Analyst Insight by Spiros Malandrakis, Senior Alcoholic Drinks Analyst at Euromonitor International
Vodka has been recently facing an unexpected and rather ironic conundrum. Following years of passionate attempts to underscore its Russian heritage, tradition and credentials, this most versatile of categories is now finding itself in an unenviable position. In the wake of a spate of brutal attacks against members of the LGTB community across Russia and the introduction of draconian anti-gay legislation by an increasingly autocratic and populist Kremlin, gay bars from San Francisco to London have been actively participating in a boycott proposed by prominent columnist Dan Savage. The irony is threefold.
Firstly, contemporary corporate infrastructures and production conveyor belts are rarely nation-centric. In the case of vodka- and Stolichnaya in particular that has been rather unfairly singled out as a priority target for the boycott- ingredients could and in most cases are sourced from one country, distilling takes place in another for bottling to be finalised in a third.
Secondly, the Russian government not only lacks a significant stake in the vast majority of vodka brands but it has been recently treating the category with the same inclusiveness and understanding that it has proven to reserve for the gay community itself. Consecutive excise tax increases, the introduction of minimum pricing and a severe clampdown on sales through impulse channels and advertising are definitely not indicative of a symbiotic relationship with the industry.
Thirdly – and perhaps less obviously- the rainbow coloured danger in the mid-term horizon is largely the category’s own making and has little to do with gay rights or politics. The tsunami of ludicrous flavours unleashed over the past couple of years has indeed provided a solid short term boost in markets embracing them- most notably the US. Unfortunately, the key phrase here is short term.
Admittedly, the category’s 5% CAGR between 2007-2012 in the country would have been much smaller if not for radical flavour sophistication initiatives. Flavoured vodka variants more than doubled their share of the US market between 2007-2012 to reach 26% of volumes in 2012 and in that year actually took over the driver’s seat as non-flavoured variants declined. In other words; Beyond the seemingly positive top line momentum, flavour-driven cannibalisation has, alas, already began.
A Polarised future
As the boycott is –distractingly- dominating headlines across the vodka world, the category is still quietly making inroads in emerging markets. Posting more than 1% global volume growth for 2012 might not sound ground breaking but it is still an achievement for a category with such clout. While saturation issues are weighting heavily on the growth rates of North and Latin America, Australasia and Western Europe that –coming in at the low single digits- are increasingly pointing towards further slowdowns, Asia Pacific and AMEA are still booming.
And this brings us to the two pronged opportunity for the category. On the one side, vodka’s legendary neutrality and mixability will undoubtedly continue providing a stepping stone for drinkers of emerging markets to familiarise themselves with imported spirits and then aspirationally move up from there. This will drive volumes in a steady, if less ostentatious fashion than cognac or single malt whiskey.
On the other hand, premiumisation and authenticity should once again take the helm in mature markets before the category becomes a byword for alcopops. The Russian heritage fiasco and the industry’s apologetic , defensive mumblings could be used as an opportunity for underlining craftmanship rather than a sense of debateable national pride that can backfire at any given moment.
Yet as the boycott inevitably fizzles out and vodka slacktivism ends up in the social media purgatory, the category’s desert-flavoured sugar coating will soon begin to take its toll. A convincing narrative supporting premium aspirations alongside trustworthy and affordable economy options- such as Popov- providing a safety net in case of a renewed flare up of the Great Recession will be the category’s safest bets.