Spirits and wine win over consumers
Innovative formulations, premiumization drive growth
Dill pickles, cookie dough, and peanut butter and jelly hardly sound like inspiration for adult beverages, but each of the aforementioned flavors were launched by vodka-makers within the last year. As these new product introductions show, one of the largest trends in the spirits category is unusual flavors, analysts say.
“Flavors accounted for 14 percent of vodka sales in 2007; now they’re up to 20 percent of vodka sales,” says Danny Brager, vice president, group client director and head of the beverage alcohol team at Nielsen, New York City. “In 2007, there were four major flavors — Raspberry, Orange, Vanilla and Lemon — and they accounted for 70 or 75 percent of all the vodka sales. Now those four are about 40 percent of all the flavored vodka sales because there’s just so much more to choose from.”
Last month, Orlando, Fla.-based Van Gogh Imports added a new Peanut Butter and Jelly-flavored vodka to its portfolio of more than 20 flavored vodkas. In the last year, the industry has seen such introductions as Gummy- and Cookie Dough-flavored vodkas from White Rock Distilleries, Lewiston, Maine; Bizon Grass-flavored vodka from Sobieski Vodka, owned by Belvédère S.A., Beaune, France; and Big Dill pickle-flavored vodka under New Orleans-based Sazerac Co.’s Naked Jay brand name.
Outside of the vodka category, products such as Louisville, Ky.-based Brown-Forman Corp.’s Southern Comfort Fiery Pepper and its Jack Daniel’s Tennessee Honey have sparked flavor innovation. Flavored vodkas, whiskeys and bourbons suit consumers who are looking for variety and value, Brager says. Consumers are not only looking for the lowest price; they are looking for a reasonable price for a quality product, he adds.
“If it was just price, we’d see all the low price stuff growing and not the high price, and that’s not the case,” Brager explains.
Overall, both wine and spirits are growing in the single digits, he says.
Citing SymphonyIRI data, Bump Williams Consulting reports that spirits grew 5.4 percent in volume sales last year. The vodka segment alone increased 5.3 percent, while whiskey and rum grew 3.8 percent and 2.3 percent, respectively. Still wine experienced a 2.9 percent increase in volume sales, and pre-mixed cocktails rose the greatest at 27.4 percent.
According to Bump Williams Consulting, the total spirits category grew 5.5 percent in dollar sales last year, noting that vodka, whiskey and rum grew 5.6 percent, 7 percent and 1.7 percent, respectively. Dollar sales for still wine increased 4.8 percent, and pre-mixed cocktails experienced the highest growth at 30.6 percent.
An improved economy has led to a return to premiumization, according to the Distilled Spirits Council of the United States’ (DISCUS) 2011 industry review. Volume for premium vodkas rose 11.3 percent last year and super-premium vodkas were up 12.7 percent. Growth in the rum category was driven by high-end and super-premium offerings, which were up 14.9 percent, it adds. In the bourbon and Tennessee whiskey category, volume for premium, high-end and super-premium offerings increased 2.4 percent, 5.6 percent and 15.4 percent, respectively, according to DISCUS data.
Volume for value tequilas was up 7 percent, however, high-end and super-premium volume in the tequila segment rose 9 percent and 11.3 percent, respectively. Scotch and Irish whiskey remained concentrated in high-end and super-premium offerings, DISCUS notes.
Spirits suppliers saw year-to-year volume growth of 2.7 percent resulting in 195.8 million 9-liter cases, and sales growth of approximately 4 percent to $19.9 billion, reflecting a consumer return to premium products, said Peter Cressy, president and chief executive officer of DISCUS, in a statement. This resulted in another three-tenths of a point in market share gains against beer, reaching 33.6 percent of the total beverage alcohol market. This represents approximately five points of market share since 2000, worth approximately $2.9 billion annually, the council reported. Cressy attributed the market share growth to industry innovation and the consumer’s return to premiumization. Likewise, revenue market share for wine increased 1.4 percent, stealing some share from beer.
In 2008 and 2009, wine and spirits continued to grow, but not at pre-recession levels, Nielsen’s Brager says.Now, their growth is accelerating, however, both categories are growing faster in dollar sales than volume sales, which generally indicates consumer preference for higher-end offerings, he says.
“2008 and 2009 were kind of the anomalies … you could definitely see people shifting out of the higher price points into lower price points, and now we’ve seen it go back almost to the way it was [before the recession],” Brager says.
