Global market review of vodka forecasts to 2013 2008 edition
Page i Global market review of vodka forecasts to 2013 2008 edition February 2008 By Alexander Smith, IWSR Drinks Record editor Published by Aroq Limited Seneca House Buntsford Park Road Bromsgrove Worcestershire B60 3DX United Kingdom Tel: +44 (0)1527 573 600 Fax: +44 (0)1527 577 423 Web: www.just-drinks.com Registered in England no: 4307068
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Page iv Table of contents Table of contents Single-user licence edition... ii Copyright statement... ii Incredible ROI for your budget single and multi-user licences... ii just-drinks.com membership...iii Table of contents... iv List of figures... vi List of tables... vii A word about cases... viii Chapter 1 Introduction... 1 Historical overview and production methods... 1 Scale of the overall market... 2 Industry structure... 3 Chapter 2 Marketing trends... 6 Development of premium segment and new ultra-premium segment... 6 Marketing drivers... 8 Growth of flavoured vodka...10 Chapter 3 The Americas... 15 No sign of vodka fatigue in US market... 15 Another step-change ahead?... 18 Or trading down... 18 Canada... 19 Brazil sees rapid development... 20 Vodka surges in Mexico...21 Chapter 4 Western Europe... 22 United Kingdom... 22 France... 24 Germany... 25 Turkey and Greece... 26 Spain... 27 Scandinavia... 28 Chapter 5 Central and Eastern Europe... 30 Poland... 30 Balkan markets... 32 CIS markets... 33 The Russian bear awakens... 33 Scope for consolidation... 35
Page v Table of contents Russia and Ukraine dominate... 37 Eastern European producers expand their horizons... 39 Baltic markets... 39 Chapter 6 Asia... 42 Strong growth in India... 43 Growth in China... 43 Chapter 7 Vodka s rising profile in travel retail... 46 LAGs issue... 47 Chapter 8 Producer profiles... 49 Diageo (Smirnoff, Cîroc)... 49 V&S Group (Absolut)... 52 International expansion... 54 New marketing campaign... 54 Bacardi (Grey Goose, Eristoff)... 55 Nemiroff... 57 Russian Standard... 59 Pernod Ricard (Stolichnaya, Wyborowa)... 61 Brown-Forman (Finlandia)... 65 Campari (Skyy))... 66 Central European Distribution Corporation (CEDC)... 67 Russian Alcohol... 70 Altia... 71 Constellation... 71 Best of the rest... 72 Patron acquires Ultimat vodka... 73
Page vi List of figures List of figures Figure 1: Leading vodka brands in the US, 2006 (% share)... 15 Figure 2: Leading vodka brands in Canada, 2006 (% share)... 19 Figure 3: Leading vodka brands in the UK, 2006 (% share)... 22 Figure 4: Leading vodka brands in France, 2006 (% share)... 24 Figure 5: Leading vodka brands in Germany, 2006 (% share)... 25 Figure 6: Leading vodka brands in Poland, 2006 (% share)... 30
Page vii List of tables List of tables Table 1: Total vodka sales in the US, 2002, 2005-2013 by volume ( 000s nine-litre cases)... 15 Table 2: Vodka sales in the US, 2003-2006 by sector (US$ and % growth)... 18 Table 3: Total vodka sales in Canada, 2002, 2005-2013 by volume ( 000s nine-litre cases)... 19 Table 4: Total vodka sales in the UK, 2002, 2005-2013 by volume ( 000s nine-litre cases)... 22 Table 5: Total vodka sales in France, 2002, 2005-2013 by volume ( 000s nine-litre cases)... 24 Table 6: Total vodka sales in Germany, 2002, 2005-2013 by volume ( 000s nine-litre cases)... 26 Table 7: Total vodka sales in Spain, 2002, 2005-2013 by volume ( 000s nine-litre cases)... 27 Table 8: Total vodka sales in Nordic countries, 2002, 2005-2013 by volume ( 000s nine-litre cases)... 28 Table 9: Total vodka sales in Poland, 2002, 2005-2013 by volume ( 000s nine-litre cases)... 30 Table 10: Total vodka sales in the Russian Federation, 2002, 2005-2013 by volume ( 000s ninelitre cases)... 33 Table 11: Leading vodka importers into Russian Federation, Jan-Oct 2007 (% share value and volume)... 35 Table 12: Total vodka sales in the leading Asian countries, 2002, 2005-2013 by volume ( 000s nine-litre cases)... 42 Table 13: Leading markets for Smirnoff, 1997, 2006 (% share of brand sales volume)... 49 Table 14: Leading markets for Absolut, 1997 and 2006 (% share of brand sales volume)... 52 Table 15: Leading markets for Stolichnaya, 1997, 2006 (% share of brand sales volume)... 61 Table 16: Leading markets for Wyborowa, 1997, 2006 (% share of brand sales volume)... 62 Table 17: Leading markets for Finlandia, 1997, 2006 (% share of brand sales volume)... 65
Page viii A word about cases A word about cases Throughout this report, we refer to cases of vodka. Unless otherwise stated, this would always refer to a nine-litre case of spirits.
