spirits
The IWSR Magazine has exclusive access to the full IWSR database, which tracks 20,500 brand lines across 125 countries with the annual input of more than 1,850 companies. this Issue 4 Spirits news 7 News analysis Diageo sees profits tumble, but looks to fight back 8 Finance review A look at what 2015 holds for the spirits industry 10 New products & marketing 12 Cocktails How brands can use a signature cocktail to their best advantage 16 Profile: Cointreau The brand taps into the cocktail culture 17 Absinthe The category plays on a youthful image 19 Sambuca The Italian spirit’s suppliers see scope for growth 22 Premium white spirits Is there a ceiling on the sector’s potential? 26 Interview: Synergy As the vodka market in Russia faces challenges, the company expands its portfolio 28 Scandinavia Nordic consumers rebuild their confidence 30 Wine news 31 Silicon Valley Bank The latest report forecasts a break-out year for US fine wine 32 Supply and demand How is the balance working in wine? 33 Interview: Foncalieu The co-operative’s view on its region’s potential 34 Future regions Where will the next great wine come from? 35 Beer, cider and pre-mix news All details contained in this publication are believed to be correct at time of going to press. All rights reserved. Nothing may be reprinted or reproduced in whole or in part without the written permission of the publisher. Published by System Three Communications (London) Ltd 2015 © Printed in the UK by Rapidity. Comment Alexander Smith The IWSR Magazine Editor-in-Chief This month we look at the premium white spirits segment, an area of the drinks market that continues to be vibrant despite challenges. Taken in aggregate, total premium-and-above white spirits enjoyed a very healthy 5.4% compound annual growth rate (CAGR) over the past five years. Vodka, which accounts for just under three-quarters of this total volume, is still growing on a global basis. Yet it faces challenges. In the US, vodka is coming under pressure from a number of different sources. The whisk(e)y revival, and the popularity of flavoured spirits, in particular, is a real threat. The larger challenge is generational. US Baby Boomers came into the spirits world through vodka, adopting brands like Absolut and, later, Grey Goose. Now, the ensuing Generation Xers and Millennials are looking to differentiate themselves from their parents by drinking other spirits, particularly whisk(e)y. Vodka is still a vast and highly profitable category in the US, but it undoubtedly will have to work harder to maintain its pre-eminence. The problems are not confined to the US. Russia is the second-largest premium vodka market. The slowing economy, falling consumer confidence and a contracting on-premise sector has impacted high-end vodka purchasing. While it is undoubtedly going to be a tougher road to hoe in these core markets, there are opportunities elsewhere. Brazil, the UK, Canada, Australia and Israel are all showing high-end vodka growth from smaller bases. Duty free has been particularly hospitable, adding some 440,000 cases over the past 10 years. “Premium-and-above vodka has hardly made a dent in Asia, with just 200,000 cases” Perhaps the greatest untapped opportunity for high-end vodka lies in Asia, which on surface should be a natural market, given Asians’ proclivity for drinking for status. Yet vodka has scarcely made a dent, with total premium sales across the region standing at just 200,000 cases. There are a number of theories as to why Western white spirits have failed to gain traction in Asia – and that is worth an entire article in itself. However, one of these is that generational cycles are probably as relevant in Asia as in the West. There are signs in important premium markets, such as South Korea, that younger consumers are also looking for something different. In east Asia Cognac and Scotch have been around a long time. Given the broader international view of younger consumers, this would suggest the time has come for vodka, as well as more contemporary whiskies such as Jack Daniel’s or Jameson. There is a subtle change in the Asian consumer from buying for display ‘face’ to buying as part of lifestyle (that is, less to impress and more to buy because they can). This favours categories other than Cognac or Scotch. The potential for Western white spirits to succeed in Asia is there. It hasn’t and won’t succeed unless there is a deeper understanding of Asian culture, tastes and requirements – probably on a country-by-country basis. Only then will they gain a role in Asia’s premium drinking repertoire. Editor-in-Chief Alexander T Smith Email: [email protected] Production Editor Eluned Woollven Editorial Assistant Thalia Fourie Email: [email protected] Publishers Val Smith Alastair Smith Marketing & PR Helen Windle Email: [email protected] Subscriptions Stefano Giacoia Email: [email protected] Advertising Rina Maiden Email: rina@@theiwsr.com Researchers Adam Zdan Michajlowicz Agata Andrzejczak Alastair Smith Ania Zymelka Daniel Mettyear Giles Gough Guy Shingles Helen Windle Humphrey Serjeantson José Luis Hermoso Konstanze Kugler Piotr Poznanski Roza Prosser Sandra Newman Simon Molony Sophia Holliday Tim Simmons Tommy Keeling Val Smith News Please send us your news, views, photos and comments To contact us The IWSR Magazine 39 Moreland Street, London EC1V 8BB, UK Tel +44 (0)20 7689 6841 Fax +44 (0)20 7689 6827 Email [email protected] ISSN 2046-5769 February 2015 3 spirits news shorts a brief round-up of news from across the industry General USA During 2014, nine-litre spirits case sales in the control states grew at 2.5%, more than doubling 2013’s growth rate of 1.1%, but lagging 2012’s 3.6%. Shelf dollars grew at 5.1%, eclipsing 2013’s 4% and were close to 2012’s 5.6%. As reported for 2013, 2014’s volumetric growth, although improved, remained soft relative to control states’ average growth during the past 15 years. On the other hand, growth is trending up, which suggests 2015 will be a more robust year than that delivered by 2013 or 2014. Brandy/Cognac's 7.4% annual growth rate, compared to 2013's 2%, is noteworthy. However, once again, Irish whiskey lapped all categories with an annual growth rate of 11.6%, down slightly from 2013’s 12%. past year or so. That relationship has worked out very well indeed and we are ready to take the next step.” At the same time, Van Gogh Imports will change the name of the company to 375 Park Avenue Spirits to better reflect its diversified product portfolio. Mergers & acquisitions Mexico Pernod Ricard has signed an agreement with Grupo Bepensa for the sale of Caribe Cooler, a major brand in the Mexican ready-to-drink market. The transaction also includes the bottling line related to the production of Caribe Cooler, together with the relevant inventories. This disposal is in line with the group’s strategy to focus on its priority spirits and wine brands. Italy Gruppo Campari has agreed to sell the Limoncetta di Sorrento business to the Italian company Lucano 1894 for €7m ($7.9m). In another deal, Gruppo Campari has agreed to sell the federated pharmaceutical division of J Wray & Nephew (a fully owned subsidiary) in Jamaica to Kirk Distributors. The purchase price is $14.4m. The company said these transactions underline the Gruppo Campari strategy of strengthening its focus on its core high-margin spirits business via streamlining of non-core businesses. Denmark Altia's alcoholic beverage plant in Svendborg, Denmark, will be closed down during 2015 as the contract production at the plant ends. Earlier this year Altia relocated its wine and glögg production from Denmark to Rajamäki, Finland. The reasons for closing down the plant are Altia’s cost-saving programme and the decision made by one of Altia’s contract customers to take over of the production of its own brand. Altia’s logistics centre and sales of Altia own and partner brands will continue normally in Denmark. Distribution USA Van Gogh Imports is to become a fully integrated sales company inside Sazerac, effective 1 March 2015. CEO and chairman Norman Bonchick said: “We have been working closely with the Sazerac Company through its SLS logistics division over the USA The Charmer Sunbelt Group, one of the leading distributors of wines and spirits in the US, has acquired its partners’ interests in United Distributors in Delaware and Beverage Distributors in Colorado. Over the past few years Charmer Sunbelt completed the 4 February 2015 acquisition of its partners’ interests in Virginia with Associated Distributors and in South Carolina with Ben Arnold. In September 2014 CSG acquired its partners’ interest in R&R Marketing in New Jersey. “The completion of these five acquisitions marks a major milestone for Sunbelt,” said Charles Merinoff, CEO of the Charmer Sunbelt Group. “Having accomplished our goal of simplifying our ownership structure, we are well positioned to maximise our strategic alignment with our suppliers.” South Africa KWV has taken over from RGBC as the exclusive distributor of Stolichnaya vodka in South Africa from 1 January 2015. Stoli Group, part of SPI Group, extended its strategic agreement with KWV to include South Africa and a further eight markets in the region. KWV sales director for spirits Werner Swanepoel said: “The SA liquor industry has become extremely competitive, with new trends, categories and brands entering the market. With globalisation, the SA consumer is looking for new and trendy products, mainly driven by international brands. With international brands like Stoli and Lucas Bols, a leading international liqueur (for which KWV has also signed a distribution agreement), added to the KWV portfolio, this extends our entry into new categories and new channels.” Financial Poland Stock Spirits Group, a leading Central European spirits producer, said that the shipments slowdown resulting from a duty increase in Poland continued through the fourth quarter ended 31 December 2014. Poland had raised excise duty by 15% in January 2014. The company said: “In November 2014 the company reported that the third quarter had been a difficult trading period, particularly in Poland where we had seen disruption in the supply chain resulting from the duty increase. This disruption continued throughout the fourth quarter. Despite continued aggressive competitor activity in Poland, Stock Spirits Group has maintained its value share in the market, but has seen a small decline in volume market share.” Poland accounts for 60% of Stock’s total revenues. The company noted that the total market data indicated that consumer volume trends in Poland slightly deteriorated in October and November, giving a year-to-date (end November 2014) decline of -4.4%. Netherlands At press time, Lucas Bols Holding, a 440-year-old Dutch spirits producer, was due to launch an initial public offering (IPO) on Euronext Amsterdam. Gross proceeds of the sale of new ordinary shares by the company are expected to be around €125m ($141m) and will mainly be used to refinance the company and further strengthen its financial position. Lucas Bols CEO Huub van Doorne said: “We see the intended IPO as a logical next step in the development of our company. After our buy-out in 2006, our current main shareholder, AAC Capital, has supported us in our strategy to focus on brand building and innovation. The company is now fully prepared for a standalone future with an enhanced capital markets profile to support our international growth strategy.” spirits briefs People France The Rémy Cointreau Group has confirmed Valérie Chapoulaud-Floquet as CEO. Chapoulaud-Floquet has announced a management reorganisation. The executive committee has been increased from six to 12 members with the addition of the managing directors for the markets (EMEA, Americas, Asia, and global travel retail), as well as for the brands (House of Rémy Martin, Louis XIII and Mount Gay, liqueurs and spirits, Bruichladdich and The Botanist), who will now report directly to Chapoulaud-Floquet. UK Bacardi has announced the promotion of Dmitry ‘Dima’ Ivanov to chief marketing officer of Bacardi and president of Bacardi Global Brands. Ivanov will also serve as a member of the Bacardi Global leadership team and report to Bacardi CEO Mike Dolan. Ivanov most recently served as the vice-president – global category director of rums. He will remain based at the Bacardi Global Brands headquarters in London. He succeeds Andy Gibson, who will leave Bacardi at the end of March to ensure a smooth transition. USA Patrón Spirits International has appointed Matthias Knoll as vice-president Europe, Middle East and Africa. Knoll will report to Dave Wilson, president international and global COO. He joins Patrón from Bacardi Germany. USA Constellation Brands has appointed Bill Newlands to its executive management committee as chief growth officer reporting directly to president and CEO Rob Sands, a newly created position to help manage Constellation's long-term growth strategies. Newlands will be responsible for leading corporate strategy and business development. A veteran of the beverage alcohol industry, Newlands has 30 years of leadership experience with companies including Beam Inc., Allied Domecq, Wine.com, LVMH and E&J Gallo Winery. USA Brown-Forman Corporation has made several new appointments. The company has promoted John Hayes to senior vice-president, chief marketing officer of Brown-Forman brands. Most recently, Hayes was global managing director, Jack Daniel’s brands. Mark McCallum has been appointed to executive vice-president and president – Jack Daniel’s brands, effective 1 February 2015. McCallum most recently held the position of executive vice-president, president for Europe/Africa, Asia-Pacific and travel retail. Tim Nall has been appointed to chief information officer. Most recently, Nall served as director of technical services on the global production team. Gustavo Zerbini has been named country general manager – India, based in Delhi. Since joining Brown-Forman Brazil in 2011, Zerbini has served as commercial director of sales and marketing. USA The Charmer Sunbelt Group, one of the US’ leading distributors of wines and spirits, has announced the promotion of Greg Baird from his current role as chief operating officer, to president, effective 1 January 2015. Baird will oversee the Charmer Sunbelt organisation – with expanded oversight of legal, government and regulatory affairs and corporate development. Baird will report to Charles Merinoff, chairman and CEO. February 2015 5 15 -17 March 2015 Düsseldorf, Germany International Trade Fair for Wines and Spirits www.prowein.com UNIQUELY DIVERSE. 5,000 exhibitors from 50 countries, a comprehensive ancillary programme, excellent organisation. Come and experience the world of wines and spirits at its very best. Online tickets at: www.prowein.com/ticket2 Messe Düsseldorf GmbH P.O. Box 10 10 06 _ 40001 Düsseldorf _ Germany Tel. + 49 (0)2 11/45 60-01 _ Fax + 49 (0)2 11/45 60-6 68 www.messe-duesseldorf.de ER W ST NO GI E RE LIN ON Presented by Whisky Magazine and The Drinks Report THE GLOBALWHISKIES & SPIRITS BUSINESS SUMMIT In its 10th anniversary year, the World Whiskies Conference has evolved to reflect the growing trends of this dynamic sector by becoming the Whiskies & Spirits Conference. It takes place, for the first time, in two continents on two dates, providing all parts of the industry with dual opportunities to learn from others and network with key decision-makers in the leading spirits markets of the world. Whiskies & Spirits Conference North America Tuesday 24th February 2015 Chelsea Piers, New York PLUS Presentation of the Whisky Magazine American Hall of Fame inductees Delegate rates $349 to $425, depending on delegate numbers Whiskies & Spirits Conference Europe Thursday 19th March 2015 The Waldorf, London PLUS Presentation of the World Drinks Awards 2015 winners Delegate rates £199 to £255, depending on delegate numbers IN ASSOCIATION WITH Headline Sponsor Conference Partners Find out more about speaking, sponsorship or attending by emailing: [email protected] Book online @ www.whiskiesandspiritsconference.com news analysis Diageo takes the hit... and moves on Despite a fall in first-half profits of -18%, Diageo claims there is improving momentum in its business Diageo said that reported net sales in the half to 31 December fell -1% to £5.9bn ($8.9bn), with volume down -1.9%. Operating profit fell -18% to £1.66bn ($2.5bn). Reported net sales and operating profit were significantly impacted by negative foreign exchange, driven by the strengthening of the pound against many currencies, in particular the Venezuelan bolivar, the Russian rouble and the euro. The overall currency drag on operating profit was £268m ($403m) for the period. Diageo CEO Ivan Menezes said: “There was a huge currency hit. Our profit decline was essentially due to currency movements. If you take currency out our organic profit grew 1%.” He added: “We have already taken action to improve the performance of those brands and markets that have not performed as well as we would expect. This contributed to our stronger second-quarter performance and I expect to maintain this momentum through the year.” Speaking to journalists in London, Menezes said: “Overall, the business has improving momentum; our business was stronger in the second quarter than the first quarter in a lot of the markets. Top-line growth is strengthening.” He also noted that Diageo witnessed strong margin expansion. “In the developed world our business is solid and stable. Over the past 18 months Western Europe has been steadily getting better. The US is a tale of two consumers. The high-end consumer is very strong and our top-end brands are