11: The vodka market - a global picture
The Global Vodka Market
Vodka remains dynamic despite Russian decline
Vodka remains the largest internationally trade spirit and Russia is still the largest market despite the decline there in the category. Renaissance Capital estimates that vodka sales may further decrease by a third within five years due to the government’s duty tax hike; its pressure on the illegal trade; and the shift by consumers to new categories. Much of this reduction is reported by IWSR as being in the indigenous vodka value brands. And it is the officially recorded sales that have fallen not necessarily unofficial consumption. According to some alcohol experts in Russia, the Russian alcohol market is heading towards a significant of consumption of illegal alcohol - both legally produced but with unpaid taxes and non-commercial alcohol such as samogon. One report shows that there has been recent growth in the premium and super premium segments - most obviously because of the economy’s recovery. This is followed up by Renaissance analysts who have commented that legal producers, particularly those at the premium end, may increase their profitability due to higher pricing.
Reports from other Principal Markets
In the United States, vodka sales of 62 million cases make up approx. 35% of the spirits market by volume according to Nielsen. IWSR have estimated that 2010 sales showed a 5.2% increase by volume and more recently, vodka has reportedly kept on taking market share every month. More recently, a category growth of 4% has been marked up due to the Premiums and ultra premiums. Sales in some sub-premiums have increased notably Sobieski which leaves the value end which has slowed a little. It has, however, been flavoured vodkas that have excelled across all price points. Over 150 new flavours or line extensions have been introduced already this year – the majority being indigenous domestic US products and the total being more than that for the whole of 2010. Some brands now have flavours with larger sales volumes than their original unflavoured base. One report suggests that this increase in flavoured vodka sales is continuing at both 'premium' and ultra-premium levels. There seems to be no softness in Vodka's growth in USA albeit that pricing is reported as possibly coming back a little.
In Canada, Spirits Canada report that Vodka surpassed Whisky as the largest Spirits volume category in Canada in 2010 and continued to grow in 2011. Total Vodka volumes have increased by 2.5% to 4,766,933 cases. Vodka volume represented 27.84% of total Spirits volumes, marginally ahead of Whisky sales at 27.03%. Domestic Vodkas represent 67% of sales volume and imports 33%. Flavoured Vodkas now account for nearly 7% of Vodka volumes.
Mention of the Americas must include Brazil, Chile and Argentina where there has been phenomenal increase in vodka consumption by 14%, 56% and 21% respectively by volume in 2010 according to IWSR. Again, the premium-and-above sector has been the star performer. As a further example of this growth, EU vodka exports to Brazil have more than doubled since 2009.
Vodka has had a less fortunate time in parts of Europe. The market is not just mature but has become congested due to the large number of brands. The economic crisis has taken its toll especially in Eastern Europe and coincidentally alcohol taxes have been increased as a measure to increase government revenue. Additionally, traditional volume consumers in some countries have moved on to new categories.
Moving to India, it is interesting how some of the same themes come through as elsewhere. Although vodka is still only 3% of the Indian spirits market, white spirits in general and vodka in particular are growing at 19% against an Industry average of 12% per annum. The reason is simple. Vodka is popular amongst the younger age profile and a great mixer and more ladies are taking to vodka and cocktails. New brands come to market and flavoured Vodkas are getting popular.
As for China, the vodka market has been declining marginally over the last 5 years in part due to counterfeits. There is no real cocktail culture and imported white spirits are not popular in modern On-Trade outlets.
Elsewhere, vodka sales are up by 3% in New Zealand according to DSANZ and 2% in South Africa. However, in Australia, reports vary but one suggests sales have been declining by volume, in line with all alcohol categories not least because consumer spending in all sectors has been hit hard by economic uncertainty. Against that, premiumisation has continued during 2011. The biggest recent market development has been the strong growth in sales of bag in a box vodka mixes for bar quality mixed drinks in the home.
Vodka in good health
Like gin, the outsider might be surprised how well the vodka market has held up despite the global economic concerns. Whereas the consumer traded down or simply purchased smaller volumes in many countries at the beginning of the economic downturn in 2008, there is now some stability with good returns being achieved at the top end. Third, again like for gin, it is obvious that the European market is congested and suffering from consumer spending malaise. But this has been more than balanced by the growth elsewhere – notably in India – and much helped by the innovation shown by a wide range of brands and market support notably by the majors. We are yet to see, though, how trade may react to any double dip recessions that may occur in western economies or reduced growth in emerging markets.