Page 1 Chapter 1 Introduction Chapter 1 Introduction Historical overview and production methods The word vodka is derived from the Russian word voda, meaning water, or, as the Poles would say woda. The first documented production of vodka in Russia was at the end of the ninth century, but the first known distillery, at Khylnovsk, was about 200 years later. The earliest Polish vodkas appeared in the 11th century. By the 14th century it was the national drink of Russia, and by the 16th century it had achieved similar status in Poland and Finland. These early vodkas were very rough and contained many impurities. Producers often flavoured their spirit with spice, herbs, grass and fruit to mask these impurities. It wasn t until the 18th century; when a method of purifying alcohol using charcoal filtration was developed, that the quality improved markedly. The other real breakthrough came in the 15th century when pot distillation began in Russia. This allowed vodka to be produced in larger quantities. Large-scale production also permitted vodka to be exported for the first time with the first exports to Sweden being recorded at the beginning of the 16th century. Large-scale vodka production began in Poland at the end of the 16th century, initially at Kraków, and then Poznań, a city that in 1580 had xxx working spirit distilleries. Soon, however, Gdańsk outpaced both these cities. Mass production also made it a lucrative business and the Russian and Polish nobility were granted production rights in the 17th century. By the 19th century the number of licensed distilleries numbered xxxxx with many more illicit distillers. In 1894, the Russian Tsar sought to control the trade by creating a state monopoly, a system that continued until the end of Communism. The Polish distilleries were nationalised by the Communists after World War II. It was the Russian Revolution in 1917 that served as a catalyst for the international development of vodka. Russian émigrés took their knowledge of vodka distillation with them to Western countries. For instance, one such émigré by the name of Smirnoff (the westernised version of the Russian
Page 6 Chapter 2 Marketing trends Chapter 2 Marketing trends Development of premium segment and new ultra-premium segment Vodka has come a long way since its humble origins as a staple of Russian and Polish peasants to become perhaps the most trendy and fashionable category in the drinks spectrum. In markets like the US and Russia, a number of brands have even been able to command premium and even superpremium prices something that is showing signs of carrying over into other markets. The Absolut brand deserves a lot of credit for this development. Specifically it was Michel Roux of Carillon Importers, Absolut s US agent in the early 1980s that provided the vision. He recognised that there was a certain segment of the population that was willing to pay a premium for little more than the image associated with a brand. Rather than be deterred by the high price, it was an attractive part of the brand proposition. It was part of what became known as badge drinking. Absolut s initial success encouraged a host of innovative new premium brands such as Skyy with its distinctive cobalt blue bottle. It also led to the next evolutionary phase with the introduction of a new generation of super-premium vodkas such as Grey Goose and Belvedere in the late 1990s. These superpremiums were priced around US$xx, well above Absolut s US$xxxxx price point. Suddenly Absolut was outflanked at a time when the mood was one of consumer trade up. What Absolut did to Smirnoff, Grey Goose did to Absolut. By pricing the brand xx% higher than Absolut, Grey Goose created a new segment. The category may now be poised for its next evolutionary step. The dramatic success of the tequila brand Patron at the ultra-premium price of US$xx and higher indicates to some marketers that there may be a potentially significant market for ultra-premium vodka. Imperial Brands Inc, president and CEO Chester Brandes say: Given the success of Patron it indicates that there is not only a market at that level, but a market with volume. It is one thing to say that you are US$xx a bottle and sell xxx bottle, but it is another thing to turn it into xxxxxxx or xxxxxxx. A vodka brand is going to crack that at some stage.