doing very well. The middle-market consumer is hopefully coming back, but we are still a little cautious about pronouncing a consumer recovery in the US. Two-thirds of our emerging markets are in good growth. A third of the business is still challenging – Russia, Venezuela and Nigeria, in particular, are struggling with some of the oil impact… The world is still economically and politically uneven. We are not counting on a big bounceback or improvement. However, what we are counting on is our performance to improve and a lot of the fundamentals that we are putting into the business are beginning to pay off.” Net sales in North America were flat, while volume fell -2%. High stock levels impacted Smirnoff net sales which were down -8%, while Captain Morgan net sales were down -9% as the brand suffered from increasing competition in the spiced rum category. Menezes attributed the problems with those two keys brands to aggressive price increases in past years. He said that any pricing increases in 2015 would be more moderate and that promotional activity would feature more heavily. Ivan Menezes, CEO: ‘huge currency hit’ “We are growing about 2.5% in value depletions in North America. Within that, the space that got most competitive was the midmarket, especially in vodka. Smirnoff has been underperforming and lost share. The high end of North America has been doing extraordinarily well. All our top-end brands are doing well. The US is just a fantastic market for us. We have come through a period where we have slightly underperformed. We have every intention to get our business performing there.” Commenting on the whisk(e)y revival in the US, he said: “The quality, craftsmanship and taste of whisk(e)y is gaining currency in North America. It is evident in popular culture that whisk(e)y is back and hot. Johnnie Walker, Bulleit, our single malts or competitor brands are bringing interest back to the category. Taste profiles have moved to appreciate whisk(e)y more. It is a trend that has been building for several years and is one that is good for Diageo.” Africa was a bright spot – sales increased 5% and volume 9%. Within that, beer sales grew 4% and spirits 19%. Menezes said: “We are growing pretty much across the board in all African markets… It is a really good growth engine for Diageo and it is great to see momentum improving.” On the long-term prospects for Africa, he said: “The economic growth projections are good and the demographics are extremely good, so when you put the two together it is very favourable. You can add urbanisation to that. We start from a position of strength there. It all bodes very well for our categories.” Net sales in the Asia region fell -5% and operating profit -7% as China’s crackdown on luxury consumption took a toll. Diageo has reduced its marketing outlay in the region by -15% in response. Diageo said that the performance for Asia-Pacific reflects inventory reductions and a tough comparison against high shipments in south-east Asia last year, and weakness in Scotch in China. Sales in Europe were down -4% on a 1% volume decline. “We are now outperforming the competition. It is the results of actions like expanding our sales forces in Europe and increasing our marketing spend. Europe is still a tough environment, but we are playing a more offensive game and stepping up investment and execution. You are starting to see that pay off.” Diageo took majority control of the USL business in India during the period. It said that it was now moving from the governance phase to the operational phase. Menezes said: “We are pleased with how it is going. The integration is going fine. We are in control. We are making all the changes. We are upgrading the portfolio. The strategy is clear. Operationally the business is getting in better shape and it is performing well for both the USL brands and Diageo brands. When you look at where this business was and where we are, we are on track. If anything, the economic and consumer environment in India is only getting better. Johnnie Walker was up some 50% in India in the half year. When we put the USL and Diageo brands together, India will be a good accelerator for the company.” Menezes noted that the continued strong performance of high-end Reserve Brands, up 10%, was a key driver of positive overall price/mix. “[The] Reserve Brands [are] growing really strongly around the world. It is still very early days in terms of what we can do at the luxury end of spirits.” Diageo has scaled back its planned investment in Scotch whisky production. Diageo CEO Deirdre Mahlan said: “Certain aspects of that investment programme have been slowed rather than suspended. We are still investing in a number of those expansion projects. There were new-builds and projects that we had planned to start, but we have put those on hold. We will put them back on when we see a need. We are looking at long-term trends in Scotch.” Diageo also announced that it took a £145m ($218m) charge before tax during the period to settle a long-running dispute with Korean Customs over duty on spirits imported between 2004 and 2010. ■ February 2015 7 finance review A changing landscape GRAPHIC: TOM WELCH Financial analyst Graeme Eadie looks at the changing prospects for the spirits industry in 2015 Factors due to affect the market include a collapse in the oil price. Meanwhile, American whiskies are selling well Stockbroking investment analysts habitually start the year by outlining their expectations for the 12 months ahead in terms of trying to anticipate the key industry trends and themes on the sectors they cover. The aim is to help identify which stocks would be the winners and losers within the environment they envisage. It is with much relief that I no longer have this unenviable task, as the outlook for the spirits sector has never looked more uncertain. In a relatively short period of time there has been a dramatic shift in the underlying fundamentals that helped shape the growth of the spirits industry over the past decade. In our last edition, when outlining some of the important management changes taking place in the sector, we wrote: “The industry will always continue to evolve and often the challenges that those changes create are best met with new ideas and a new approach from new management”. With the benefit of hindsight, that comment is looking particularly prescient. Many of the drivers that helped to underpin the growth of the spirits industry for a number of years now appear to be under threat. For many years the US spirits markets, given its size, provided the cornerstone of growth for many companies in the industry. Now, however, many of the major players appear to be struggling in this key market. In pre-Christmas conference calls with investors, Diageo described Thanksgiving sales as “OK”, whereas Pernod Ricard said that they had been “soft”. Part of the problem for both firms is the dramatic slowdown in the growth of premium vodka. Both groups are losing share in their largest market as a result. Outside the US the outlook for many important emerging markets is equally uncertain. The collapse in the oil price, which we will refer to later, is likely to precipitate a fall in demand for imported premium spirits in a number of important markets, such as Russia, Venezuela, Brazil, 8 February 2015 Mexico and across the Middle East. The problems in China as a result of the government’s anti-corruption measures is well-known, but likely to continue to act as a drag on growth in 2015. Therefore China, the US, premium vodka and many key emerging markets, all of which have been the key drivers in the past, are now under pressure to varying degrees. Share price movements Before looking forward to the future it is useful to consider how the stocks in the sector performed last year. The table below looks at the respective share price movements of the principal quoted alcoholic beverage companies in 2014. We include the brewers as a point of reference as they, too, had a strong 2014, with the exception of Carlsberg due to its high Russian exposure. The strong performance of a number of companies in the spirits sector in 2014 may seem at odds with the slowdown in growth experienced last year. However, the stockmarket – at least in theory – is a discounting mechanism that Share price performance 2014 Spirits % change 1. Beam Suntory 24.0 2. Brown-Forman 20.0 3. Pernod Ricard 14.0 4. Diageo -4.0 5. Rémy Cointreau -6.0 6. Campari -16.0 Beer % change ABI 26.0 Heineken 23.0 SABMiller 11.0 Carlsberg -19.0 Source: Bloomberg finance review focuses on the future rather than the present value of companies. Therefore the strong performance of a number of companies in the spirits sector, particularly towards the end of last year, reflects two important dynamics that will help to boost their profitability in 2015. The first is currency and the second is oil. The strength of the dollar over the past six months and the concurrent weakness of both sterling and the euro are unequivocally good news for the spirits sector. The US is the industry’s largest market and many emerging markets have their currencies pegged to the dollar. Given that most of the revenues generated in these markets are from products imported from Europe, the transactional exposure of the major exporters will see them enjoy a significant boost to margins. The difficulty for investors is trying to quantify the impact as hedging helps to smooth out the effect of currency fluctuations over the short term. But with costs largely insulated from the gain in the dollar and revenues benefiting from its appreciation, it is a significant net gain for the European groups. The fall in the oil price is a major positive for consumer stocks. While, as previously mentioned, certain oil dependent markets will be hit, in overall terms, spirits companies should benefit from lower energy costs and higher demand for their products as their consumers will enjoy a boost to their disposable incomes. Again, as with currency, it is difficult to quantify this benefit, given the impact of hedging on major costs such as oil. The impact on the consumer is equally problematic to determine, given the varying price of oil across the world due to different duty levels and the uncertainty as to how long prices will remain low. But again, it is a net benefit for the sector. Bourbon’s renaissance It is not an accident that the two best-performing quoted spirit stocks, in terms of share price appreciation in 2014, were Beam Suntory and Brown-Forman. Both groups are the major beneficiaries of the recent revival in US whiskey sales. Over the past five years, whisk(e)y has been the top-performing category within premium global spirits, driven by the strong growth in demand for Irish and US whiskey. While the success of Irish whiskey is well-known, the turnaround in both US and Canadian whisk(e)y has been a more recent and surprising phenomenon. Long seen to be in terminal decline, their renaissance has been driven by their unexpected success in the US. While Jack Daniel’s and Crown Royal have long transcended their respective categories, the increase in the popularity of US whiskey has been led by the successful launch of flavours, helping to broaden the appeal of the category. Equally, the heritage and premium qualities of US whiskey clearly resonate with today’s consumers, who are seeking greater authenticity within alcoholic beverages. Vodka looks to have been the principal casualty in this change of consumer behaviour. As the chart above right illustrates, volume growth has slowed dramatically. Whisk(e)y: volume growth 2008-2013 Category 1. US whiskey 2. Scotch whisky 3. Irish whiskey 4. Japanese whisky 5. Canadian whisky Total % CAGR 5.0 1.0 10.0 6.0 3.0 3.0 Incremental (m cases) 7.5 4.2 2.5 1.8 1.8 18.0 Source: Brown-Forman US premium vodka growth – standard-and-above segments (%) Source: The IWSR Database 2015 © New challenges for 2015 The fundamental dynamics that recently shaped the growth of the spirits sector appear to be changing. Industry consolidation, premium vodka and emerging markets can no longer be relied upon to deliver the same pace of growth. The same can also be said for the US spirits market. While the slowdown in many emerging markets is likely to prove ephemeral, there can be little doubt that the biggest fundamental challenge facing the industry is the threat from increased fragmentation. We see the turnaround in US whiskey and the fall in growth of premium vodka in the US as part of the same dynamic. Consumers are seeking greater choice within alcoholic beverages in terms of flavours, pricing and the provenance of the products they buy. The growing number of craft brewers and smallbatch distillers is helping to both stimulate and facilitate the growing trend towards greater promiscuity within alcoholic beverages. This is a new threat as well as an opportunity for the major spirits groups. The big question for 2015 and beyond for the incumbent spirits companies is how they respond to this new challenge? Further industry consolidation would clearly be seen as a retrograde step. Greater focus rather than a dilution of effort is likely to be necessary. With many longestablished brands seeing their growth rates slow as a result of this threat, we see the industry having to increase marketing efforts behind the major brands. Those efforts are likely to centre around the core values of premium brands, with a greater emphasis on the authenticity and heritage of those products. Line extensions and new products are likely to require greater care and consideration. The industry cannot afford to be outmanoeuvred by new entrants to the market – nor do we think they will be. But it could come at a price. While there is little evidence to support this at the moment, we would not be surprised to see marketing expenditure rise as part of this strategy. With margins set to increase in any case due to positive currency movements and lower oil costs, it is a highly apposite moment to boost investment. It would also not be the first or last time that the stock market is caught out by focusing too much on the short term, while ignoring some of challenges that the industry needs to face in order to achieve longer-term profit growth. ■ February 2015 9 new products Patrón’s Year of the Sheep W-Wodqa enters Germany Adnams’ apple spirit Patrón Añejo tequila is celebrating the Year of the Sheep, 2015 Chinese New Year, with the launch of a collectable, limited-edition gift tin. German-based Qonzern, a producer of topquality spirits, has launched W-Wodqa in the German on-premise sector. English brewer Adnams has launched Adnams Pomme Pom Apple Spirit, an innovative cider aged in oak casks. Now available in global duty free and selected domestic markets, the tin was designed by Chinese artist Peach Tao who was inspired by the classic Chinese design ‘three rams bringing bliss’. W-Wodqa is produced from mineral-rich spring water and wheat harvested in the winter when the crop is said to be milder than spring wheat. It is currently available in Adnams stores and online, with numbers limited to 2,000 bottles. The red tin sports black and gold accents alongside images of an agave plant and the iconic Patrón bee. The design also includes images of goddesses around a lotus flower (symbolising good luck) and other modern and traditional Chinese symbols, such as a lantern, a ship and the phoenix. A leaping sheep on the lid reflects the wish for a year of happiness and prosperity. Dave Wilson, Patrón Spirits president, international, and global COO, says: “This new eye-catching tin not only celebrates the Chinese New Year holiday, it’s also a wonderful way to remember the year, long after the bottle has been enjoyed.” Brand: Patrón Añejo Year of the Sheep Edition – $54.99 RRP (75cl) 10 February 2015 It is distilled seven times and never filtered, in order to preserve its fine grain flavours. Free from any additives, even legally permitted ones, W-Wodqa is bottled at 40% and packaged in an innovative metal bottle, designed to stand out on shelves. Qonzern describes W-Wodqa as “an extremely soft and aromatic vodka that has not been filtered to death, but is a true aqua vitae.” In Germany there has been an ongoing shift towards the higher end of the vodka market, with premium and super-premium brands outperforming the rest of the category. Overall, the top end of the market saw a compound annual growth rate of +11.7% between 2008 and 2013, ahead of both the standard and value segments. Brand: W-Wodqa – €59.90/$67.55 (1L) Adnams distiller John McCarthy distilled a batch of Hogan’s English Cider in copper pot stills, resulting in a high-strength spirit that was then transferred to new European oak casks to mature over three years, before being cut down to bottling strength of 40% abv. Pomme Pom Apple Spirit picks up on two key current trends: the growing popularity of cider and the rising interest in barrel-ageing across a number of different spirits categories. Cider is performing particularly well in the UK market, where annual consumption jumped by 385,000 hectolitres between 2012 and 2013, making it one of the fastest-growing categories in the market. A rich and smooth apple spirit, Adnams Pomme Pom is suitable for serving neat, in cocktails, or with a splash of ginger ale. Brand: Adnams Pomme Pom Apple Spirit – £37.99/$56.92 RRP (70cl) & marketing By Sophia Holliday and Thalia Fourie Innovation Spotlight The ready-to-drink (RTD) industry in Japan is booming and continuing innovation plays a key role in its success. Alongside whisk(e)y, the pre-mixed drinks sector remains the most exciting category in the market and has been attracting a lot of hype and investment in recent