In HBO’s “Game of Thrones” series, various characters have tried to battle their way to claim the Iron Throne using everything from brute force to social cunning. Within the spirits industry, the battle for the throne has been a bit more civilized, but, nonetheless, the alcohol category now has a new king.
“Over the past four years or so, whiskey has now replaced vodka as the No. 1 sub-category on dollars,” says Danny Brager, senior vice president of alcoholic beverages at New York-based Nielsen. “Brown is back; it’s the whiskey renaissance … it’s the major sub-category growth factor.”
Although it still is smaller than vodka by volume, the combined domestic and import whiskey segment grew 11 percent in dollars and 7 percent in volume in Nielsen-measured channels, Brager reports. “When you’re talking about the biggest category growing at double digits, that’s a lot,” he explains. The IWSR US Inc., a New York-based wine and spirits analysis company, predicts that the U.S. whiskey market, which currently totals approximately 37.1 million cases by The IWSR’s count, will grow by 11.5 million cases between 2014 and 2019.
Within this segment, straight whiskey is showing the strongest sales at 18.5 million 9-liter cases in 2014, up from 17.6 million in 2013, says William Roberts Jr., senior analyst of food and drink at Chicago-based Mintel, citing data from The Beverage Information & Insights Group, Norwalk, Conn. Canadian whiskey is a solid second for the category, selling 15.9 million cases in 2014, he adds.
Among the other whiskey sub-segments, single- malt Scotch whisky grew 6.4 percent in volume and 9.2 percent in revenue to $645 million, blended whiskey volume was up 42 percent to 8.7 million cases, and bourbon and Tennessee whiskey was up 7.4 percent in volume and 9.6 percent in value to $2.7 billion in 2014, according to data from the Distilled Spirits Council of the United States (DISCUS), Washington, D.C. Most of this sub-segment’s data was driven by higher-end products, with super-premium whiskey, or brands that are priced at $250 for a 9-liter case or $30 or more for a bottle, up 19.2 percent in dollars, it reports.
However, the most noteworthy performer in the whiskey seg-ment has been Irish whiskey, Euromonitor International reports. “Irish whiskey continued to be the exceptional performer of the U.S. spirits category in 2013, with total sales jumping by 21 percent and 23 percent in volume and value terms, respectively,” the Chicago-based market research firm said in its July 2014 report “Spirits in the US.” “Irish whiskey remains the story of Pernod Ricard’s Jameson brand and its meteoric rise, with the brand accounting for a 70 percent total of volume share of category sales in 2013.”
DISCUS reports that the Irish whiskey sub-segment was up 9.1 percent in volume to 2.8 million cases and 10.7 percent in dollars to $550 million in 2014, with growth also concentrated in high-end and super-premium products. Looking ahead, The IWSR predicts that the sub-segment will grow by 4 million cases between 2014 and 2019.
Flavorful flair
Part of the story of Irish whiskey’s success, as well as the overall whiskey segment’s success, is supported by the releases of flavored products, Nielsen’s Brager says. “Flavors now are about 12 percent of the whiskey category from almost nothing a few years ago, and that’s certainly fueled a lot of growth,” he says. “That started a few years ago with Red Stag, and then Jack Daniel’s came in with [Tennessee] Honey. … [Sazerac Co. Inc.’s Fireball Cinnamon Whisky] is an amazing success unto itself. The year-on-year gains for Fireball between this year and last year were about twice as much as the next two largest brands that gained in the marketplace, so it’s kind of like a runaway No. 1.”
The use of flavors has brought more consumers to the category, including younger legal-drinking-age groups and the multicultural segment, Euromonitor reports. For example, Louisville, Ky.-based Brown-Forman Corp.’s Jack Daniel’s Tennessee Honey is targeted at multicultural consumers, especially Hispanics, it notes. In addition, females, who historically have been an underdeveloped whiskey-drinking population, are more apt to drink flavored whiskey than non-flavored whiskey, Nielsen’s Brager adds.