Page 15 Chapter 3 The Americas Chapter 3 The Americas Figure 1: Leading vodka brands in the US, 2006 (% share) Smirnoff Vodka xxxx% Absolut xxx% Others xxxx% Grey Goose xxx% Skyy Vodka xxx% Stolichnaya xxx% Source: The IWSR Table 1: Total vodka sales in the US, 2002, 2005-2013 by volume ( 000s nine-litre cases) 2002 2005 2006 2007* 2008 2009 2010 2011 2012 2013 xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx * Preliminary figures Source: The IWSR No sign of vodka fatigue in US market The Americas reported a xxx% growth in 2006 in versus 2005, driven largely by the huge US market. There is certainly no sign of vodka fatigue in the US. If anything, growth there is accelerating, with sales rising by just under x% in 2006 to xxxxm cases. The Distilled Spirits Council of the US (DISCUS) estimates that in 2007, Vodka, representing xx% of industry spirits sales, saw a xxxx% revenue growth to US$xxxbn. Consumer fascination with cocktail culture and the overall trend toward premiumisation continued in 2007, says DISCUS president and CEO Peter
Page 22 Chapter 4 Western Europe Chapter 4 Western Europe United Kingdom Figure 3: Leading vodka brands in the UK, 2006 (% share) Imperial Vodka xxx% Others xxx% Absolut xxx% Vladivar Vodka xxx% Glen's Vodka xxxx% Smirnoff Vodka xxxx% Source: The IWSR Table 4: Total vodka sales in the UK, 2002, 2005-2013 by volume ( 000s nine-litre cases) 2002 2005 2006 2007* 2008 2009 2010 2011 2012 2013 xxxxxxxx xxxxxxxx xxxxxxxx xxxxxxxx xxxxxxx xxxxxxxx xxxxxxxx xxxxxxxx xxxxxxxx xxxxxxxx * Preliminary figures Source: The IWSR Of other major European vodka markets, the UK has provided the most impressive increase in recent years, rising by CAGR xxx% between 2002 and 2006 to reach xxxm nine-litre cases. This represents x% of European sales, making it the third biggest market after the Ukraine and Poland. That growth was remarkable as it coincided with the explosion of the ready-todrink sector. The RTD wave has since receded, a factor that is benefiting fullstrength vodka and wine.
Page 30 Chapter 5 Central and Eastern Europe Chapter 5 Central and Eastern Europe Poland Figure 6: Leading vodka brands in Poland, 2006 (% share) Absolw ent xx% Starogardzka xx% Others xx% Zoladkow a Gorzka x% Bols Vodka x% Sobieski Vodka x% Source: The IWSR Table 9: Total vodka sales in Poland, 2002, 2005-2013 by volume ( 000s nine-litre cases) 2002 2005 2006 2007 2008 2009 2010 2011 2012 2013 xxxxxxxxx xxxxxxxxx xxxxxxxxx xxxxxxxxx xxxxxxxxx xxxxxxxxx xxxxxxxxx xxxxxxxxx xxxxxxxxx xxxxxxxxx * Preliminary figures Source: The IWSR Poland, the world s fourth-largest vodka market, showed signs of recovery in 2007, although that has yet to be confirmed by IWSR estimates. Central European Distribution Corporation (CEDC) CEO and president William Carey, the largest supplier and distributor in Poland, says: The vodka market is increasing quite dramatically at the moment. It is tough to explain, because Poland has lost over one million people of drinking age, who have emigrated. Some Ukrainians and other people have come into Poland, but it is still a big
Page 42 Chapter 6 Asia Chapter 6 Asia Table 12: Total vodka sales in the leading Asian countries, 2002, 2005-2013 by volume ( 000s nine-litre cases) Country 2002 2005 2006 2007* 2008 India xxxxxx xxxxxx xxxxxxxx xxxxxxxx xxxxxxxx Australia xxxxxx xxxxxx xxxxxx xxxxxxxx xxxxxxxx China xxxxx xxxxxx xxxxxx xxxxxx xxxxxx New Zealand xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx Country 2009 2010 2011 2012 2013 India xxxxxxxx xxxxxxxx xxxxxxxx xxxxxxxx xxxxxxxx Australia xxxxxxxx xxxxxxxx xxxxxxxx xxxxxxxx xxxxxxxx China xxxxxx xxxxxx xxxxxx xxxxxxxx xxxxxxxx New Zealand xxxxx xxxxx xxxxx xxxxx xxxxx * Preliminary figures Source: The IWSR The current buzz in Asia is aged Scotch and premium Cognac. Companies are eyeing up the long-term prospects of China and India with relish, and major Scotch and Cognac brands are flying in the former. Against this backdrop, the Asian vodka