The calm after the storm
After weathering the recession, wine and spirits sales picked up — but they have not gone back to “normal” per se.
“I would be hard-pressed to think that anybody five years ago would have said that dessert flavors [in vodka] or flavors in whiskey were going to be as expansive and dynamic as they are today,” Nielsen’s Brager says. “A lot of the growth from that segment is incremental to the base non-flavored variants.”
Although many mainstream spirits companies are formulating with unique flavors, craft distilleries are even more experimentally focused, says Spiros Malandrakis, alcohol drinks analyst at Euromonitor International, Chicago. Similar to the craft beer segment, consumer interest is increasing in craft distilleries, he says.
“They tend to be much more radical with their new product launches,” Malandrakis explains. “I was reading about some bourbon distilleries now trying sonic aging methods — basically putting hip-hop music on in the background for that actually quickens the base of the maturation process in the bottles.”
Nostalgic TV shows like “Mad Men” and “Pan Am” also are sparking resurgences in bourbon and whiskey in the United States and beyond, he says. Irish whiskey is doing extremely well because of the nostalgic cocktail culture, and also because of its mixability, affordability and Irish consumers who can relate to its heritage, Malandrakis explains. Likewise, Scotch is doing fairly well, predominantly the single malts and higher-end products, he says, and the rum category is moving in the direction of spiced offerings.
The growing Hispanic population has propelled growth in the tequila category, says Garima Goel Lal, senior analyst at Mintel, Chicago. Between 2006 and 2010, tequila consumption increased approximately 8 percent among Hispanics, she says.
Mixing it up
Another category that continues to grow and innovate is ready-to-drink (RTD) cocktails, Nielsen’s Brager says.
From 2006 to 2011, ready-to-drink mixed spirits declined 1.6 percent with $715.6 million in revenue, according to a report titled “RTD Mixed Spirit Production” by IBISWorld, Santa Monica, Calif. However, the industry research firm predicts a 3.2 percent increase from 2011 to 2016.
During the recession, consumers shifted their spending away from convenience offerings, such as RTD cocktails, toward less expensive offerings. Despite the category’s negative performance during this time, economic recovery will place these premium-priced RTD cocktails in a position of growth as consumers choose convenience instead of price, the report says. In fact, DISCUS’ report shows that the pre-mixed cocktails segment experienced 20 percent of its growth in premium offerings.
Among RTD cocktail flavors, Margarita is the most popular followed by Mojito and citrus flavors such as Lemonade and Long Island, according to the IBISWorld report. In addition to RTD drinks, ready-to-pour (RTP) cocktails are premade and come in large bottles; RTD cocktails come in single-serve packages. RTP drinks account for approximately 45 percent of industry sales while RTD drinks represent 55 percent of the market, the report says. In the future, IBISWorld expects the variety of flavors in the RTD segment to expand.
Although the convenience aspect of ready-to-drink cocktails is appealing to consumers, interest in all-natural and healthy ingredients has increased, the report says. Beam Inc.’s Skinnygirl brand, which it acquired in 2011, offers low-calorie cocktails including the original Margarita as well as Sangria and White Cranberry Cosmo offerings. Next month, the brand will introduce a new Piña Colada variety, naturally flavored vodkas and a wine collection. Skinnygirl Piña Colada contains fewer than 100 calories in a 4-ounce serving, according to the company.
The naturally flavored Skinnygirl vodkas will be available in Cucumber, Island Coconut, Tangerine and Bare Naked varieties, and feature at least 20 percent fewer calories than other vodka brands, based on the U.S. Department of Agriculture’s (USDA) national nutrient database standard reference for vodkas. The wine collection will include Skinnygirl California Rosé, California Red and California White wine varietals; a 5-ounce serving of each wine contains 100 calories, which is 15 percent less than other wines, according to the USDA’s national nutrient database standard reference for wine.
Women and consumers of ages 30 and younger have been the primary audience for RTD cocktails, but that trend will shift slightly as RTD cocktails gain popularity and on-premise locations make greater use of them, according to the IBISWorld report. Alternative flavors and innovative packaging formats such as cans, boxed drinks and pouches also have caught consumers’ attention, the report notes.
