White spirits: At a premium

Recent data gathered by licensed trade research group CGA Strategy for The Publican (see link, below right) throws new light on the premiumisation trend in white spirits, showing the extent to which it is taking hold in vodka, gin and white rum.

The figures, based on CGA's visits to 5,700 pubs and sales data gathered from a larger sample, compare the UK pub trade's sales of white spirits in the year to June 2007 to its sales of white spirits in the year to June 2008.

The gin and vodka categories are singled out for particular focus, and each spirit is broken down to show the trends for super premium, premium, standard and value products.

These classifications of brands are a moot point - few brand owners want their work labelled anything other than 'premium' or 'super premium', and there is no simple way of defining these terms. It can not be done via ABV, as this measure does not apply in spirits in the same way it does in beer, where stronger products are considered premium. Premium spirits are more likely to be seen as such because of the image that marketing teams have created for them, but there is no reliable way of measuring style. CGA's definition of 'premium' draws on a combination of on and off-trade pricing, ABV and product perception research.

For the purposes of this analysis, it is safe to assume value means own-label brands; standard includes Gordon's and Beefeater in gin, and Smirnoff and Vladivar in vodka; premium includes Tanqueray and Bombay Sapphire in gin, and Stolichnaya and Absolut in vodka; super premium Tanqueray 10 and Hendrick's in gin, and Smirnoff Black Label in vodka.

Gin and vodka are then further broken down into sales by different categories of pubs. CGA has placed pubs into bands headed food-led, circuit bar and local/community.

Overriding trend​

The overriding trend that the data points to is the growth of the premium end of the market and the decline of the standard end.

The exciting development of premium brands as white spirits have successfully been positioned as modern, fashionable and mixable has helped gin, vodka and white rum remain relatively strong. Yes, they are all in decline, but not as much as the on-trade drinks market overall. Recent figures put the overall on-trade spirits market down six per cent in volume terms, year-on-year.

Crucially, while the volumes of gin, vodka and white rum sold in pubs all fell in the past year, the value in each case rose. This points to the success of 'premiumising' the sector. As premium variants have become more prominent, licensees have been able to charge significantly more for gin, vodka and white rum. The value figures, recording the price consumers pay over the bar, demonstrate that savvy retailers are seeing an increased return on sales of premium products.

Gin is doing particularly well, only declining 2.6 per cent in volume and rising three per cent in value. However, vodka has also put in a decent performance, remaining a stalwart of the back bar. And just look at the leap in value of white rum sales. While pubs are selling far less of it (4.7 per cent less), they have clearly been making far more money from it than in the year before.

Top-end movement​

When it comes to analysing premium white spirits against standard white spirits, the top end is in massive growth in volume and value, while the standard and value brackets have shown declines. This trend is most acute in gin.

So, we are seeing definite movements towards premiumisation. But let's not get carried away here. It must be noted that premium and super premium have grown from small bases, and that the size of the standard sector, while in decline, still dwarfs the more up-market brands.

Some have been left with a sneaking suspicion that the trade has gone too far in pursuit of the exclusive and the up-market.

Is premiumisation a trend that is helping pubs in these tough times to pull in more punters, or have suppliers gone too far with basing their ranges on premium products, at the expense of the pub trade's bread and butter brands? Are pubs in danger of over-estimating the need for premium spirits? What of the Beefeaters and Smirnoff Red Labels of this world now that their higher-priced variants Beefeater 24 and Smirnoff Black Label are receiving more focus?

The movers and shakers of white spirits gave us their thoughts...

Liam Newton, Bacardi director of marketing

Bacardi is the brand most associated with the standard sub-sector within rum.

It is in a good position to answer the question of what happens to the more mainstream brands as the premium end develops. Newton is confident that standard white spirits will continue to play a major role.

"We are continuing to invest heavily in the pub sector by offering value-added point of sale materials and practical bar-tools to drive visibility for spirits and rate of sale for outlets," he says.

Bacardi's main concern recently has been promoting mixability, with many saying this is where standard white spirits are most effective and profitable. In one initiative, it delivered more than 18,000 £80 mixability kits to pubs.

Graham Donald, Matthew Clark marketing manager

"Getting the right range is key," says Donald. "Our trade customers need to carry a range that's appropriate for the consumers coming through the door. In some instances, adding premium brands can add an incremental profit, great cash margins. I would always say if there's a market for it, premiumisation is worth having a look at."

He points to pubs taking the unusual step of stocking two vodka brands and two gin brands - one in the standard category and then leaping straight up to a super premium one. This can work, Donald believes.Andy Corris, Russian Standard senior brand manager

Andy Corris insists that suppliers' increasing focus on premium brands is down to consumer demand, and says: "We would always encourage licensees to tap into the increased consumer demand."

He believes in the importance of brands. There is something about the premiumisation trend that is making drinkers identify with products more than just generically and "bar call" the spirit names they associate with quality.

Suggesting that premium is defined more by marketing than by the quality of the liquid, he says: "Our perception is there is not a huge gulf in pubs and bars between standard white spirits and those of the more premium variety.

"It is the brand that matters as this can speak volumes for the establishment, especially when consumers are offered a more premium drink as the 'house' serve."

Patrick Venning, Pernod Ricard head of marketing for gin

Pernod Ricard recently launched Beefeater premium brand extension 24.

Venning explains the motivation: "As the CGA data suggests, the super premium category is in growth, there are new gin drinkers and the average price licensees can command for gin is growing. Those three things suggest there's an opportunity."

However, he tempers this by saying that one of the main aims of the launch is that it will help the stylish image of Beefeater overall.

Is there a danger of pubs over-estimating the demand for premium white spirits? "Pub managers are the ones who understand their customers and have to decide," Venning answers.

"But importantly, if they do go premium, they're the ones who are in the position to explain to customers the benefits of trading up."

Will the 'R' word affect the ability of pubs to sell premium white spirits? "The recession hasn't changed our thinking on product development yet. But further into the new year? It's fair to say there's a note of uncertainty."

Russell Jones, Diageo category development director

There is no point having premium brands if you can't first serve your spirits perfectly, advises Jones.

He says: "Job one is