months. Many of the large brewers – Suntory, Kirin and Asahi – have been refocusing their efforts on the canned cocktail segment to offset a long-term decline in beer sales. Price, convenience and a preference for low-alcohol products have been driving demand for vodka- and shochu-based RTDs (chu-hi), and the range of flavour offerings is on the increase. JW’s Year of the Ram Franzia’s Frozen assets A special Year of the Ram edition for Johnnie Walker Blue Label has been released in Hong Kong. The ram sheep has long been regarded as the symbol of luck and good fortune in Chinese culture. Japanese producer and wine retailer Mercian Co, a group company of Kirin Co, has launched Franzia Frozen Wine in Japan. This release was inspired by the famous Chinese brush painting Three Rams, created during the Emperor Qianlong era, and builds on the Chinese fortune phrase ‘san yang kai tai’ (meaning ‘three rams will bring luck’). Harking back to the Chinese tradition of celadon porcelain, the royal blue-tinted bottle is adorned with white brushstroke characters for ‘ram’, as well as a representation of the Three Rams painting, which appears on the bottle’s four sides, an image which is best viewed when four bottles are placed side by side. Drew Mills, marketing director for Diageo brands, said: “The Year of the Ram Special Release truly marries the best of Chinese ceramic art with the very finest blend of Scotch whisky. This classic combination introduces unrivalled creative elements to the global whisk(e)y market, and I’m confident it will quickly become the premier choice for discerning collectors.” Brand: Johnnie Walker Blue Label Year of the Ram – HK$1,888/$243.56 RRP (75cl) Available in fresh, fruity red and white California-born varietals, the frozen wine, in a slush form, comes in a specially designed dispenser with a twisted lock seal which ensures the wine holds its quality when frozen. The dispensers are currently available in around 50 locations throughout the Tokyo area. The Franzia Frozen serve involves putting a few ice cubes in a glass, then filling the glass half-full with chilled white or red Franzia wine. The frozen wine is then poured on top from the dispenser to create an iceberg-like shape in the glass. Kirin acquired the Japanese rights for Franzia in 2003 from Suntory and then transferred it to Mercian in 2007. Franzia Frozen aims to popularise wine in Japan, a country where beer is still the main alcoholic beverage consumed. Franzia wines are also available in standard bottles and boxes. Brand: Franzia Frozen – Around ¥600/$5.07 RRP The latest flavour addition to Kirin’s Hyoketsu RTD range, Framboise, was released as a limited edition in January, while new variations including acerola cherry and a high-strength Okinawa citrus fruit version are already being lined up to be launched throughout the year. One of the company’s most innovative flavours was the launch of a bitter-flavoured chu-hi variant. An intentional move away from the predominantly sweet flavour offerings of most other brands, the bitter flavour was intended to attract male drinkers looking for an alternative to mainstream beer. Products such as Kirin’s Franzia Frozen Wine point towards the growing interest in convenient and approachable products that provide a point of difference. Furthermore, Suntory’s recently released French Rouge beer, which features blackcurrant juice and is intended to display the qualities of red wine, also shows that the Japanese are not afraid of experimenting and blurring category lines. Given the still large and declining traditional beer and shochu markets, these innovative new products are likely to continue fuelling growth for a long time yet. Radius, the IWSR’s product innovation tracker, is an IWSR publication, produced and created by Vandal Ltd. For more information, contact [email protected] www.IWSR-Radius.com February 2015 11 spirits review Cocktails: all in the mix Major brands are learning that a signature cocktail can really add to their marketing message, finds Simon Molony Increasing engagement from bartenders and consumers, both of whom are now driven by a willingness to play with the classics and experiment more than ever, is expanding the cocktail market. The popularity of the classic cocktail has boosted sales of spirits that offer a simple yet sophisticated flavour profile, which can be easily incorporated into cocktail recipes, although well-executed serves still play a significant role. The trend for introducing a variety of different flavours in spirits, first seen with vodka and now in gin, is likely to have some influence, although it will not replace exceptional spirits. Liqueurs have also been given a new lease of life; the role of the aperitif and digestif reflects a modern take, revitalising the after-dinner drink in many top venues. The on-premise cocktail trend gradually translates into home consumption, driving spirits sales in the offpremise accounts as well, particularly in the US and in major cocktail cities. Mixologists and bartenders have played an important part in the expansion of the gin category in the Americas. Gin has become the Megs DeMeleunaere, winner of Martin Miller’s Gin’s We Are the Tastemakers contest hot category in trend-leading cities such as Fentimans and Fever Tree are only just New York, San Francisco and Chicago, with the frequented bars and favourite bartenders. beginning to penetrate the market, but are spirit dominating cocktail lists where once Exposing esoteric ingredients is the perfect nowhere near becoming mainstream. vodka prevailed. And the trend is beginning to way to popularise them. filter out to second-tier cities and on-trade While baijiu may not be considered a niche Popularisation of niche categories accounts as more bartenders begin product in a global context, given it is the most Beyond the more popular spirits, cocktails experimenting with the category. Martin Miller’s highly consumed spirit by some distance, the provide the perfect foundation for the more Gin CEO Jacob Ehrenkrona remarks: white spirit is relatively unknown in Western niche categories, making them more “Mixologists in many key cities have really markets. Having added the baijiu brand Shui accessible for the consumer. The calibre of the embraced gin over the past five or six years, Jing Fang to its portfolio, Diageo launched Baijiu liquid and the drink is always the benchmark, but now we see this spreading to other cities Cocktail Week last year and is running the same although increased experimentation also and young consumers especially are picking up event in February 2015, to coincide with Chinese highlights the number of distinct, exciting on the trend. Vodka has lost its allure among New Year. A spokesperson for Diageo said: “New ingredients. Consumers enjoy mixing cocktails the younger generation and gin is now the baijiu cocktails were created to hit the spot for themselves, taking inspiration from their most trendy drink of choice. Brands like Martin cocktail aficionados – people looking for Miller’s are now becoming an something different and unique. aspirational, mainstream luxury.” Two years ago, no one had heard of Whereas in Europe the revival of the baijiu, but all that is changing.” gin-and-tonic has been the driving New baijiu cocktails, such as force behind gin’s resurgence, gin Baijiu Baby, will be served at cocktails have been leading the around 16 exclusive London bars category’s growth in the US. Broker’s and restaurants for Baijiu Cocktail Gin director and co-founder Andy Week this year, as Diageo seeks to Dawson says: “While in the UK ginraise the profile of the spirit and its and-tonic accounts for about 90% of premium brand Shui Jing Fang. gin consumption, in the US it accounts “Baijiu is the largest spirits for less than 50%. American category globally and has been consumers are much more likely to part of Chinese culture for more drink a martini or another gin cocktail.” than 2,000 years. Leveraging Part of this lies in the fact that the Diageo’s global network we are US is not very well prepared for the now bringing Shui Jing Fang and gin-and-tonic; tonic water in bars is its rich culture to new consumers Dragon’s Claw and Baijiu Baby, two of the cocktails using Shui Jing Fang for Diageo’s Baijiu Cocktail Week this year often low-quality and brands such as globally,” a Diageo spokesperson 12 February 2015 Carefully handcrafted in the Scottish Highlands, Caorunn expertly infuses five locally foraged botanicals. Artisanal and small batch, beautifully mixing the rugged charm of Speyside with the urban sophistication of modern Scotland. Discover at www.caorunngin.com Please savour Caorunn Gin responsibly spirits review Cocktails says. “Shui Jing Fang’s unique palate and complex characteristics are creating opportunities for drinks connoisseurs to explore and enjoy.” Soju, another white spirit with high-volume consumption in the Asia-Pacific market, is also being afforded exposure in the UK thanks to its inclusion in cocktail menus. At a small but popular cocktail bar in south London, a sojubased cocktail infused with lemongrass flavouring was on the menu during the summer last year. However, the bar adjusts its offering to appropriate seasonal tastes, and currently one of the offerings instead utilises Mozart chocolate liqueur in the Mochatini cocktail: “It is a twist on the traditional espresso martini,” says Carmella Beastall, mixologist at Seven at Brixton. Despite the lack of a soju-based cocktail, a fig liqueur from France and a British vodka, Element 29, infused with pink peppercorn, demonstrate the scope, versatility and seemingly infinte prospects for spirit beverages in the context of the cocktail market. Popularisation of brands The cocktail market is also an important driver of brand awareness. Spirits that prove themselves to be very versatile are more likely to be built into cocktail recipes, which in turn are recognised by the consumer and thus become increasingly popular. A spokesperson for super-premium Scottish gin Caorunn says: “Ensuring the bartenders have a basic knowledge of the brands they serve is key, specifically their provenance, heritage, basic tasting notes, production method and any drink recommendations. The more bartenders can engage and display passion, the greater the impact is on the sales of spirits.” Some brand owners have sought to entrench their brands in the cocktail market through the creation of signature serves – cocktails which are made with a specific brand as an ingredient rather than a generic spirit of a certain category. For example, Rémy Cointreau’s signature serve, the Cointreaupolitan, is a twist on the familiar Cosmopolitan cocktail, and has Cointreau as an ingredient, whereas a typical Cosmopolitan could use any brand of triple sec. Max Warner, global brand ambassador for Chivas Regal whisky, says: “Signature serves are a unique way for brand companies to offer a straightforward ‘teaser’ into how their drinks should be served.” Although consumers are becoming more aware of the choices they have, they can be easily confused, regardless of their 14 February 2015 London still remains a mecca for the experimental side of cocktail culture knowledge. Brand owners do their due diligence and research before they decide to bring a new product to market; however, they need a way of enticing the consumer from the get-go. Although signature serves may not appeal to Brands such as Element 29 vodka are used in cocktails at Seven at Brixton, London everyone, they do make the flavours more approachable for some consumers, but others will find it satisfying enough to conduct their own experimental way of tasting the spirit. Simon Brekon, global brand director for Grey Goose vodka at Bacardi-Martini, says consumer interest in cocktails is helping to entice new consumers to the brand. He claims: “Grey Goose has established the category and was the leader; it did defy expectation and I think it also does that in the on-premise because what we are seeing is the exploration around cocktails.” Cocktails appeal to consumers’ curiosity and encourage them to buy better-quality spirits products for consumption off-premise. “It is about the experience,” says Brekon. Similarly, the experience is an important factor in driving cocktail consumption in the onpremise sector, although there is a big difference in what is consumed: “You think about the onpremise and you go to the other extreme. It is about pure craft and skill at the top end, but they use their own signature spins with their own variants, their own bitters, etc,” Brekon says. Referring to the Artesian bar in the prestigious Langham hotel in London, Brekon spirits review points to the “cutting edge” vodka mixology. “They serve a cocktail called Forever Young, made from Grey Goose vodka, Martini Extra Dry, eucalyptus, maraschino and citrus – so very complex flavours that are beautifully served.” Cocktail trends London still remains a mecca for the experimental side of cocktail culture, with many bars pushing the boundaries of what can be done to entertain, tantalise and engage consumers around the complexities of how alcohol can be served. This requires a good understanding of the classic drinks that have popularised the menus for the past decade and will always have their place. Warner sees tradition mixing with technology in the cocktail market: “People get excited by the heritage of cocktails. I don’t anticipate that trend quietening down any time soon. I predict bottled cocktails will be making a bigger hit in the future, while the science around service matching the flavour, the senses and textures will remain for some time to come.” A spokesperson from Caorunn also identifies the importance of brand heritage: “Brand owners invest a lot in educating and engaging bartenders. The more staff feel empowered and take ownership of their own favourites, the more passionate they will be to sell the signature serve; it will then become second nature to engage with their customers better. Caorunn focuses its efforts on staff education and provides masterclasses and complex education kits to key trade partners to improve staff knowledge.” The gin revival has certainly filtered into current cocktail trends, both in London and further afield. There is a strong focus on simple cocktails using high-quality spirits and ingredients, proving that, when it comes to the perfect cocktail, less is often more. Seasonality and locality are one of the hottest current trends, with seasonal, fresh ingredients coming to the fore, in addition to foraged ingredients and an eye on sustainability. For Caorunn gin this is positive trend: “Caorunn gin is infused with five wild, foraged, Celtic botanicals, which are all perfectly balanced, meaning few additional ingredients are needed to make a great-tasting cocktail.” Classics such as the Daiquiri (right) and Mojito (below) are available regardless of the season The trend is evident in the success of Seven at Brixton, where fresh ginger is sourced locally for the Daiquiri-based cocktails, and the popularity of the Mojito with fresh basil ensures it remains available regardless of the season. The niche cocktail bar has expanded with a second outlet after opening three years ago, having set its focus on providing quality cocktails at an accessible price. Josh McGurgan, speaking on behalf of 'Seven', says it's all about finding creative ways to keep costs down. “If you're making £5 cocktails then you need to make it cost-effective and fast.” Innovation and attention to detail are also on-trend and brands are working hard to produce their own modern twists on the classic cocktail. “Caorunn gin lends itself to a range of modern and traditional cocktails. The brand offers its own spin on the well-known classics, such as its unique take on the iconic martini, as well as a selection of seasonal cocktails, including the heart-warming Caorunn Winter Gin & Tonic,” a spokesperson commented. High-end mixologists and bartenders are keen to differentiate their cocktail offerings using bespoke local botanicals and handcrafted ingredients, syrups, tinctures, bitters and tonic waters in some cases. Premiumisation of cocktails The advantage of drinking high-quality, premium spirits over cheaper alternatives is that they are good enough to drink neat, combined with a simple mixer, such as tonic water, or incorporated within a cocktail. With the current rise in the popularity of cocktails, premium spirits do not do themselves a disservice to mix with other liquids, and those that are the most versatile stand well above the rest in a competitive market. “In the world’s best bars and people’s homes, the use of premium ingredients is key,” says the spokesperson. People often drink cocktails in the on-trade or at home on special occasions when they want to treat themselves, so the quality of a serve should be reflected in its price and when customers pay more, they receive more in terms of the drinking experience. There is definitely a demand for premium cocktails out there. Ago Perrone, one of the world’s foremost mixologists, has created a number of cocktails specifically for Chivas Regal 18 to mark the launch of Chivas’ partnership with Italian design company Pininfarina. “These cocktails are perfect for someone looking for a more complex serve at the top end of the on-trade offering,” he says. “London’s better bars are developing a fully comprehensive ‘Bar Program’, which encapsulates the drinking experience from start to finish. It’s not simply the cocktail selection, but includes the attitude of the staff, the styling of the cocktail menu, music selection, careful selection of spirits, seasonal selections which deliver more appropriate