American Beverage Corp., Pittsburgh, Pa., offers a product under its Daily’s brand that packages cocktails made with wine in a pouch. The company recommends placing the pouch in the freezer and once it’s finished freezing, it can be served as a slushy-type beverage, Nielsen’s Brager says. Similarly, Constellation Brands, Victor, N.Y., recently launched Arbor Mist Frozen Wine Cocktails in single-serve pouches.
Red, white and rosé
In the wine category, sweet offerings and red blends are the biggest trends, Nielsen's Brager says. The sweet trend started with Moscato and has moved into sweet red blends, he explains. Last year, White Moscato wine increased in volume 69.6 percent, and rose in dollar sales 70.7 percent, according to SymphonyIRI data cited by Bump Williams Consulting. Red blends attained more volume sales and dollar sales than Moscato with an 18.3 percent increase in volume sales and 22.5 percent increase in dollar sales for 2011, the SymphonyIRI data states.
According to a study by Wine Intelligence Ltd., London, U.S. consumers will drink more sparkling wines this year than ever before. The category as a whole grew 9.8 percent to 36 million bottles last year, according to data released in December by SymphonyIRI. Although domestic production remains the dominant force in the United States, the fastest-growing sparkling varieties will likely be Prosecco, an Italian sparkling wine, and Cava, a Spanish wine, Wine Intelligence says.
Imported rosé wines priced $12 and higher also will see significant growth, according to Nielsen. Volume sales for imported rosé wine retailing for $12 or more increased 14.4 percent while dollar sales grew 26.1 percent, according to Nielsen, within the food, drug and liquor channels for the 52 weeks ending Jan. 7, compared to the same period the previous year.
Within the United States, wines sourced from California, Oregon and Washington are outperforming imported wines, Brager says. However, wines from Argentina and New Zealand are doing well, he adds.
“Countries that have, at least from a consumer standpoint, an identification with a major variety that is tied to the region — with Argentina it’s Malbec and with New Zealand, Sauvignon Blanc — they’ve done very well,” Brager says. “Those two countries stand out from the rest in terms of growth rates. They’re both double-digits and have been for the last few years.”
Mintel’s Goel Lal agrees that Argentinean wine and other South American wines have seen increased interest from consumers, however, she points out that Italian wines are the most consumed wines in the United States and are viewed as very sophisticated. South American wines are low on the sophistication scale but high on the value scale, she says, which is why these varietals excelled during the recession.
Consumers prefer California wines on a value-for-money scale, although the wines do not rank highly in sophistication when compared to French or Italian wines, Mintel’s Goel Lal notes. However, California wines rank higher than French or Italian wines when it comes to quality, she says.
Between 2011 and 2016, Mintel forecasts the wine category to grow approximately 8 percent, which is lower than the category’s growth between 2006 and 2011, she says.
“There has been a significant drop in the number of consumers for wine in the age group of 21 to 24 between 2006 and 2010,” Goel Lal says. “For example, in 2006, 25 percent in this age group said they tried table wine compared to 18 percent [in 2010].”
Young adults ages 21 to 24 started liking wine before the recession hit, which created an uptick in the consumption rate among this age group; however, when the recession hit they went back to drinking spirits and beer, Goel Lal explains.
To regain 21- to 24-year-old consumers, wine-makers started offering value wines and changed the formality surrounding the category. According to Mintel research, 25 percent of all wine drinkers say they purchase wine cheaper than $5.
Wine consumption is highest among the 55 and older age group, which also creates some complications within the industry, she adds. As these consumers age, their incidence remains high, but their volume consumption decreases.
Like any other alcohol category, the wine category is innovating to attract consumers. One such way to do so is through packaging. Smaller 3-liter versions of boxed wines are a packaging format that is growing, Brager says. It’s a relatively small segment, but each year it continues to grow in the double digits, he says. According to Brager, wine with screw caps also is growing at approximately 15 percent each year.
“Screw caps are growing about five times faster than the total category,” Brager says. “Any work that we’ve done with consumers, they’re sort of ambivalent as to whether it’s a screw cap or not. I don’t think they see it as a necessarily bad quality just because it’s in a screw cap. And certainly, if we go to the on-premise [channel], they love it. It’s a lot easier for them to open a screw cap than it is to open it with all the different cork openers.”
Mintel’s Goel Lal agrees, noting that approximately 33 percent of wine drinkers prefer a screw cap because of the ease of opening and convenience. BI