Interestingly, as the flavor boom is supporting the whiskey segment, it actually has been hampering the vodka category, Brager says. “When people were talking about vodka three or four years ago, it was all about flavors,” he notes. “But it also got to the point where everybody was launching flavors left, right and center. Some were more classic flavors, but there was a lot of weird and wild stuff like candy flavors and strange flavors and popcorn flavors and all kinds of different stuff. I think some drinkers might have thought that kind of denigrated the category almost. Vodka was never like that, and it got pretty crazy, and that’s totally changed now to where the non-flavored vodkas are growing faster than the flavored vodkas.”
Within the whiskey segment, by comparison, flavor options are more confined, with cinnamon and honey being the Top 2 flavors for the category, he notes.
Of course, this is not to say that the vodka category is declining. Chicago-based Information Resources Inc. (IRI) reports that the segment grew 3.8 percent in dollar sales to more than $1.7 billion in the 52 weeks ending Jan. 25 in supermarkets, drug stores, gas and convenience stores, mass merchandisers, military commissaries, and select club and dollar retail chains. Chicago-based Technomic Inc. also reports that vodka makes up one-third of total spirits volume.
Vodka flavors that still are growing include tropical and citrus flavors, like mango, pineapple, grapefruit, peach, cranberry and kiwi, Brager says. However, some of the previously popular flavors, like the confection and candy flavors, are down significantly, he notes. For example, cherry is down 14 percent, and vanilla is down 11 percent, he says. Among the new flavored vodka products launched in 2014, strawberry was the leading flavor, present in 4.9 percent of product launches tracked by Innova Market Insights, followed by lemon, peach and pineapple, each representing 4.1 percent of product launches, according to Market Analyst Natalie Tremellen. The Netherlands-based market research firm also noted more fruit flavor specificity in new product launches, including San Francisco-based Campari America’s Skyy Infusions Pacific Blueberry and Texas Grapefruit vodkas, she notes.
Outside of vodka, flavors represent growth opportunities for other spirits segments. “Half of Hispanics and a third of non-Hispanics indicate that they would like more flavored rums, and 47 percent and 31 percent of these groups, respectively, would like more flavored tequila options,” Mintel’s Roberts says. “Some
45 percent of all respondents would like more dark spirits with indulgent flavors, like vanilla, chocolate, caramel and dessert-inspired [options], and 40 percent would like more dark spirits with spice flavors, like cinnamon, and fruity flavors, like peach, raspberry, apple, etc.”
In line with these trends, Norwalk, Conn.-based Diageo North America released Captain Morgan Pineapple, Coconut and Grapefruit flavored white rums in February. The new flavors are five times distilled, made with fine cane molasses, and intended to be key ingredients for tropical cocktails, the brand says.
In general, rum performance has been flat during the past year with some of the biggest players struggling to achieve growth, Nielsen’s Brager notes “Consumers’ imaginations are being captured elsewhere by newer and more exciting things, and that hasn’t happened in rum,” he explains. IRI reports that the alcohol segment grew 0.1 percent to more than $648 million, with segment leader Captain Morgan growing 1.2 percent to more than $224 million in the 52 weeks ending Jan. 25 in IRI-measured channels.
For flavored tequila, the segment’s No. 2 brand, Las Vegas-based The Patron Spirits Co.’s Patrón, released Patrón XO Café Incendio, which combines the spicy flavor of Mexican arbol chile with rich Criollo chocolate and Patrón Silver tequila, last fall. The No. 7 tequila brand, el Jimador, a brand of Brown-Forman Corp., also launched Mango Mango and Mexican Lime flavored tequilas last summer. Mango Mango blends mango, tropical fruit and a hint of citrus with creamy vanilla notes, while Mexican Lime infuses lime flavor with el Jimador’s agave aroma, the brand says.