experiences and the sophisticated, yet relaxed and welcoming service, which leaves the audience feeling like they have been truly looked after. When they get this right – and more and more places are I can assure you – who wouldn’t want to pay more for a top cocktail with a premium spirit?” An exclusive range of Chivas Regal Extra cocktails has also been developed by Max Warner, to meet the needs of the more adventurous discerning whisky drinker. Chivas Regal Extra is the fifth permanent expression in the Chivas Regal family, sitting within the super-premium range, positioned between Chivas 12 and Chivas 18. The range includes six recipes featuring Chivas Regal Extra, with the addition of fortified wines to evoke the richness from the sherry casks which are at the heart of Chivas Regal Extra’s flavour profile. This further demonstrates the potential that established brands have in occupying the space facilitated by the interest in the cocktail market. ■ February 2015 15 spirits review Cointreau eyes cocktail culture Rémy Cointreau liqueurs division CEO Panos Sarantopoulos explains how the firm is tapping into the cocktail culture The leading traditional full-strength liqueur brands, such as Cointreau, are making the transition from their primary after-dinner role towards cocktail usage. The growth of the cocktail culture around the world has presented these brands with a lifeline and brand owner Rémy Cointreau is grasping it with both hands. The brand has largely stalled over the course of the past three decades. Cointreau is currently selling virtually the same volumes that it sold back in 1985 – just over 1m cases. While the brand can be found on most back-bars, the challenge is to inspire consumers to begin calling for it again en masse. The company is doing so by immersing itself in the cocktail scene. Foremost, it is re-establishing its credentials within the trade and reminding bartenders that that orange-based Cointreau played a role in such original classic cocktails as the Sidecar, White Lady, Margarita and Cosmopolitan. At the same time the brand owner is seeking to move the brand beyond being a mere ingredient in these classics and become the primary or base ingredient in new signature cocktails. Panos Sarantopoulos, CEO of the group’s liqueurs and spirits division, explains: “Classic cocktail lovers are attracted to the taste of Cointreau. It has a large appeal and it works well in a cocktail. People like the taste of Cointreau within their cocktails, but don’t always know what gives them that taste. Our job is to make them aware that it is Cointreau that they are tasting and enjoying. Given that, there is a good chance that it can almost take centre stage by itself and rather than just calling for a classic cocktail, perhaps all those who love the taste of Cointreau will want to call for a ‘Cointreau something’. Bringing Cointreau centre stage and establishing a name that people call for is a big priority for us.” As a means of achieving that, the company is promoting the Cointreau Fizz cocktail, comprising Cointreau, lime and sparkling water. That same drink is called the Cointreau Rickey in the US. Sarantopoulos says: “Cointreau Fizz and Cointreau Rickey are critical pieces for what we are doing as we move forward, in the sense that they allow our consumers to reach for Cointreau in a much more overt and, from our standpoint, constructive way.” Other key signature cocktails include the Cointreaupolitan (Cointreau, cranberry juice and lemon juice) and the Mademoiselle Cointreau (Cointreau, basilic, cucumber, lime juice and soda). Beyond that, Rémy Cointreau is seeking to tweak the brand’s marketing and express the fact that Cointreau embodies the free spirit of 16 February 2015 Cointreau is reminding bartenders that it played a role in the original classic cocktails the Parisian woman. Sarantopoulos explains: “This je ne sais quoi (an inexpressible something) that Parisian women have is admired all over the world – from knowing which clothes to wear and how to twist them so that they are always elegant and always expressing themselves freely. The free spirit of the Parisian woman appeals to women and attracts men as well, so that is what we are looking at [in upcoming marketing campaigns].” Innovation role Innovation, particularly premium innovation, is also playing a role in the revitalisation strategy and, earlier this year, the company introduced Cointreau Noir. The extension is a blend of Cointreau orange liqueur and Cognac, modified by adding macerations of walnuts and almonds, which give the dark spirit a sophisticated aroma and complexity. The basic difference between the base Cointreau and Cointreau Noir is that one is a white spirit and the other a dark spirit. Beyond that, Noir’s richer flavour can add a dimension to cocktails that don’t necessarily come through with the parent brand. These and other initiatives seem to be making a difference and Cointreau is back in growth. Rémy Cointreau reported that liqueurs and spirits sales totalled €129.5m ($160.2m) for the fiscal half year to 30 September, an increase of 9.1% on the previous period. The company said that Cointreau posted a “solid performance”, thanks to strong momentum in its major markets and a favourable phasing of shipments to the US over the period. Cointreau today derives some 21% of its sales from the US market. Sarantopoulos says: “Cointreau is firmly positioned in the premium spirits segment in the US. Beyond that, I see our signature Cointreau Rickey starting to make inroads in the on-trade as well as slowly entering ‘at home’ entertainment. We are looking at creating a virtuous cycle of moving forward on both value and volume in the US.” France, the UK, Germany and Belgium are the next-largest markets for Cointreau. Sarantopoulos adds: “Cointreau has a presence in more than 120 countries and a rather large footprint. It has a historical presence in the US, driven to a great extent by the classic cocktail business. As the cocktail culture expands throughout the world, Cointreau’s footprint gets stronger and stronger. We are looking at going forward by focusing on the top cities, rather than looking at top countries, because that is where most of the interest from Cointreau consumers lies.” Sarantopoulos also expects Cointreau to benefit from Rémy Cointreau’s strong distribution network in Asia, particularly China and Japan. To date, the import market in China has chiefly been about Scotch and Cognac. He believes that is going to change. Commenting on China he says: “Because of the sheer size of the country and the changing demographics, you are bound to have opportunities. The appeal of the Cointreau (orange) flavour is quite strong in this part of the world. It all stacks up very nicely and leads us to look at the market more seriously. We are really well positioned for future growth.” ■ spirits review Absinthe overcomes growing pains Absinthe’s long absence from many key markets makes it a youthful category, as Joe Bates reports A checklist for anyone writing about absinthe has to include enough tick boxes to cover the spirit’s colourfully chequered history. Along with slotted spoons, ice-cold water and sugar cubes, mention must be made of absinthe’s championing by artists such as Vincent Van Gogh and Edward Degas. Finally, no feature on absinthe is complete without detailing its long exile ordered by European governments convinced (erroneously) of its dangerously psychoactive qualities. Yet despite all this weighty ‘baggage’, absinthe is a comparatively youthful spirits category in many markets. It arguably continues to benefit and suffer from this immaturity in equal measures. Global sales volumes are still tiny, reaching just 208,000 cases in 2013, according to the IWSR’s figures, which suggests this reborn category has a considerable distance to travel before fulfilling its potential. Sales of absinthe took off at the turn of the Millennium as first France, then other European countries and finally the US legalised it following decades of prohibition. A wave of new energetic producers, creating absinthes of all kinds, strengths and qualities, helped kickstart the category, as did the drink’s historical notoriety among a group of in-the-know younger consumers. However, the global recession led to a slump in sales. Compound annual growth rate Tanya Sklar, international director, Wine & Spirit International, owner of Hapsburg absinthe (right) (CAGR) sales volumes for absinthe between 2008 and 2013 fell -3.3%. Since then, sustained efforts by suppliers to educate consumers and the on-trade, along with absinthe’s gradual reappearance on upscale cocktail lists as bartenders and mixologists have ‘rediscovered’ it, appear to have arrested the decline. Global sales rose an encouraging 5.4% in 2013. George Rowley, founder of La Fée, the first absinthe to be sold legally in France after the ban was overturned in 2000, reveals 2013 was a year of strong growth for the brand, with new distributors signed up in Ireland, New Zealand, Switzerland, Germany, the Netherlands, the Canadian province of Quebec and US state Michigan. He adds that 2014 saw the start of his ‘La Fée World Education Tour’, which seeks to educate consumers about the absinthe category. Rowley has already taken the tour to Dubai and Australia and it will continue to Canada and California later this year. “In 2015 we also plan to open new markets in Eastern Europe, Africa and Asia, as well as completing our coverage of Canada with a new partner in Ontario,” Rowley reveals. “Our partner for Latin America has finalised agreements for distribution in Mexico and Peru, so we look A question of classification One of the biggest concerns for many high-end absinthe producers in the traditional absinthe-producing countries of France and Switzerland is the category’s continuing lack of official regulation, despite recent efforts by the European Parliament in 2013 to pin down a common definition. The current rules are somewhat thin on the ground. Absinthe doesn’t have to contain any thujone – the chemically active ingredient in the spirit’s key ingredient wormwood. The maximum level of thujone permitted is 35 millograms per litre. Aside from this one stipulation, the term ‘absinthe’ is a blank sheet, which perhaps explains why today absinthe is not just produced in its traditional base of France and Switzerland. It is made everywhere, from Spain to Italy and the Czech Republic, using a range of recipes. No longer just green, consumers can purchase it in a rainbow of colours and flavours. Some varieties contain no thujone at all. In 2010 Swiss absinthe producers in the country’s Val-deTravers region won protected designation of origin status for their products from the Swiss Federal Department of Agriculture. However, last year that ruling was overturned by a Swiss court after complaints by rival absinthe producers in France and Germany. George Rowley, founder of La Fée, argues for a more wide- ranging classification agreement. “Some of us in the market (French producers) are looking to the EU (and ideally reciprocated by the US) for an agreed classification for the category,” he explains. “Due to the various types of product calling themselves ‘absinthe’, it’s likely we can only split absinthe into an upper and lower levels: ‘Absinthe supérieure’ – traditional, natural spirit with traditional herbs and spices (wormwood, fennel and anise), and the rest. This is ongoing work and may take several years to be agreed. This will be to the benefit of the category and consumer as it should give a clear understanding as to what real absinthe is in substance and not just in name.” Unsurprisingly, others in the industry see the issue differently. Dan Bolton is managing director of drinks distribution and marketing firm Hi Spirits, which handles the Czech, Italian and French absinthe brands Sebor, Hapsburg and Louche in the UK. “There’s really no reason for that kind of intervention in the market in the case of absinthe,” he argues. “There are drinks categories, from Champagne to sambuca, where there’s a need to protect a regional speciality, but absinthe has a panEuropean heritage stretching back centuries with many elixirs and remedies made using wormwood. Every tradition deserves equal respect.” February 2015 17 spirits review Absinthe forward to those becoming active as well. We are also targeting continued our growth in duty free and [plan] to give a higher focus on a few states in the US with our Absinthe Supérieure range and La Fée Fountain Program.” “We had a good year last year, growing our existing markets and opening up new international markets in Singapore, Hong Kong, Vietnam, Thailand and the Czech Republic, with a few more countries to come onboard shortly,” says Sven Olsen, founder and CEO of Metropolitan Spirits, the owner of rival French brand Fontaine Absinthe. “In many of these countries absinthe is a relatively new and unexplored category, but our focus is on premium cocktail bars, five-star hotels, as well as the more quirky bar outlets, has proven quite successful. “London remains a key market as it’s such a beacon for the rest of the world and we’re seeing growth in virtually all our markets, albeit from a low level, which has been driven by our distributor network training and education programmes. Clearly, there’s also a greater understanding of quality absinthe and the versatility of the product.” Andrea de Vincenzi is regional manager EU at Allied Brands, the owner of Italian absinthe Xenta, the best-selling absinthe in Russia. “We have a 70% market share in Russia and an even higher share in Ukraine despite the war there,” he reveals. “We are also doing fine in Kazakhstan, the Baltic States and Greece. We also feel it is the right time to move into the Chinese domestic market.” Cocktail approach De Vincenzi says the company avoids the promotion of the traditional way of serving absinthe where iced water is tickled over a sugar cube. Instead, it is trying both to support the revival of traditional cocktails, such as the Sazerac, which were once made with absinthe, and the creation of new cocktails, which use the ingredient. “We made a joint venture with a former world champion bartender who created a new range of cocktails 18 February 2015 Encouraging trial How challenging is it for absinthe producers to encourage consumers new to the category to try a product, which routinely sells for a high price? “While Fontaine Absinthe clearly is an ultrapremium product both in terms of quality and price, we are still operating in the ‘affordable luxury’ space,” argues Sven Olsen, founder and CEO of Metropolitan Spirits, owner of Fontaine Absinthe. “Anybody with a real interest to taste Fontaine Absinthe can afford a £10 Fontaine cocktail or a traditional absinthe drip. The classic absinthe ritual is clearly an intriguing experience for any consumer wanting to try Fontaine Absinthe for the first time. “Other easily accessible ways of trying absinthe for the first time is one of our simpler signature cocktails, such as the Pontarlier Mule, which is Fontaine Absinthe over ice mixed with ginger ale and a squeeze of lemon and lime. Fontaine Chocolat over ice with sea salt is clearly also an easy sideways entrance to the absinthe category.” “In the on-trade price isn’t the main driver,” agrees Hi Spirits MD Dan Bolton. “Consumers are looking for new and interesting drinks and a genuine ‘big night out’ experience on the more limited number of occasions they’re out. We’re seeing absinthes used in a wider range of cocktails than ever. In the off-trade it’s a question of crossover, as consumers who’ve enjoyed absinthe mixed drinks seek to replicate the experience with a spot of home mixology.” for us. This guy invented a great range of cocktails for China too, using ingredients such as lychee and green tea, which are appreciated there.” Gearing up for a major launch into the US in 2015, Hapsburg is another Italian absinthe brand convinced that cocktails, mixology and innovation are the way forward. Says Tanya Sklar, international director at brand owner Wine & Spirit International: “Most of our consumers are looking for both novelty and tradition in their absinthe and we can definitely provide this. We maintain that Sebor Absinth (left), Above: Hi Spirits illustrates the ritual way of drinking absinthe people who buy our absinthe are not just looking for a regular one-off drinking experience. Drinking Hapsburg is a lifestyle and people love to be part of something bigger than themselves. “The cocktail culture, mixology and innovation are a quintessential part of our brand identity and bringing out new and exciting products is something that we have always done in order to ‘shake things up’,” she adds. “For instance, this year we will launch Hapsburg X.C Red Summer Fruits and Hapsburg Absinthe X.C Black Fruits of the Forest to join our existing Traditional and Cassis range.” Few spirits categories feature such a lack of agreement as absinthe among producers in terms of the way it is produced, how it should be defined, served and promoted (see box). However, the global surge in interest in classic cocktails and cocktail culture in general bodes well for all absinthe producers in the years ahead. ■ spirits review Sambuca: scope for growth Humphrey Serjeantson analyses the opportunity for Italian staple sambuca Global consumption of sambuca declined in 2013 by nearly -3.5% in volume terms, falling from 2.37m nine-litre cases to 2.29m cases. Against this backdrop, however, the share of sambuca consumed outside Italy has been rising gradually; in 1999 only 43.9% was drunk outside Italy, but by 2013 that figure had risen to 51.5%. While sambuca’s initial spread outside its domestic market can be put down to the spread of Italian restaurants around the world, in recent years growth in many markets is just as likely to have been driven by consumption in bars and nightclubs as new occasions of consumption arise. In Italy itself sambuca declined -2% in 2013, slower than the general decline for spirits and much slower than declines in brandy and liqueurs overall. Italy’s total consumption of sambuca in 2013 was exactly the same as it was in 2004, having grown and fallen in the interim. On the positive side, the decline in 2013 was slower than the 2009-2013 average. So against the backdrop of a challenging economy and particularly high unemployment among younger people, this is not such a bad result. The Italian market is dominated by the Molinari brand, a bottle of which can be found behind the counter at almost any bar up and down the country. Of the top 20 markets only two were able to bring any growth to the category in 2013: the Netherlands, which grew 2.2% and travel retail, which saw an impressive 7.2% increase. 