market may not seem the highest priority. Nevertheless, overall vodka sales in the Asia Pacific region rose by xxxx% CAGR between 2002 and 2006 to reach xxxm cases, according to The IWSR. Western-style markets in the Australasian region, such as Australia and New Zealand, have long dominated vodka consumption in Asia Pacific. Growth of the Bacardi-owned xx Below brand has been a major factor in the development of the New Zealand market. Innovative and attractive packaging has helped the brand. Growth has also been underpinned by support from the New Zealand retail trade for this locally-made premium product. The category
Page 46 Chapter 7 Vodka s rising profile in travel retail Chapter 7 Vodka s rising profile in travel retail Vodka is the second-largest category in global travel retail with total sales of xxxxm nine-litre cases in 2006, according to The IWSR estimates. It possesses some real powerhouse brands such as Absolut (owned by V&S Group), the second-largest spirits brand (in global travel retail) with a xxx% share; fifthranked Smirnoff (Diageo) with a xxx% share and x xnd -ranked Finlandia with just under a x% share. Nevertheless, vodka is comparatively underrepresented in travel retail compared to domestic markets. Scotch whisky, for example, sells more than twice as much as vodka in the sector. The real limiting factor in travel retail has been the comparative dearth of premium and super-premium white spirit offerings. For consumers intent on maximising their allowance brown spirits such as 12-year-old blended Scotch, single malt Scotch or Cognac offer more possibilities. Standard vodkas also don t always provide retailers with the sufficient profit margin to cover their high concession fee requirements. This is beginning to change as a whole new raft of premium and super-premium vodkas have come onto the market spearheaded by Bacardi s Grey Goose. The cocktail trend, which again is most emphatic in the US, but also evident in so many metropolitan centres around the world is another important factor driving this growth. Many leading operators, such as World Duty Free, Sky Connection, Nuance, Alpha and DFS Group are seeking to tap into this by opening in-store cocktail bars. Vodka naturally lends itself to cocktail usage and this should help fuel sales. The other really positive development for the European industry is the economic development of Central and Eastern Europe. Beam Global Spirits & Wines European director Robert Carter says: In Eastern Europe there are two things happening. Eastern Europeans are becoming wealthier. They are travelling and purchasing heavily. Eastern Europe is also becoming a destination for travellers. Travel retail liquor sales in Eastern Europe and the Baltics climbed by x% in 2006, according to The IWSR estimates.
Page 49 Chapter 7 Vodka s rising profile in travel retail Chapter 8 Producer profiles Diageo (Smirnoff, Cîroc) Table 13: Leading markets for Smirnoff, 1997, 2006 (% share of brand sales volume) Country 1997 2006 United States xx% xx% United Kingdom xx% xx% Canada x% x% Brazil x% x% South Africa x% x% Poland x% x% Spain x% x% Duty free x% x% Ireland x% x% Australia x% x% Others xx% xx% Note: data may not sum due to rounding Source: The IWSR Diageo-owned Smirnoff is an industry force that is only really rivalled in the white spirits domain by Bacardi. Smirnoff overtook Bacardi in 2004 to become the largest selling international spirit brand in both volume and value. The brand has witnessed staggering growth in recent years adding sales of some xxxxm nine-litre cases between 2002 and 2006 to reach xxxxm nine-litre cases. A Diageo spokesman says: Growth for the Smirnoff brand in recent years can be attributed, in part, to our focus on the quality of our liquid We can also attribute the success of the Smirnoff brand to the Diageo Innovation team and the exciting collection of new products that have been introduced in recent
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