Despite evidence of sluggish sales in the global spirits market, manufacturers can still find impetus for growth in several areas, through focusing on specific brands and boosting their presence in certain regions, according to a new report from Euromonitor.
Manufacturers are facing higher levels of maturity than ever before in the global spirits market, and are concentrating their efforts on penetrating less developed markets to compete more effectively against cheaper local spirit brands, the report suggests.
In contrast, markets where western spirits are most mature, most notably Western Europe and North America, are seeing fiercer competitive activity amongst top rival brands as manufacturers seek to enhance the image of their core brand portfolio through extensive marketing campaigns in both off-trade and on-trade sales.
Faced with this extremely mature market, companies are looking for opportunities elsewhere, in particular the emerging markets of Asia Pacific, Eastern Europe and Latin America. Even the big multinationals such as Diageo, Pernod Ricard or Allied Domecq have relatively small volume shares in many of these markets, which continue to be dominated by popular local products such as shochu, vodka and caçacha.
Sales of imported spirits in these regions will be strongly driven by fashion trends and marketing efforts, Euromonitor suggests, and will strongly depend on the success of global players in persuading consumers to trade up to international brands, rather than local spirits.
This can be seen in countries such as South Korea, for example, where the major players have had some success in persuading consumers to switch to Scotch from local drinks such as soju, a rice wine. In fact, South Korea is now one of the biggest markets in the world for premium blended Scotch - brands such as Ballantine's or Chivas Regal, for example - and companies will hope to mirror this success elsewhere.
Euromonitor expects that imported spirits such as Bacardi and Smirnoff will benefit from their fashionable image, while makers of Scotch whisky and Cognac will be able to capitalise from their international reputation as quality products. With several countries such as India and the Philippines expected to open up further to overseas competitors, manufacturers will be sure to have their eye on setting foot in these areas to boost their global presence in future years, the report suggests.
Seagram deal shifts the goalposts
The most important deal in the recent history of the wine and spirits sector - the 2001 takeover of Canada's Seagram group by Diageo and Pernod Ricard - continues to have a major impact on the market. The departure of Seagram resulted in a marked reshuffle between the top five competitors, as well as adjustments in future trend evaluations, Euromonitor claims
Seagram's assets and extensive brand portfolio were mainly redistributed between Diageo and Pernod Ricard, thus boosting the competitiveness of these two players significantly. Pernod Ricard achieved the most significant gains, acquiring several prominent brands including blended whisky brand Chivas Regal and Cognac brand Martell.
Euromonitor estimates that Pernod Ricard's strength is set to challenge rival players significantly in the next two or three years, as the company unveils its range of large-scale campaigns and marketing events to boost publicity for its core brands.
Diageo is also expected to benefit further in the long-term future, as it continues to work on maintaining its existing range of spirits, as well as focusing on its newly acquired brands, including Captain Morgan rum and Godiva cream liqueur, both previously part of Seagram's portfolio.
In contrast to the success of Pernod Ricard and Diageo, Allied Domecq is likely to lose out in the great spirits market shake-up, Euromonitor claims, having already missed out on the opportunity to acquire any brands from Seagram's break-up in 2001 (although it did acquire Malibu from Diageo after the latter was obliged to sell the brand to proceed with the Seagram deal).
Euromonitor's report pinpoints other significant brand acquisitions such as Brown-Forman's purchase of Finlandia and Campari's purchase of Skyy Vodka in 2002, which may potentially shape the global market substantially in future years.
The power of advertising
The report also analyses how high profile television campaigns and promotions through on-trade outlets stand out as the main feature in Western European and North American markets, a key weapon for brand owners in these mature markets.
The UK was one such market, with particularly prominent television advertising for Bacardi and Malibu, among others, as well as for female-targeted brands such as Bailey's Irish Cream, which sponsored the comedy drama Sex and the City in a bid to reach its audience of women aged 18-35.
Euromonitor also highlights the effectiveness of campaigns launched on an international scale, such as the publicity surrounding Finlandia vodka, which was promoted alongside the blockbuster James Bond film, Die Another Day (and effectively replaced Smirnoff as the super-spy's vodka of choice).
Into the mix
Another trend highlighted by Euromonitor is the widespread attempts of the major spirit producers to combat the unhealthy image of hard spirits. Developed markets have seen companies positioning their brands as products to be mixed with soft drinks, as a healthier alternative to straight spirits drinking and also to attract younger people to a market which has traditionally attracted older consumers.
Vodka commands the second highest volume share of the total spirits market, mainly because of this suitability to be drunk with mixers and other soft drinks, Euromonitor suggests. Whisky/whiskey, identified by the market analysts as one of the strongest performing sectors in terms of volume growth and despite its relatively low market size, is also boosted by brands such as Brown-Forman's Jack Daniel's, which has managed to establish itself in several countries as the ideal companion to cola.
For details of how to order this Euromonitor report, click here.