Premium promotions
Overall, the tequila segment experienced 5 percent volume growth and 4 percent revenue growth in 2014, with much of this growth coming from super-premium products, according to DISCUS.
Growth in higher-end products has been a trend across the spirits category as consumers gain more disposable income after the recession, points out Jeff Nowicki, chief strategy officer at Bump Williams Consulting Co., Shelton, Conn.
In 2014, the high-end spirits sub-segment’s volume grew the most at 5.8 percent, followed by super-premium at 5.1 percent, and premium at 3.1 percent, DISCUS reports. The value sub-segment declined 1.3 percent, it adds. DISCUS defines high-end products as those that cost $165 for a 9-liter case or $18-$30 a bottle, premium products as those that cost $100 a case or $12-$18 a bottle, and value as products that cost $50 for a case or less than $12 a bottle.
“Consumers just continue to trade up,” Nielsen’s Brager says. “That’s the reason between dollar growth and volume growth … [Consumers] might not be buying or drinking a whole lot more, but they’re certainly drinking a whole lot better. So, if you look at the sub-categories, most of the growth is coming from the premium and ultra-premium end, as opposed to the lower end or even the middle.”
Brager notes that the total spirits category was up 5 percent in dollars but 2.6 percent in volume in 2014.
The little guys
But stellar performance isn’t just coming from the big guys in the spirits industry, Brager notes. “In this category, if you look at some of the big successes like Tito’s [Handmade Vodka] or Deep Eddy or RumChata … they’re from more smaller companies,” he explains. “So there’s room for growth for even a small company that’s got a good brand but doesn’t necessarily have a large budget.”
For example, Tito’s Handmade Vodka, a product of Fifth Generation Inc., Austin, Texas, grew nearly 90 percent in dollar sales in the 52 weeks ending Jan. 25 in IRI-measured channels. This growth moved the brand to No. 8 of the Top 10 vodkas based on IRI data.
Brager points out that consumers are attracted to craft-type products because, “they’ve got that whole cache of it’s local, it’s got an authentic story, [and] there’s a person sometimes who can be identified as the original maker of the product.” A Nielsen consumer survey found that the Top 3 reasons consumers purchase craft spirits are because it’s a treat or something special for them, they like to try products that are new or at least new to them, and they like locally produced products. Millennials are especially drawn to these types of products because they boast tradition and history; they aren’t mass-marketed, fluffy or cutesy; and they offer a unique, well-made product, he says.
This consumer interest in spirits in general, as well as craft spirits, continues to create opportunities for small distillers, many of them entering the whiskey category, DISCUS reports. Now 712 distillers make less than 50,000 cases (an average of 3,000 cases) and 17 make between 50,000-100,000 cases (an average of 80,000 cases), it says. In total, small distillers contribute about 3.5 million cases to the spirits market, up from 700,000 in 2010.
However, craft spirits tend to be hard to define, as consumers and market research firms have different perspectives about what types of products should be classified as craft. Nielsen, which classifies brands like Templeton Rye, Angel’s Envy Whiskey, Jefferson’s Bourbon, Stranahan’s Colorado Whiskey and Hangar 1 Vodka as craft brands, says craft spirits make up about 2 percent of off-premise sales, with possibly more share in the on-premise market, and expects about 40 percent growth for the segment. “It’s still definitely on the upswing; it’ll get bigger,” Brager says. “But if you think about craft beer, that’s into double digits already, and it’s still climbing, so there’s still a pretty large gap between craft spirits and craft beer, but that also demonstrates where potential might be and some of the upsides.”
Brager’s outlook for both craft spirits and the overall spirits category is positive. “It comes from just all of the exciting things in the category,” he says. “There’s so many new things going on all the time, and, to me, it’s kind of a bendable, flexible category — you can mix things together, [and] there’s fusions with a little bit of this and a little bit of that. … For spirits, it just feels like the sky’s the limit.”