2014 has been a good year for Molinari in travel retail, according to international division manager Giuseppe Bellotti: “Molinari has shown good vitality in travel retail, where it is the only sambuca in the top 100 global spirits brands.” Molinari’s largest export market is Germany and here 2014 saw a change of distributor for the brand. “After an initial period of adjustment, in the second half of the year the brand showed good progress in both the off- and on-trade,” says Bellotti. “In a declining market for sambuca, mainly driven by the fall in privatelabels, Molinari has gained market share.” Of the top 20 brands of sambuca only two saw growth in 2013: Antica and Ramazzotti (owned by Pernod Ricard). Summing up his brand’s performance last year, Nicola dal Toso, export director at Rossi d’Asiago, producer of the Antica brand, identifies the UK, Germany and Italy as the key drivers of growth. “In Germany we have noted particular interest from retail chains, although this market is basically a new one for us. We are present mainly in the off-trade channel, but this year [has seen] several activities in the on-trade, including PR consideration of the tough economic environment in Europe and of the very difficult market conditions in a number of markets”, says Bellotti. “In export we had a positive performance in significant markets such as Benelux, Switzerland, Austria, Denmark, Spain and Brazil, where Molinari has reinforced its strong leadership in the sambuca category.” Russia and Ukraine, by contrast, saw falls in sales for Molinari in 2014 – likely to be the case for many international brands. US decline slows Molinari’s Basilicum Signature Cocktail events and so on. In general we are very happy and satisfied with the results achieved so far.” While Italy may be the biggest sambuca market in the world, for dal Toso, he says: “It’s also the most challenging due to several players at worldwide level.” Despite this, growth is coming. “Last year we more than doubled our sales of Antica in both the off-trade and on-trade, thanks to several promotional activities. Italian consumers recognise the high quality of the product.” Globally Molinari grew slightly in volume in 2014, “which we see as a positive in The US saw continued growth in spirits overall in 2013 and +2.3% growth in flavoured spirits, and while this did not translate into a return to growth for aniseed or for sambuca, the latter did slow its decline to just -1.1%. Sambuca remains by far the largest aniseed segment in the US, accounting for over half of the entire category. Here the market is dominated by Diageo’s Romana brand, which accounts for 75% of the total. Romana may sell in 40 markets around the world, but in 2013 just under 90% of those sales – 162,000 cases – were in the key US market. In all the other markets in which it sells, volume does not exceed 3,000 cases in any single market. Molinari’s Bellotti senses an opening in the Americas, saying: “The weakness of the euro represents an opportunity in the US and Latin America.” As such, two dedicated brand ambassadors will be working to expand the distribution of Molinari in the on-trade in the US. However, dal Toso of Antica explains the difficulty of penetrating this key market. “The US is a very challenging market. Sambuca is a very niche category and the wholesalers don’t encourage sales. A bottle of sambuca can spend up to a month on a bar’s shelf – this is Sambuca: top 10 markets Country 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Italy UK USA Germany Canada Russia Duty Free Australia South Africa Netherlands Others Total Volume 2009 Volume 2012 Volume 2013 1,194.3 391.0 252.0 193.0 116.3 36.8 39.5 47.7 51.0 18.5 154.1 2,494.0 1,068.0 394.0 218.0 185.0 106.0 63.8 47.0 54.0 41.0 23.0 167.7 2,367.4 1,047.3 366.0 215.5 182.0 103.0 62.0 50.3 49.2 37.5 23.5 151.3 2,287.5 All volumes in ’000s of 9-litre cases % CAGR % change 2008-’13 2013 on ‘12 -3.0 -0.2 -5.3 -1.4 -3.2 9.8 4.3 -0.3 -6.3 3.0 -0.9 -2.2 -1.9 -7.1 -1.2 -1.6 -2.8 -2.8 7.2 -9.0 -8.5 2.2 -9.8 -3.4 Source: The IWSR Database 2015 © February 2015 19 spirits review Sambuca Sambuca: top 10 brands Brand Owner 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Molinari Rossi D'Asiago Diageo Pernod Ricard Luxardo Luxardo Lucas Bols Lucas Bols Branca DGB Molinari Antica Romana Ramazzotti Luxardo Dei Cesari Galliano Vaccari Borghetti Zappa Others Volume 2009 Volume 2012 Volume 2013 % change 2013 on’12 % CAGR 2008-’13 757.8 163.4 230.7 181.8 157.2 41.8 43.8 27.50 30.2 34.00 825.98 732.2 226.2 185.9 160.5 132.9 41.3 41.1 35.0 32.4 30.0 749.8 704.5 233.8 180.4 171.9 104.5 41.3 37.2 34.8 31.6 30.0 717.8 -3.8 3.3 -3.0 7.1 -21.4 -0.1 -9.6 -0.5 -2.5 Nil -4.3 -2.2 11.6 -6.6 -0.8 -8.3 -2.3 -3.3 4.0 0.9 -3.0 -3.3 All volumes in ’000s of 9-litre cases why the wholesalers’ agents spend little time for a product with low sell-out.” Molinari performed well in Brazil in 2014, according to Bellotti, showing growth from a small base. “The sambuca category is very tiny and we are working to position Molinari as a premium after-meal treat,” he says, noting that the traditional Italian occasion of consumption is the focus: “Through the use of specific point-of-sale material we will educate consumers to the ritual of ‘Molinari caffé corretto’” – a way to enjoy Molinari with espresso coffee, which in Italy is a kind of ‘institution’. Molinari will also be introduced to Colombia in 2015, which Bellotti identifies as “an interesting opportunity”. The UK market more than doubled in size between 2005 and 2011, but declined to 366,000 cases in 2013. Growth has been driven in the UK in recent years by bars and nightclubs serving sambuca in shots rather than the traditional after-meal occasion. Two brands – Luxardo and Antica – have been the key players and while Luxardo grew fastest to 2008, since then Antica has been the market leader and, as dal Toso points out, this is in part driven by recently introduced smaller bottles. “The 50cl bottle size is selling very well in the UK. Antica Sambuca [was] the second best-selling product after Smirnoff during the first week of sales at Booker. Also, the price under £10 ($15) is very attractive to younger consumers, who represents Antica’s target.” Further afield, Molinari is looking to southeast Asia “as a region to develop in the medium term and where Molinari has to take its place as the category-leading brand. Sambuca volumes are still quite limited, but we see the globalisation of consumers’ habits as an opportunity for an international brand. During 20 February 2015 Source: The IWSR Database 2015 © 2014 we appointed a new distributor in Thailand, which will also cover the tourist areas and will supply King Power duty free where Molinari gets its rotation from the flow of Italian, German, Russian and Scandinavian tourists.” Other markets in the region are also in Molinari’s sights. “We are in the process of defining a cooperation with one company, which will cover a number of markets in southeast Asia where Molinari does not have a presence yet, such as Indonesia, Vietnam, Philippines,” adds Bellotti. While he expects Molinari’s growth in its core export markets to come from gaining market share, “in the medium-/long term we see Asia and India as a good opportunity for growth,” he says. “In more mature markets we expect that the success of brands with solid history and heritage will continue, supported by the ‘rediscovery’ instigated by mixologists who look for brands and products with credibility.” At Antica, dal Toso sees 2015 as a “a very challenging year”, which will see “important investments and new opportunities to grasp”. The company is targeting Russia, Germany, Italy and India in particular. Mixology a key focus One key potential growth channel for niche spirits categories the world over is cocktails. Consumers in many markets are becoming more interested in cocktails, almost regardless of their economic situation. While these symbols of drinking sophistication might seem obvious to markets experiencing strong economic growth, what has also been seen in some cases in recent years (Greece is an example) is markets where the economic situation is tough but cocktails are capturing consumers’ imaginations despite, rather than because of, their relatively high cost. Consumers continue to aspire to sophistication in what they drink, and simple cocktails, requiring little skill to prepare, can often be had for a relatively reasonable price. Molinari launched a mixology project in 2013, aiming to get closer to bartenders and to show the versatility of sambuca “beyond its traditional ways of consumption”. The brand has been seen at bar shows in Athens and Moscow, says Bellotti, “which have shown us how receptive bartenders are regarding this completely new aspect of our category”. This, in turn, has led to masterclasses in Russia, Greece, Italy and India – and not just in capital cities. For 2015 the company is planning more of these events in Italy, Greece, Turkey and India. The reception so far has been positive, claims Bellotti: “In particular, countries where already there is a sambuca consumption tradition, such as Italy and Greece, have shown a surprising interest in the versatility of sambuca as basis for cocktails.” But can sambuca succeed in this channel? Sambuca’s chief asset – its strong aniseed flavour – could actually be the biggest obstacle to its growth in cocktails, as dal Toso agrees: “The anise spirits are not the easiest products to mix due to the particularity of the flavour.” Nonetheless, Antica is also looking for growth in this direction: “The mixed drink is increasing and consequently there are consumers to reach. Our signature cocktail ‘A Star’ works very well and our new brand ambassador, Bruno Vanzan, is developing a cocktail menu with Antica Sambuca.” Outside cocktails the one mix in which sambuca has been proven to work well is in coffee – where the strong flavour of the aniseed and that of coffee complement each other. It begs the question, has anyone tried a cocktail made with sambuca and coffee liqueur? ■ spirits review Premium white spirits stay in play Premiumisation in white spirits is continuing, but is there a limit to its reach? Agata Andrzejczak reports Premiumisation has been taking place across almost all wine, spirits and beer categories. The global white spirits market, in particular, has seen this trend, as brand owners of vodkas, white tequilas gin or, most recently, white rums have been focusing on growing the value of their products and not just volume. Trading up to premium-and-above quality products has been evident in almost all markets. However, it is the US that leads the way, accounted for more than half of the total global premium-and-above white spirits market in 2013. While overall vodka growth has slowed in many markets, the trend towards higher qualities has been continuing. Vodka is the largest premium-and-above international spirits category, with total global consumption reaching almost 27m cases in 2013, of which over 70% was in the US. Absolut is the largest vodka brand in the premium-and-above segment in the US, at 4.4m cases, but other brands have successfully entered the segment. Grey Goose, one of the creators of the super-premium category in the 1990s, reached 2.8m cases in 2013 and remains the leader of that quality segment, followed by Cîroc and Belvedere. Grey Goose global brand director Simon Brekon explains: “Grey Goose has established the super-premium vodka category. Much of the success is the fact that there is a lot of exploration around cocktails. Consumers are curious and more willing to experiment than ever before.” While vodka in the US is growing much more slowly than in the past, there are some brands showing high growth. Cîroc, in particular, saw significant volume growth, rising from almost nothing a decade ago to 2.2m cases in 2013. The hottest brand at the moment is Tito’s Handmade vodka, which gained more than 1m cases over the past five years. One of the original craft spirits, the brand has been gaining volumes year on year and without the addition of flavour line extensions. International appeal After premium and then super-premium vodka made its initial breakthrough in the US, the question arose as to whether the trend was transferable to other markets. The answer is a resounding yes and premium-and-above vodka continues to expand its appeal in markets including France, the UK, Switzerland, Germany, Italy, Portugal and Turkey. Brekon of Grey Goose says: “We are seeing good super-premium vodka growth in lots of areas around the world. If you are going to spend your money, many consumers want the 22 February 2015 Grey Goose VX, launched last year finest. That is universal. Super-premium vodka overall has got some good momentum in Europe. I think the UK will continue to grow. The same holds true for Israel, France and Germany. There is a continued relevance in the category for both consumers and trade.” However, some think there is a limit to how far vodka can extend upwards. Diageo CEO Ivan Menezes recently told journalists in London: “If you look at what is happening in whisk(e)y, tequila and other categories, there has been a real build at the above-$40 and $50 price points. I don’t think that is going to happen in vodka. People are trying, but I personally don’t think there is a big space for vodka producers to move upwards. Now, the $25-$40 area – the place where Cîroc plays – is still growing fast. If you look at Cîroc around the world, it is exploding. Just look at the UK. We doubled the volume of Cîroc in the UK. That price point still has a lot of room to grow, but going beyond that I am cautious. There is a limit to how far you can take vodka up. You don’t have an age dimension in vodka that you do in whisk(e)y, rum and tequila. It will be more limited.” While standard and premium vodka fell in Italy, wealthy consumers unaffected by the economic downturn continued to flock to the super-premium segment. Similarly in Turkey, the lower end of the vodka market stalled, while super-premium vodka experienced double-digit growth as consumers increasingly traded up in the on-trade. However, in some markets such as Portugal, Premium-and-above white spirits by category Category 1. 2. 3. 4. 5. Vodka Gin White tequila White rum Cane Total Volume 2009 Volume 2012 20,771.3 25,701.4 3,899.8 5,102.8 2,178.2 3,430.2 165.5 199.7 35.4 57.1 27,050.1 34,491.2 All volumes in ’000s of 9-litre cases Volume % change 2013 2013 on ‘12 26,666.3 5,615.0 3,897.3 212.9 62.3 36,453.8 3.8 10.0 13.6 6.6 9.2 5.7 % CAGR 2008-’13 4.3 6.7 12.5 11.3 16.0 5.4 Source: The IWSR Database 2015 © Premium-and-above vodka: top markets Country 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. USA Russia Brazil UK Canada Spain Australia Israel South Africa Kazakhstan Others Total Volume 2009 Volume 2012 Volume 2013 % change 2013 on ’12 % CAGR 2008-’13 15,538.0 18,870.0 2,797.8 2,969.3 225.0 613.3 159.1 257.4 207.8 287.3 384.5 305.8 163.7 235.3 44.3 114.5 41.0 77.8 73.8 126.0 743.5 1,215.7 20,378.3 25,072.1 19,185.0 3,102.5 685.5 334.4 308.3 285.3 278.8 155.5 124.5 116.8 1,367.5 25,943.8 1.7 4.5 11.8 29.9 7.3 -6.7 18.5 35.8 60.1 -7.3 12.5 3.5 3.9 -3.2 33.4 17.3 11.4 -6.2 19.7 41.7 23.0 20.8 17.2 4.1 All volumes in ’000s of 9-litre cases Source: The IWSR Database 2015 © spirits review super-premium vodka’s growth is being overshadowed by the gin category, while in Spain super-premium growth has been driven entirely by tourism and a trade push rather than genuine demand among locals. Premium gin doubles volumes Gin is the second-largest premium-and-above international white spirits category behind vodka, with global volumes at 5.6m cases. Outside the US, which again remains the top market for premium gin at 2.8m cases, highend gins have been faring well in Europe – in particular the UK, Spain, Germany and Belgium. The European market for premium-and-above gins has doubled in volume over the past five years to reach almost 1.5m cases in 2013. Super-premium brands are continuing to see substantial ontrade growth, becoming the preferred status drink among many young professionals. The popularity of the Hendrick’s-and-tonic and cucumber serve has driven other gin brands to focus on creating an experience around their brands and, increasingly, bartenders have been pushing this trend forward. In markets such as Germany and the UK the popularity and success of premium international brands has encouraged a vast number of smaller local players to launch their own premium variants. In mature gin markets such as the UK and Spain superpremium brands like Caorunn are increasingly focused on marketing the credibility and authenticity behind their product to establish a position within the market. The flourishing interest in boutique brands shows consumers are responding well to this. Although growing, the premium-and-above gin category remains heavily concentrated in a handful of markets, with the US, the UK, travel retail, Spain and Canada accounting for over 80% of the global sales. However, there are other regions where it seems to be emerging. James Chase of Chase Vodka says: “South America, India and north Asia are the hottest Diageo has launched Jinzu, a gin with a ‘Japanese twist’ (above). Belvedere claims to thrive with innovations such as the BelveBear (right) Premium-and-above gin: top markets Country 1. 