November 2010 Management Briefing - Niche Spirits - Part I
Niche spirits hit by recession, but long-term outlook is rosy
Defining a niche drink is an arbitrary matter - what may pass as niche today may well be considered mainstream tomorrow. Flavoured vodka, for instance, had a relatively specialised following in Europe until a few years ago – now it is classified as an official spirit drink under European Union (EU) regulations. Similarly, Tequila was once an exotic niche product, especially in Europe, but is now a commonplace item in most developed and emerging markets.
Because categorisation is so difficult, there are no authoritative estimates of the size or direction of the niche drinks market. But, even if we accept that niche drinks are those aimed at a highly exclusive market, either because the ingredients or production methods make them unusually expensive or because their taste is outside generally accepted norms, it does not necessarily follow that their sales overall are immune to the economic factors affecting the drinks market generally. Clearly, the recession has had an effect, though there are offsetting factors.
“Sales (of niche drinks) were going up quite well until the world got into economic difficulties and almost invariably they’ve fallen back, though this may not be permanent,” says Val Smith, chairman of International Wine and Spirit Research, a global intelligence source for all major drinks categories. “It’s not necessarily true that these drinks are bought by richer people – almost all the consumers of them are youngish, experimental people in cities who go out to bars and they’re definitely affected by the recession,” he says. Because niche drinks are sold in very limited quantities, “we may miss some niche drinks that sell well, but all the markets we look at, like absinthe, are down pretty severely”, he adds. This was true all over the world. “Russia was quite definitely down in 2009 and there is no evidence (to show that) they held up better than the rest.” Even then, there are anomalies bucking the trend, for instance “the US has taken to absinthe in a big way”, despite the recession, Smith says.
Some leading industry players nevertheless take a more optimistic view. “The niche category, in the widest sense of it, is quite buoyant because people are looking for more unusual things,” says Richard Ambler, managing director of UK-based Blavod Wines and Spirits, which produces Blavod Black Vodka, Blackwood’s gin and Jago’s Vanilla Vodka Cream liqueur. But, sales volumes are not necessarily a guide to what constitutes niche, he says. “If you take Blackwood’s gin, you’d pay more for ours than Gordon’s, say: GBP17 (US$21) against GBP13.50 or so. But, quite a lot of gins come out at around GBP25 and turn quite a good volume even though you can have a GBP25 a bottle gin stocked in specialist liquor stores and considered niche.
“Niche tends to do well where the market is more mature and consumers are affluent and looking for something different. In emerging markets, like China, niche tends to do less well because the Chinese are still going for mainstream Western brands,” Ambler says.
In markets where shoppers tend to be relatively wealthy, there seems to be a strong upward trend at present. ”We are seeing a big rise in sales of gimmick vodkas as well as sloe gin and raspberry gin," says Natalie Rebeiz, director of the Geneva-based Caviar House and Prunier which operates mainly in airport travel retail. "We are adding ten to 15 new labels such as Pinky botanical vodka, Roberto Cavalli vodka or the British Pincer-infused vodka to address the demand. We have seen the boutique vodka trend and now gin is coming up."
Current popular hits include the aforementioned Pincer vodka, which sells for GBP36.50 per bottle, and a Pincer Shanghai Strength variant, said to be the world’s strongest vodka at 88.8% ABV. Rebeiz notes that superior quality brands like Pincer were exploited to make a distinction with the main wines and spirits sold at airports.
One rapidly growing niche area is that of pre-mixes, according to Jamie Fortescue, director general of the European Spirits Organisation (CEPS). This is an area that has moved on from the traditional Smirnoff Ice or Bacardi Breezer towards JB and cola and other more sophisticated mixes, he says. The spirits industry has always been looking for new ideas, Fortescue stresses, citing the “premiumisation of brands, the general move to single malts from blends and the successes of the Grey Gooses, the Belvederes... [premium vodkas]”. He believes that the introduction of higher-priced products, initially considered niche “has certainly been the way that the major companies have been moving over the past few years, concentrating on the premium brands and trying to make more money per bottle than to sell more bottles”.
Fortescue says the economic situation means that there is more drinking in the home and less in bars and restaurants, “and slight down-grading in terms of brands”.
"There is now a strict limit in the EU as to what producers could do to drinks like gin, whisky, vodka and Cognac and still call them by those names,” Fortescue notes. Where there has been flexibility is in the category of ‘other spirit drinks’ where there is clear scope for innovation and a lot of it is now going on.
The growing popularity of niche spirit drinks in the US has given a shot in the arm to sales of long-established sectors like Bourbon whisky, says Eric Gregory, president of the Kentucky Distillers’ Association. “Bourbon’s popularity right now is skyrocketing and much of that is due to the single barrel and small batch Bourbon produced over the past ten or 20 years," he says. "All our distilleries have at least one or two of these super-premium flagship brands that appeal to a more suburban connoisseur.”
A striking example is Maker’s Mark which recently came out with Maker’s 46. “They took the regular Maker’s Mark, opened the barrel, inserted a seared French oak stave, re-barrelled and put it back for six to eight months," notes Gregory. "It completely changed the flavour profile and it’s flying off the shelves. Though, with only 15,000 barrels produced in first round, it’s now hard to find,” Gregory said. Other distilleries are now experimenting with Bourbon-infused liquors like honey, cherry and other flavours. However, these drinks are at present relatively expensive and outside the mainstream, according to Gregory.
The second part of this month's management briefing, looking at the markets of Greece, Ireland, Portugal and Spain, sees RIchard Woodard look at the situation in Ireland....
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