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In a time of declining sales categories and depressed margins, retailers should raise their glasses and toast the success of the alcoholic spirits category -- where allowed by law, of course. Fueled by new products, flavored line extensions, gift packs, and a move to high-priced and -margin superpremium and ultra products, the spirits category is on fire, outpacing beer and even wine in terms of growth. Consumers who can't seem to get enough of cocktails made with premium flavored vodka, tequila, rum, and gin at their favorite bars and restaurants are now looking to make them at home, which is where the local supermarket comes in. Several chains are even looking at expanding the shelf space allocated to spirits.
"Overall we're seeing very strong growth in the premium, superpremium, and ultra-premium segments of the business, while we continue to see the value segments of spirits soften across the grocery and club business," says Eric Dopkins, v.p., grocery & club, national accounts at Diageo, the Norwalk, Conn.-based producer of Smirnoff, Johnnie Walker, J&B, Jose Cuervo, Tanqueray, Captain Morgan, and other brands. The spirits industry is seeing total growth of 4 percent, while rum is up more than 5 percent, cordials up 3.3 percent, and tequila up over 7.5 percent, he notes.
"We're still seeing a very strong growth in vodka, fueled by super- and ultra-premium, and by the flavored category," Dopkins says. "Consumers are trading up," he adds, noting that since per capita consumption isn't increasing, that means consumers are switching to the premium brands.
"There are some definite changes going on right now in the spirits world in terms of merchandising," says Bill Akins, Albertsons team member for spirits at Brown-Forman, the Louisville, Ky.-based distiller of Jack Daniel's, Canadian Mist, Southern Comfort, Finlandia vodkas, and a bar full of other spirits and wine brands. "We're seeing more tie-ins with food, which hasn't been the case until recently," he says, noting that Brown-Forman has aligned itself with several industry councils, including those representing beef, pork, cherries, and olives. "We're finding that has been very well accepted by retailers, and they like to see more of this because it simplifies the consumer's shopping experience," he says.
"We're also doing the same thing with merchandising programs like our Grill Out, which includes Jack Daniel's, grilling sauces, charcoal, etc.," Akins says. "We try to tie those into an occasion and bring as many partners in as we can, in order to make that shopping experience easier."
That means thinking outside the box, or at least expanding it a little. "Before, a lot of brands were doing single-branded promotions," says Tim Laird, trade marketing director at Brown-Forman. But single-brand national promotions are on the wane. Barbecues mean more than just a bottle of wine and some hamburgers. They also include coolers filled with beer and soft drinks, as well as some spirits. "We used to think of beer as a share-of-stomach enemy, but we now think of it as a partner," Laird says. "And what's great for the grocer is that when we partner with a wine, beer, and a mixer, like Coca-Cola, we're showing the shopper how these go together."
Such promotions filter down into the grocery aisles, where they help boost sales of commodity items, like soft drinks and maraschino cherries. "There are a lot of grocery items where we actually enhance the margin because the shopper might not necessarily have bought that item if it hadn't been for the spirit or occasion," Akins says.
Plymouth on the rocks
Spirits are also lifting the overall register ring, especially as retailers stock more high-end items, like Brown-Forman's Glenmorangie Single Highland Malt Scotch and Woodford Reserve Kentucky Straight Bourbon Whiskey, and Absolut's Level vodka. "If you can take a $38 bottle of scotch and put it in your cart, come checkout time that's a significant difference," Laird says. "With those types of brands it doesn't take a lot of inventory, but they're great to have on hand. And at the checkout it becomes a tremendous ring!"
That ring may be further increased when shoppers toss in some Plymouth Gin, a spirit that has been distilled in Plymouth, England since 1793. Now it's having its U.S. distribution expanded by the Absolut Spirits Co., which owns the brand. "There are three types of gin: London gin, Dutch gin, and Plymouth Gin," notes Lorne Fisher, director of public relations & events at New York-based Absolut. "Plymouth uses more sweet botanicals than bitter botanicals, which really lends to its taste."
This spring Absolut, which celebrated its 25th anniversary in the United States April 20, introduced Level vodka. "Level is our first superpremium vodka," Fisher says. "It's the perfect balance of smoothness and character."
Level is being launched with a $10 million marketing campaign. "We launched it with TV. It's the first time we've been on TV," Fisher notes. This year Absolut also launched Danzka vodka in the United States. "Danzka has been on the duty-free market for more than a decade," he says. Part of Danzka's appeal is that it's the only vodka packaged in an aluminum bottle. "You can pop it into the freezer and it'll chill in less than an hour."
