essentials articles on gin, click here.