2. 3. 4. 5. USA UK Spain Canada Germany Others Total Volume 2009 Volume 2012 2,337.5 354.5 170.8 156.8 42.8 502.2 3,564.4 2,682.0 458.2 433.3 216.6 98.8 723.8 4,612.6 All volumes in ’000s of 9-litre cases markets for us and the Elegant Crisp Gin, at RRP £45 a bottle, is doing especially well in Spain, Germany and Italy.” On-premise focus The premiumisation of the vodka and gin category has been particularly noticeable in the on-trade. Premium-and-above vodka is ever more present in top-end on-trade venues taking market share from categories such as Champagne. Belvedere CEO Charles Gibb tells the IWSR Magazine: “Belvedere’s sales are growing steadily in the on-premise sector, which has been a traditionally strong business element for the brand. Belvedere is a leader in the trendiest hotspots; a position it maintains by constantly presenting new products and rituals to energise the brand in the nightlife scene. Belvedere thrives with innovations such as the BelveBear and the luminous Silver Sabre bottles that excite consumers and the industry influencers.” Volume % change 2013 2013 on ‘12 2,838.5 562.5 460.0 228.0 127.5 872.1 5,088.6 5.8 22.8 6.2 5.3 29.1 20.5 10.3 % CAGR 2008-’13 2.1 11.0 26.2 9.1 22.8 13.2 6.6 Source: The IWSR Database 2015 © Caorunn gin global brand manager Ibolya Bakos-Tonner comments: “Palates have become more sophisticated, and drinkers more discerning. The modern gin age is central to the revival of cocktail culture. Truly great gins offer a depth of character and taste that is very appealing for bartenders and consumers alike. The sustained growth in the premium gin category has been supported by the on-trade channel, but we can see some movements towards in-home mixology as discerning consumers are becoming more and more adventurous.” There has been an interesting entry into the gin category with Diageo’s launch of Jinzu, a gin with a ‘Japanese twist’ – traditional gin infused with Japanese botanicals and sake. Nick Temperley, head of Diageo Reserve GB, comments: “We are very pleased to see Jinzu launching to market. The intention of the Show Your Spirit competition was to create a product for bartenders, by a bartender. We feel that who better to inform our brands than those that work with them the most? We believe that Jinzu will be a strong addition to our gin portfolio, sitting alongside Tanqueray Ten as a super-premium offering.” Tequila surges Tequila is another important white spirits category where premiumisation has been very evident. The market, led by Patrón Silver, gained 1.7m cases over the past five years to reach just under 4m cases in 2013. Most premium-and-above tequilas sell in the US, which accounts for over 90% of the global sector. Patrón ticks all the trend boxes important to today’s American consumers: high price points; white; aged and crafted. Few brands can really claim to have transformed the broader white spirits industry. Absolut made the first big breakthrough by pioneering the premium vodka space almost 30 years ago. Then came Grey Goose in the 1990s and the many superpremium vodkas that followed. Patrón really February 2015 23 spirits review Premium white spirits Premium-and-above tequila: top markets Country 1. 2. 3. 4. 5. USA Mexico Russia Canada Australia Others Total Volume 2009 Volume 2012 4,023.5 544.7 93.3 26.6 4.9 115.9 4,808.8 5,755.0 688.0 176.9 49.0 26.1 191.5 6,886.3 All volumes in ’000s of 9-litre cases marked the next evolutionary stage by establishing the ultra-premium ($45+) white spirits market and white (or silver) tequila. Patrón international president and COO Dave Wilson says: “We have had meteoric sales increases over the past decade. A lot of our opportunity is international. We need to replicate the same things that we have done so well in the US in other parts of the world. We will be investing very heavily to do just that.” In addition, there have been a lot of recent brand launches, often with celebrity connections. For instance, Sean ‘Diddy’ Combs teamed up with Diageo to launch luxury tequila brand DeLeon. Yet despite pockets of growth and increased interest in niche tequila brands, the category is struggling to develop beyond its small base in many markets. There have been signs of premiumisation in markets such as the Czech Republic and Denmark and a nascent interest in mezcal in markets such as Switzerland, but over the last year much of this remained limited to the specialist on-trade. For the most part this under-development is due to a lack of understanding and under-appreciation on the part of European consumers. With markets dominated by standard mixto brands and a lack of investment on the part of operators relative to other categories, many European markets continue in this cycle. The UK market is still in its infancy in terms of understanding the tequila category. However, the market is so heavily influenced by the US, that the category’s popularity across the water is expected to filter over to the UK in the near future. Looking at other spirits categories, premiumand-above rums have struggled somewhat to convince consumers to try the product, as many perceive rum as low-priced product. The good news is that many key brands are targeting this area with attractive products, such as Barceló Gran Platinum, Botran Reserva Blanca, Brugal Titanium or Stolen White. These 24 February 2015 Volume % change 2013 2013 on ‘12 6,350.0 800.7 162.5 54.8 36.1 210.0 7,614.0 10.3 16.4 -8.1 11.9 38.6 9.7 10.6 % CAGR 2008-’13 10.3 4.5 0.4 23.6 58.6 14.8 9.6 Source: The IWSR Database 2015 © have been slowly expanding their distribution. Consumers are gradually beginning to understand concept of premium white rum. On the move Travel retail is an important channel for premium-and-above white spirits. with all categories experiencing healthy growth, particularly for gifting occasions. White spirits have lagged behind brown spirits in travel retail as the category tended to be more standard-priced. But the recent proliferation of high-end white spirits has made it more attractive to travel-retail operators and they have started to focus on it to a greater extent. Room for future growth Although still heavily focused on the on-premise market, many brand owners believe that there is plenty of room for growth for the premium-andabove white spirits category due to its relevantly small off-premise presence. The growing consumer base in the on-premise sector will certainly benefit the off-premise channels.” Brekon of Grey Goose says: “The skill levels and the presentation among top-end bars and mixologists are rising. They are upping their game all the time, because consumers are demanding it, and that is leading into better knowledge and experimentation at home, so we are seeing growth in both channels.” Still, the category faces future challenges. The whisk(e)y revival in the US and reported vodka fatigue could present an obvious roadblock to future progress. Flavoured whiskies, in particular, are appealing to younger females to some extent at expense of vodka. SPI export director Robert Cullin says: “Obviously brown spirits are very hot right now, particularly the honey-infused whisk(e)y, so it is a very competitive landscape. That is primarily true in North America, but also in the UK and some other more Western-focused markets where everyone is competing for the same consumer.” There is also a sense that bartenders are now suffering from vodka fatigue and tending to promote more exotic spirits. Consumers are also tending to look towards the spirit rather than mixers for flavour. Cullin adds: “I don’t think there is vodka fatigue as much as there is a lot of innovation going on in other categories. We see boutique gin becoming very popular and brown spirits are finding a new niche with this generation. We are even seeing cider coming into the fold. There are just a lot more categories competing for the traditional vodka consumers, so we have got to be quite innovative and unique going forward. It is not vodka fatigue. It is just more competition.” Some vodka brands, though, such as Tito’s, have managed to meet the demands of the new zeitgeist, albeit with some detractors. Tito’s competes on price with the altogether more slick-looking Absolut, but others are approaching the ‘age of austerity’ issue in an altogether different way. A new vodka price category of ‘premium standard’ has been created in the US – vodkas priced at relatively low levels, but with an image of exclusivity which rewards the mainstream vodka consumer without commanding high prices. The most successful example to date has been Gallo’s New Amsterdam. There is also a growing desire for authenticity and a back story, in part as a reaction to the many bling vodka brands that proliferated prior to the financial crisis. Brekon says: “More than ever consumers do care deeply about where spirits come from, so the drivers of luxury will be a focus on authenticity, craftsmanship, provenance and almost discovering the story of their favourite brands. With Grey Goose we are going back to our compelling story and our Cognac roots to distinguish ourselves.” He cites the recent launch of Grey Goose XV, which contains a hint of Cognac alongside the base vodka. Perhaps the biggest challenge, at least in the US, is generational. Many of the Baby Boomers came into the spirits world through vodka. The Generation Xers and Millennials are now differentiating themselves by drinking whisk(e)y. Cullin says: “Younger people are looking for something that differentiates them from what their father or older brother drank. Vodka can capture that if it is well executed. Tito’s has done that with the retro packaging. Let us remember that there are big vodka brands that are substantial and have been around for a very long time and still possess a large and loyal consumer base. That won’t change.” ■ spirits review Synergy spreads its bets With a vodka market under pressure, Russian firm Synergy has broadened its portfolio significantly The vast Russian vodka market has been in the throes of consolidation since the privatisation phase of the Yeltsin era. Gradually a number of leading producers have emerged. One of those companies vying for market leadership is Moscow-based Synergy. Synergy, established in 1999, was originally a food company based in eastern Russia, but in 2002 it diversified into spirits through the acquisition of Ussuriysky Balsam, one of the leading distilleries in the Primorsky region of eastern Russia. That was followed by a handful of other acquisitions throughout Russia and the company now operates seven distilleries across the country, with a total production capacity of some 15m decalitres. Synergy is also one of the few suppliers with comprehensive national distribution through which it funnels its portfolio of leading brands. serious issue for everyone, both for legal producers and for the government. The government is using taxation to address public health issues, which we agree is quite important. They are also taking some extra measures against illegal producers, such as the seizure of equipment. This is especially important for the government during a period when world oil prices are coming down and government revenues are falling. The spirits market is seen as an important source of taxation and income. If the government really wants to control the black market, then they need to moderate spirits taxation.” Slowing consumer demand Squeeze on vodka The Russian vodka market has been squeezed in recent years by rising levels of taxation and a slowing economy. Consumer confidence has started to wane, as the cost of living continued to rise, but incomes failed to keep pace. The International Monetary Fund (IMF) says Russia is now in recession. The capital outflow following Russia’s invasion of Crimea has had a deflationary impact. Meanwhile, excise increases have resulted in a dramatic rise in minimum retail prices for vodka and rendered it unattainable for some Russians. The minimum price now stands at RUB185 ($2.68) for a 50cl bottle. Compared to other countries, Russia has one of the highest duty levels relative to income in Europe. Following pressure from the industry and calls for a halt or slowdown in the tax increases, the government has now agreed to freeze excise. Tax was due to rise by 20% in 2015 to RUB600 ($8.70) per litre of pure alcohol, but in light of a surging black market it has decided to rethink the issue. Synergy CEO and chairman Alexander Mechetin says: “2014 was quite a shaky year for the Russian industry, mainly because of the sharp rise in excise duty, which was increased twice last year. Vodka has become quite expensive. It clearly affected consumer demand and, subsequently, we saw the [legal] market drop by roughly -15% in 2014 compared to the previous year. Consumers were not prepared to accept this new price point. This year or maybe the year after, consumers will begin to accept the new pricing and the situation should improve. “Despite 2014 being quite shaky, Synergy’s volume decrease was only -7% to -8% over 26 February 2015 Alexander Mechetin, chairman and CEO, Synergy: ‘We are doing better than others, but it is still a challenge’ the year. So we are doing better than others in the industry, but it is still a challenge.” While the legal market fell by some -15%, real consumption didn’t fall by nearly as much, as the black market offset most of that decline. Mechetin says: “Unfortunately consumers have switched to the black or grey market. It is still possible to find spirits produced by some industry players who aren‘t paying taxation or are finding a way not to pay the full amount. I don’t believe the decline in the market is really a decrease in consumption – more a movement in demand from the more expensive legal part of the market to the ‘grey’ area of the market.” The government has taken some action to control the black market. “Taxation is a Rising taxation and the growth of the black market are only part of the problem, however. With consumer confidence low, Russians are reining in their expenditure. Mechetin says: “As the Russian economy slows down, so does consumer demand. We see that clearest effect in the decline of the on-trade. People are visiting the on-trade less often. That is a change in the pattern of previous years.” Mechetin explains that the mainstream or mass-market segment of the vodka category is currently the most challenging, as Russians move from branded to more generic products. “The consumer still wants a good product, while not necessarily wishing to pay 20%-30% more for the brand. Consumers of premium products will remain loyal to a brand, but midlevel consumers are much less likely to show such loyalty to a middle or sub-premium product.” Synergy has the largest mainstream brand in Belenkaya and Mechetin concedes: “It is a challenging time for Belenkaya.” While Belenkaya, sitting in the mainstream, may be under pressure, other Synergy brands are actually benefiting from the current environment. “In Russia our strategy is to be a multi-branded company, covering all segments. For example, in the economy segment, we market Gosudarev Zakaz, which sold around 1m cases in 2013 and around 2m cases last year. We are playing with different brands for different channels. We use one mix of brands for the traditional trade and a more premium mix for the on-trade or key multiple accounts – and that is the key to success.” Synergy believes that while times are tough for its mainstream Belenkaya brand, its upmarket Beluga brand can take advantage of the current market situation spirits review He adds: “We believe our super-premium Beluga brand can actually take advantage of this situation. People are coming back to traditional Russian spirits and moving away from expensive imported spirits such as Cognac and whisk(e)y. However, they are keeping to the high-end premium products. This year I believe some people will come back to traditional vodka while remaining in the super-premium category. That is where Beluga sits. Beluga is growing at a doubledigit rate in Russia and has a near 80% share of the super-premium segment.” The sharp depreciation of the rouble is a big problem for imported brands. This doesn’t necessarily bode well for Synergy. The company has diversified beyond vodka in recent years and now carries a full portfolio of Western-style products. It is the exclusive importer for William Grant & Sons, representing in Russia Scotch whisky and malt brands such as Glenfiddich, Grant’s, Clan McGregor, The Balvenie, as well as Hendrick’s gin and Irish whiskey Tullamore Dew. In addition, the company also distributes products from Camus Cognac and its import portfolio also includes Ron Barceló rum, Amarula liqueur, Milagro tequila, brandy Tsar Tigran, Yerevan Traditional and the Latvijas balzams range. At the end of last year, Synergy signed an agreement with Spanish company Torres to distribute its brandy portfolio. “Diversification is important, which is why we entered the Russian brandy