Vodka may taste best chilled, but right now flavored vodka is the hottest thing in the liquor aisle, boasting a growth rate of some 20 percent, according to industry officials. For example, in addition to its original flavor, Danzka also comes in Grapefruit, and next month will see the introduction of Cranberry/Raz. "It's the first combination of cranberry and raspberry in vodka, and the uniqueness of that flavor will add to the Grapefruit and really set Danzka apart," Fisher says.
Expanding shelf space
Skyy Vodka just launched a Melon flavor. "What we try to do on the flavor side is create a complex blend of flavors," says Jay Turner, brand manager, U.S. Business, Skyy Vodka at Skyy Spirits in San Francisco. "Skyy Melon is a unique blend of honeydew, cantaloupe, and watermelon."
In addition to original and Melon, Skyy also has Citrus, Spiced, Berry, and Vanilla flavors. Look for the company to introduce additional varieties by the end of the year. "We're constantly evaluating new flavors," Turner says.
He suggests retailers cross-merchandise to generate trial. "With this whole flavored-vodka craze, people want to sample, but they don't necessarily know what to sample with," Turner says. "Show the consumer how to make these drinks, so they can buy a bottle of Skyy Citrus, or make a display with our nonalcoholic Skyy Cosmo Mix, so people have a convenient way to make these flavorful cocktails at home."
This summer look for the Smirnoff set to get even bigger as Diageo adds Smirnoff Strawberry and Watermelon vodkas to its lineup.
All of these new flavors can lead to overcrowding on the shelves, so manufacturers suggest that retailers cull some of the lower-margin popular varieties, the ones that are often packaged in 1.75-liter plastic bottles retailing for less than $10. "We're continuing to maintain our space," Diageo's Dopkins says. "What we've done is move more toward an over/under set. In the past we maintained an eye-level position, but now with the expanded flavors, we've put the 750-milliliter bottles at eye level and the 1.75-liters below them."
Manufacturers -- and retailers -- are looking to capitalize on the increased sales trend by expanding shelf space. "We've had a lot of dialog with Safeway and Albertsons recently," says Dopkins, noting that Diageo is the category captain in those chains. "What we're seeing is a trend to start expanding the spirits category, based on the strength we've seen over the past year or two. The category is expected to see significant growth between now and 2007, and so we're looking at expanding the footage within the department."
Gift boxes are also helping in that growth. "We keep challenging ourselves to say, 'Is there something else different out there?' but consumers keep going back to gift sets and are looking for the standbys, like glassware and tins," according to Laird of Brown-Forman. "That's why this Christmas Jack Daniel's is going to come out with another collector's tin item. Our Finlandia Vodka is coming out with some unique martini glasses, with recipes. Glassware and tins really seem to dominate. Consumers just really love those items."
This Christmas Skyy Vodka is also going the martini-glass route, but with a twist. "We're going to be offering an oversized martini glass as a display vehicle that will have oversized Skyy gift box replicas bursting from it," Turner says. A key part of Skyy's holiday promotion is its gift box, which is made of a premium foil and comes with a vellum gift tag, all in Skyy's traditional blue color.
It's a good idea to start displaying those gift boxes around Halloween, to get a jump on the Christmas rush. "We see gift boxes out there from Halloween all the way through mid-January," Turner says, "but we find it pays to make it very nondenominational because once the holiday is over, people don't want to buy it with icons and themes on it."
Diageo has several gift packs planned, including Crown Royal, Crown Royal Special Reserve, Don Julio tequila, and Bailey's Irish Cream, which is teaming up with the Rock & Roll Hall of Fame to distribute a gift pack containing a CD-ROM and CD/DVD with music from several big-name stars, including the artist once again known as Prince.
Since retailers can't send back unsold gift packs, Dopkins suggests that they order and display them early in the season. "What we're seeing as a trend is that retailers are getting smarter and taking product earlier vs. later, to try and move through the gift packs by early December," he says. "Typically, after the holidays the retailer will break down the packs or discount them, but very seldom do we see product on the floor post-Jan. 1."
Liquors might also work well with a low-carb display. "You're going to see a lot of spirits touting zero or low carbs," Laird says. "They've always been mostly zero carbs, but now they're getting behind that. Finlandia Vodka is coming out with Carb Free Cocktails, and I think you're going to see other brands doing that, as well. This is something new and different for the spirits world."
And its products sure taste a lot better than a lot of the other low-carb stuff on the market.