market recently and we’re currently selling roughly 1m cases with our Zolotoy Reserv brand. We already hold a 10% market share of the brandy category. In addition, we have a full portfolio of imported products, with whisk(e)y, in particular, doing well in recent years but now struggling.” “A weaker Russian economy and increasing prices, especially for imported products, will make 2015 quite a difficult year for whisk(e)y, rum and premium wines. With the Russian rouble depreciating by -40% during 2014, it will be difficult to avoid quite substantial price increases this year. The inevitable result will be a drop in volumes across all import categories.” Synergy has also pushed into the wine category recently. “We have already started to develop our sales force accordingly to handle these new categories. We have also been establishing supply agreements, introducing to the market brands such as Croix de Vignes, Pierre Fontaine, Gran Castillo, Fleur du Cap, etc, from the leading producer countries, including France, Italy, and Spain.” It also recently inked a distribution agreement with Chilean company Cono Sur, part of the Concha y Toro Group. “We see it as an opportunity to take market share from our weaker competitors” – Alexander Mechetin, CEO, Synergy Growing retailer clout Adding to the pressure is the growing clout of the major multiple retail chains. This obviously provides benefits in terms of expanding distribution, but also brings pressure on margins and profitability. “We see it has both an opportunity and a threat. The big multiple accounts in Russia have considerable purchasing power to wield against the producers. They use this to try to get a lot of discounts and bonuses. We are addressing this by providing a variable mix to the retailers – a combination of premium brands and price fighters. It is a challenging situation for all the producers in Russia and especially for spirits producers, but the way to counter it is by offering the right mix of products and investment in brands. If a company has strong enough brands, then they are in a position to negotiate. If your brands are weak, you have no market power and are very vulnerable. That applies everywhere, not just Russia.” He notes that a worrying trend, at least from a supplier perspective, is the trend towards ownlabel products. “Russian retailers are trying to launch own trademarks/labels and, at the same time, they are attempting to get favourable terms from unknown producers, in order to maximise profits, while selling less wellestablished brands. This is especially true during these tough times when people are moving from one brand to another based on price.” Potential market shake-out It all adds up to a much more difficult environment and Mechetin believes this could be a catalyst for a market shake-out. “Companies with strong brands, strong distribution platforms and who are in good financial health will survive and will have many more opportunities than those companies that are ill-prepared or otherwise suffering. It will lead to opportunities for stronger companies. That is always the case. “We see it as an opportunity to take market share from our weaker competitors. That is not to say we will be looking to acquire another company or brands. We have a strong portfolio, with brands performing well in different price categories, and we have quite a strong import portfolio in almost all spirits categories. We will continue to invest in our brands and our distribution platform, so that we are the best in the market and the best in the industry.” It seems the rating agencies agree. The Fitch rating agency recently gave Synergy a B+ rating and said: “Synergy enjoys a leading market position in Russia, which is supported by a portfolio of strong brands, a more developed distribution platform and larger scale of operations compared with most competitors. We expect Synergy to be able to protect its sales volumes in 2015-2016. The ratings also factor in Synergy’s financial flexibility, resulting from a strong liquidity cushion and limited exposure to foreign exchange risks, which largely protects the company from the potential negative implications of the current economic situation in Russia. The ratings are also supported by Synergy’s leading market position, improving product diversification and adequate pricing power, demonstrated in 2013-2014 despite sharp excise duty increases”. Synergy reported that its volume sales for the full year 2014 decreased by 12% and amounted to 11m decalitres (12.2m nine-litre cases). In the second half of 2014, sales totalled 6.6m decalitres (7.4m cases), which is 14.6% less than for the same period of 2013. Total volume of Synergy’s export operations significantly increased in 2014, rising by 639,000 decalitres (710,000 cases), which is 33% higher than in 2013. Import volume of partners’ brands grew by 37% to 350,000 decalitres (388,000 cases). Mechetin remains bullish about the Russian market’s long-term prospects. “Although Russia is a challenging market, it remains a vast spirits market and one that is tied into the country’s traditions. The next few years will be difficult for everybody, but five or even 10 years in the future it will be a great place to be.” Outside Russia, Synergy’s prospects are also looking rosy. Thirty per cent of Beluga volume is now derived from export markets and the brand is growing at a double-digit rate. “Exports are very important to us and Beluga exports are growing fast. We’ve had a successful launch in the US, and strong growth in duty free and Asia. Europe is also developing quite well too. Beluga is on course to become a real global brand.” ■ February 2015 27 spirits review Scandinavia regains confidence Nordic consumers are slowly rebuilding their confidence following the economic crisis, as Konstanze Kugler reports Slow gin renaissance The resurgence of the gin category has been taking hold in almost all key markets across Europe over the last year. The Nordics have not shied away from this trend either, although it appears to be taking off much more slowly there than in southern Europe. Laila Rosendahl Schmidt, brand manager for Belvedere Scandinavia, looks optimistically into the future, however: “I have a feeling that it is just about to start to get really exciting for the premium-and-above gin category.” She believes the gin trend will be long-lasting and with the company’s gin brand Bulldog being rolled out across the Nordic markets, her hopes are high for the brand to go from strength to strength across the region. The brand grew from a mere 350 nine-litre cases in 2011 to more than 3,000 cases in 2013 in the Nordic countries and Rosendahl Schmidt is most optimistic about Bulldog’s strongest market, Denmark. “It seems the Danes have been waiting for a premium gin. We are getting very positive feedback on the taste, the bottle and coolness of Bulldog gin,” she says. New premium-and-above niche brands are pouring into the Danish market and bars with a sole gin focus are opening in its capital, Copenhagen, as demand for the spirit booms. Consumers are interested in the story behind the brands and opt for smaller high-end products. Rosendahl Schmidt outlines the reason for the category’s growing popularity: “The desire for quality and better times are factors that attract the consumers towards this category, and as it attracts more people, it attracts more brands. 28 February 2015 PHOTO: KONSTANZE KUGLER Most of the Nordic markets have been hit hard by the economic crisis and consumer confidence decreased drastically as a result. People cut down on their spending and stalled unnecessary purchases – in particular luxury goods such as alcohol. The Nordic markets are known for their high taxes and as, with the exception of Denmark, all the countries’ alcohol markets are controlled by state monopolies, trends are much slower to enter and influence those markets and consequently give certain categories a boost. Nevertheless, the markets have not come to a standstill and things are looking brighter than in the past. Whether this equates to an increase in domestic sales remains a big question, as an investigation into the latest developments of the Nordic spirits market reveals. The bigger picture shows consumers are regaining their confidence and new spending and consumption patterns are emerging across the entire region. Danish town Helsingør has alcohol shops directly aimed at Swedish shoppers We are seeing new products in the premiumand-above gin category every month, and Denmark now has gin bars, blogs devoted to gin, gin walks, articles about gin and so on. I think this gin party is just getting started.” In Sweden there has been a more moderate rise in the top-end gin segment. Brands such as Hendrick’s have been growing well, but much of the interest in the category is being driven by bartenders rather than retailers or consumers at present. Good growth for rum The growing buzz around the aged rum category in many markets across Europe has not missed the Nordics either. Super-premium aged rum in Denmark grew from 750 cases in 2011 to a healthy 5,500 cases in the space of two years, which is an impressive development given the high price point of the quality segment. Danish consumers are moving over from Cognac, which was hit by a price increase due to the increasing demand in Asia, but also from premium whisk(e)y. Both men and women are enjoying the drink neat as they prefer the sweeter taste. The top end for spiced rum is also enjoying increased attention as The Kraken quadrupled in 2013 and reached 1,000 cases in the Danish market. The standard segment’s growth is led by Captain Morgan, which, at just short of 58,000 cases, dominates the segment. Sweden is following the course of its neighbouring country, with the super-premium dark rum segment growing from 1,500 cases in 2011 to 3,850 cases last year. Norway is still pacing itself, but following suit. The spiced rum segment is performing well in that market, however. Captain Morgan Spiced has seen a healthy volume gain last year and reached 29,580 cases in 2013. It is widely believed that the category has reached its saturation point, though, and young consumers are turning to other trendy shooter liqueurs. Similar trends are happening in the Finnish market, where spiced rum was growing healthily, with a volume gain of over 32% in 2013, as young consumers enjoyed the sweeter taste compared to the non-flavoured rum category. Fireball shoots forwards Sweet shooter liqueurs are enjoying growing popularity among young Nordic consumers. Since its launch in Europe three years ago, Sazerac’s cinnamon shooter Fireball continues to gain momentum in the Nordics. It has taken off in the Swedish market, growing from 4,650 cases in 2011 to 18,450 cases in the space of two years. The brand has benefited from a general trend among younger Swedes towards sweeter shooters. In neighbouring country Norway the brand is also showing steady growth. In 2013 it grew 140% from a small base – a trend widely believed to be fuelled by Swedish bartenders working in the Norwegian on-trade and promoting their drinking habits from back home. Fusion drinks mixing Fireball and cider, as seen in the US and Canada, have not yet reached the Nordics and shot consumption remains most popular. Sweet shooter liqueurs have been popular for a number of years, but low-strength vodkas, flavoured as well as spirits review premium spirits in the off-trade and using online tutorials to learn how to mix them. There has also been increased demand for top-end Bourbons in the on-trade for use in cocktails, but these are also increasingly being drunk neat. Meanwhile, in Sweden the expanding selection of rye and small-batch US whiskies in monopoly shops is being driven by consumer demand. Blended Scotch is losing share to malt Scotch in Denmark and Sweden as consumers begin making more active choices about the products they are purchasing. An increasing numbers of consumers are willing to spend more to trade up to single malt brands, although overall volumes remain small and are still dwarfed by the blended Scotch market. In smaller markets such as Denmark, more brands are becoming available in the off-trade as retailers increase their assortment. In mature whisk(e)y markets such as Sweden, local Swedish whiskies are beginning to gain some traction. While the category remains very niche, with just over 8,000 cases compared to the overall size of over 700,000 cases in 2013, there are an increasing number of local distillers who are moving away from traditional spirits to experiment with other categories, including local whisky. Cross-border trends Border trade and private imports are an increasing occurring problem across the entire region. The border openings and the free trade between EU member states made shopping abroad, in particular for alcohol, a lucrative alternative to domestic purchasing. The Danish town of Helsingør marks the narrowest point of the Øresund and is consequently a hub for Swedish tourists and offers great shopping PHOTO: KONSTANZE KUGLER unflavoured, are gaining momentum across the region. Reasons here lie in the “on-going health trend as consumers still want to consume spirits, but they are looking for products with lower alcohol level”, as Petri Pentikäinen, market intelligence manager at Altia Finland, explains. High taxation on spirits adds to this movement towards lower-abv spirits as they are naturally cheaper. Vodka, Finland’s prime category, is losing domestic volumes year on year and has seen a compound annual growth rate (CAGR) of -4.7% over the past five years. Consumers are looking for bargains on the one hand, but are opting for more premium and high-quality drinks as drinking occasions decrease. So the Nordic markets are polarising, with a widening gap between more expensive international brands and cheaper domestic brands. Pentikäinen explains that Nordic consumers’ interest in premium products is not merely explained by a focus on the brand or production method, but that the “high-quality image is more related to purity, naturalness, craft and provenance”. Similarly, premiumisation is playing a stronger role in all the Nordic markets – in particular Sweden and Denmark in both the on- and offtrade. The premiumisation of the vodka category has been particularly noticeable in the Danish ontrade. Premium-and-above vodka is evermore present in top-end on-trade venues, taking market share from categories such as Champagne. Super-premium bottle sales as a status symbol have been a strong driver of this trend. In Denmark consumers are bringing ontrade fashions into the home, with a strong trend to making cocktails indoors spreading across the country. They are buying cocktail kits and Ferries from Helsinki harbour to Estonia offer a lucrative trip for day tourism and private passenger imports opportunities for Swedes. While Swedes come to Denmark, Danish consumers go the extra mile and take a trip to Germany and its specifically designed border shops, targeted at Danish consumers, stocking their preferred products. As might be expected, Finnish shoppers cross the Baltic Sea to purchase alcohol in cheaper Estonia. High taxation on alcoholic products in Finland drives priceconscious consumers towards private imports. The beer tax, in particular, which is the highest in the EU, is five times higher than Estonia’s beer tax and is the main reason for purchasing alcoholic beverages abroad. Pentikäinen of Altia in Finland worries about the increasing amounts of private imports from Estonia impacting on the domestic market in Finland: “We have seen record figures in passenger imports [in 2013] and, as the rate was growing, it suggests that passenger imports increased also during the beginning of [2014].” The number of ferries between Tallinn and Helsinki doubled in 2013, which naturally had a tremendous impact on border trade. Purchases in duty-free arrivals are a major factor for consumers travelling back into Norway and Iceland. Large arrival shops, as seen at Oslo Gardermoen airport, facilitate this purchasing behaviour. Volumes from the arrivals duty-free shops are believed to account for 15% of the total Norwegian alcohol consumption. Spirits are naturally most affected by this trend. The spirits markets in the Nordics are saturated. The state monopolies are shifting their focus away from spirits and towards lower-abv products and even wine. The pressure from high and continuously increasing taxes and restricted advertising in most markets makes brand awareness and profitability tough for distributors and producers. Consumers may have gained new confidence and are frequenting the on-trade in the Nordics more often again than previously, but their priorities have shifted. The spirits market across the region is still suffering from decreasing consumption as consumers consider their purchases carefully and opt for either a cheaper category altogether or premium spirits with fewer volumes and drinking occasions, along with growing health awareness. The price point is moving even closer into consumers’ focus and, as a result of this, local products are gaining more attention. They are expected to increase their traction in the markets in the future, but international trends will also not halt and continue influencing consumers in the Nordics, which will be an interesting development to follow in years to come. ■ February 2015 29 wine news in brief Treasury ahead on H1 20132014; eyes US winemaker Australia/US According to Michael Clarke, CEO of Australia's Treasury Wine Estates (TWE), recovery measures are making an impact in the first half of 2014-15. TWE is said to be ahead on the same period 2013-14. In August 2014 it posted an annual loss of over $100m. The US and Asia are driving growth, with Clarke observing that increasing the company's footprint in China was a key target. The uptick has also partly been caused by the early (October 2014) release of high-end Penfolds wines, as well as increased spending behind major brands. Such activity has come amid a backdrop of cost-cutting, with the closure of McLaren Vale’s Ryecroft winery and the lay-off of more than 100 administrative staff. TWE has been racked by problems in the US for some time now and Clarke confirmed the company is close to downsizing its US-based portfolio. While higher volume commercial brands are likely to lose out, he admitted that TWE may buy a US winemaker to increase its access to widely available, higher-end ‘masstige’ supply. This, he argued, would reduce its dependence on lower-value wines and help to grow the company’s presence in North America. Jackson Family Wines buys South African vineyard South Africa US-based Jackson Family Wines is set to acquire 120 acres in South Africa, including a 20-acre site in Stellenbosch. The value of the deal has not been disclosed, but represents the continuation of a recent wave of expansion for the Californian firm, which now owns more than 20,000 acres worldwide. The US company plans to release 1,000 cases of 2013 chardonnay from the new site. Please send any wine news to [email protected] 30 February 2015 By Giles Gough France Champagne's governing body, the Comité Interprofessionnel du Vin de Champagne (CIVC), has revealed that shipments of Champagne are likely to have increased 1% in 2014, surpassing 307m bottles or 25.6m nine-litre cases and marking a turnaround after recent consecutive years of decline. Value development was more positive, up 2.3% to €4.5bn ($5.21bn), despite ongoing sluggishness in France. Excluding Champagne’s homeland, value shipments were up 4% to reach €2.4bn ($2.3bn). While France's situation continues to be of concern, initial figures suggest this is being offset by green shoots in the UK and growth in the US, Japan and Australia. In a recent interview with the IWSR Magazine, Cattier export director Philippe Bienvenu echoed the region’s sense of optimism on exports. Of the US, in particular, he said: “It has great potential, but there is much to do in terms of education and distribution.” Australia Exports of Australian wine bucked their recent negative trend in 2014, according to the Australian Grape and Wine Authority (AGWA). Volume shipments were up 1.9% to reach 700m litres – 77.8m equivalent nine-litre cases. Value development showed similar progress with growth, also, of 1.9% to reach AU$1.82bn ($1.49bn). This was the first time Australian exporters posted value growth since 2007, with this aided in part by the depreciation of the Australian dollar in the second half of the year, but also boosted by demand for premium Australian wines. Exports of wines above AU$10 ($7.78) increased 15% to the equivalent of 1.9m cases. Meanwhile, wines above AU$50 ($39) increased by over 50%, though accounted for less than 1% of total shipments in volume terms. New Zealand Winegrowers are enjoying increased profitability, according to the Deloitte Vintage 2014 survey. The survey divides producers into five categories according to size: those with turnover higher than NZ$20m ($14.6m), those between NZ$10m and NZ$20m ($7.3m and $14.6m), those between NZ$5m and NZ$10m ($3.6m and $7.3m), NZ$1.5m to NZ$5m ($1.1m to $3.6m), and those below NZ$1.5m. For the first time in seven years it found that all categories reported profitability before tax. Furthermore, it reported that since 2010 there has been a general trend of growing profitability. This run comes despite concerns over the impact of oversupply, high levels of external debt, the financial crisis and the turbulent bulk market. One of the biggest reasons for growing profitability is that Kiwi growers have managed to turn excess stock into revenue. This knack will be especially important in 2015 and beyond, following a bumper crop in 2014, where some 445,000 tonnes of grapes were harvested. Companies with turnover higher than NZ$20m were the most profitable. Here an average profit rate of 17.6% was recorded. Generally, the larger the company the better equipped it was to realise greater profitability. The report estimated the total value of the New Zealand wine industry to be around NZ$2bn ($1.53bn) in 2014. Of this, NZ$1.36bn ($1.04bn) came through exports. Tariffs on Chilean wine imports abolished in China Import tariffs on Chilean wines in China were abolished on 1 January 2015. The Chinese Government has been scaling back duties on Chilean wine since the signing of a free trade agreement between the two countries back in 2005. The abolition forms part of a wider opening-up of the Chinese market, with both New Zealand and Australia also signing agreements with China in recent years. Between 2008 and 2013 still light wine consumption in China increased at a compound annual growth rate (CAGR) of 17%. Imported wines accounted for just below 20% of volumes in 2013. According to the IWSR, the market in fact declined -7.6% in 2013 to reach 158.5m cases. ‘Local’ wines were impacted the most as an anti-extravagant spending drive directed by Beijing hurt the Chinese banqueting sector and corporate purchases. wine review US fine wine breakout year forecast A better economy is resulting in a growing demand for US fine wine, finds Silicon Valley Bank Silicon Valley Bank’s (SVB) latest Annual State of the Wine Industry Report forecasts increasing US demand for fine wine driven by an improving economy. Based on a survey of nearly 600 West Coast wineries, in-house expertise and ongoing research, the report covers trends and addresses current issues facing the US wine industry. ”We are seeing real strength in the US economy going into 2015, which will increase demand for wine,” said Rob McMillan, founder of Silicon Valley Bank’s Wine Division and author of the report. “Declining oil prices are transferring wealth to oil-consuming countries, the employment picture is improving, the US dollar is strengthening and interest rates will move at a measured pace. As long as the industrialised world economies can hold their own, the middle-income consumer will see improved prospects. We’ll be toasting to that. Demand grows Overall wine consumption increased for the 20th straight year. Overturned blue laws, better employment, relaxed restrictions on direct shipments, and customers trading up to more premium-priced wines all lead to the industry’s improved year-over-year success in 2015. While overall sales rose, growth accelerated at the higher end of the market. Starting in mid-2014, wines priced above $20 a bottle broke out strongly higher. Trading-up is a clear trend again. Red wines in particular showed the strongest growth. SVB expects that to continue throughout 2015. Growth in sales of wines priced above $20 was driven by accelerating volume, with little in the way of price increases getting through to the consumer. Wines priced below $9 per bottle performed poorly both in the on- and offpremise sectors in 2014. The poor performance is likely to continue into 2015.” SVB argues that the market is hitting a transition point that could eventually prove problematic for US producers. The Baby Boomers, who account for the majority of fine wine purchasing in the US market, are now hitting retirement and likely pull back their purchasing. The Millennials that are replacing them are bogged down in high levels of student debt and weak job prospects. “We cannot stress more emphatically that, one day, Millennials will be at the centre of fine wine sales. But the reality is – no matter what a generation is called, the most active buyers of fine wine and luxury goods will continue to be in the 35- to 55-year-old age group. The younger generation is just now entering an age where Highest-priced red wines are short “The heavy volume is changing the balance in the supply business” – Silicon Valley Bank they can participate in a more meaningful way. Today, the largest consuming cohort is the Boomers, and the cohort with the greatest immediate growth opportunity is Gen X.” Healthy demand-and-supply scenario SVB expects to see the third consecutive harvest of heavy yield and great quality across most appellations. Most estimates for the 2014 harvest are somewhere around 4m tons, although SVB believes it will be slightly lower. Nevertheless, it will rank with the top three or four crop sizes ever. The report says: “The heavy volume is changing the shape of the supply balance in the business… there is now a fair amount of juice out there looking for a home.” Although there are varietals and regions where there is excess supply that will be needed by the end of 2015 due to heavy demand. “Today, you can pretty much describe the shape of supply as long, as you move further down the ladder of expected price per ton. It’s very long under $8 and slightly long in the wine destined for middle-tier bottles, priced between $9 and $18. However, the highest-priced bottles, and particularly red wine and North Coast cabernet, are short.” Massive bulk imports will continue to dominate the wine categories at the lowest price points, but bulk imports should be held back by the size of the 2014 harvest and supplies currently in cellar. Bottle pricing is tied in closely to the supply and demand equation. The SVB survey indicates that the expectation of price decreases in 2015 is minimal, but more prevalent in the lowerpriced segments. “The lower end of the market – below $8 retail – is already trending down. Something will have to happen to make that trend reverse course, and we cannot see anything at this point that would reverse the trend. In fact, a strengthening dollar could increase bulk imports, so the lowest end of the market from a price perspective will probably see price discounting and perhaps volume declines as well in 2015.” The report also expects some discounting in the $10-$20 part of the market where there is a lot of wine available to be sold, although négociants and branded wines will absorb some of that. Wines priced from $15–$18 bracket will hold their price better, and those above $20 should see some modest price rises. Healthy financial environment Most wineries will say 2015 was one of their best seasons by the end of the year. SVB estimates that revenue growth for US wineries through the nine months ending 30 September 2014 was about 8%. It expects to see the impact of a strong October-NovemberDecember (OND) 2014 selling season boost end-of-year, particularly when contrasted with a weak OND period at the end of 2013. Meanwhile, SVB is predicting a breakout year of growth in the fine wine category in the 14%-18% range in 2015. This is up from an impressive 10% growth in 2014. “Taken as a whole, the financial performance of wineries in 2014 was pretty good and ended on an uptick. Looking at reported financial health from our survey shows that wineries are making progress.” “We are especially positive on the year ahead,” McMillan added. “We expect the fine wine business will experience accelerating growth. At the same time, the cellars are full, with several consecutive years of very good vintages.” ■ February 2015 31 wine review Surplus or shortage? Val Smith examines the state of global wine supply and demand Whether wine supply will be in surplus or shortage should be an easy question to answer, but it is not – and there are multiple reasons. Comparing supply (production) with demand (consumption) is not straightforward. Production data is more readily available than consumption, and is processed every year by the Paris-based international vine and wine body, OIV, so is consistent. However, these figures do not include the very considerable quantities of ‘village’ wine, produced in the Balkans, CIS, Latin America and ‘Old’ Europe, the sale or consumption of which virtually always goes unrecorded. These wines alone could add 450-500m cases to world supply and demand and there have been only very rare attempts by local governments to measure them. The situation is further complicated by the (largely European) habit of replacing local below-standard wine, destined for own-label contracts or five-litre-plus containers, with slightly more drinkable wine from neighbouring countries, while until recently collecting a subsidy to turn unsold wine into alcohol. The latter was then often sold on to Russian and other central and south-eastern European producers to be sold as fine brandy or worldwide as super-premium vodka. Put another way, these volumes tend to go under the wine statistics radar. Then there is the dilution of grapes with other substances and/or must-based liquors, which takes place on a massive scale in the CIS countries, China, Japan, South Korea, south-east Asia and across Africa. Also, the fairly widespread practice of under-declaration of production and/or sales, to reduce tax, influences the calculation across the world. Around the year 2000 it was said that 30-40% of production in the southern Italy and its islands (in the heaviest Italian production zone) were not recorded. While this percentage is now somewhat lower, it still exists, as it does pretty much globally. With the evident exception of perceived pressure on prices, does the supply/demand equation really matter so much? Recent major volume declines have been concentrated largely in ‘Old’ Europe’s producing countries and Argentina. The volumes lost have been mainly very cheap wines of questionable quality, directed at quenching thirst, boosting energy and as a substitute for water. Yet the social conditions that required this type of wine have already vanished, or are vanishing. For the first time in history, probably, the majority of wine drinkers are drinking wine more for enjoyment (and social standing) than for slaking thirst or as an essential element in their diet. So the fall in demand, as measured in total volumes, was 32 February 2015 inevitable and, within 15-20 years, this traditional form of consumption will probably have died out. However, these wines were not often major profit generators, except for a few family-owned giants. A more recent development – the impact of which has not yet worked through the system – is that almost all wine now produced is pleasant to drink. This was certainly not true 20 years ago and it means consumers can confidently change to new wines if their preferred wine runs out. Faith in the buying skills of the major multiples and discounters is also growing as each year passes and there is a continual spread of ‘quality’ wine production into new countries, almost always of adequate drinkability, even if quantity is limited. The market for ‘quality’ wines (over €5/$5.62 a bottle) can now be supplied from many sources. The near-total devastation of supply by the phylloxera virus is increasingly unlikely to recur on such a massive scale as in the past, as chemical and other skills in treating disease and bugs continue to expand. That said, regional disasters will still occur from time to time. Changing fashions can also exhaust supplies from particular regions, usually the top qualities – Bordeaux top growths recently, Bourgognes now, Barolo tomorrow? – but substitutes can easily be proffered. Well-publicised supply crises will continue and help, in the short term, to raise prices. But modern production skills and marketing energy will be used increasingly to shift consumers to new alternatives. So the main danger to supply right now is from one of two key world trends in alcohol: the growth in demand and trading up in countries with large populations, generated by having disposable income for the first time and by worldwide media exposure. The other great stimulator – the availability of stores to buy wine from – is not yet influencing sales in many of the large market countries. China dilutes, adds and uses must to meet the (until recently) rising demand. India deploys extraordinarily high tariffs and has few suitable shops. To date, the main impact of the giant consuming markets has been to sop up excess bulk from producers. The future impact could be much more dramatic. But it has not happened yet and will not do suddenly – certainly not at a speed that will be too fast for the seven-year planting-to-sales cycle. There are, of course, recurrent shortages of particular varietals, which have often been solved by novel blending. Most years, the weather invariably damages supplies in some regions – occasionally for several years at at stretch. But wine-making skills have improved so considerably and across a wider spread than in the past, that more acceptable alternatives are now available – in beer and cider as well as wine. Since 2008 world traceable consumption has exceeded recorded production by over 200m cases every year, and by well over 300m cases in three of these years (much more if the more questionable ‘other’ wines were to be included). This throws doubt on the theory that there is an emerging shortage of wine. Producers appear to have used their ingenuity to satisfy all demands until now, regardless of any production ‘shortage’. ■ Supply vs demand Volume 2008 Volume 2009 Volume 2010 Volume 2011 Volume 2012 Volume 2013 Production 2,420.0 2,450.0 2,385.0 2,410.0 2,320.0 2,530.0 Consumption Still light wine Sparkling wine Fortified wine Light aperitifs 'Other' wine Total consumption 2,390.0 200.0 58.5 35.0 111.5 2,795.0 2,390.0 198.0 57.5 32.5 110.0 2,790.0 2,420.0 210.0 55.0 32.5 112.5 2,830.0 2,460.0 210.0 52.5 32.5 110.0 2,865.0 2,465.0 212.0 46.5 31.5 112.5 2,877.5 2,445.0 215.0 44.0 30.0 111.0 2,845.0 +375.0 +340.0 +445.0 +445.0 +557.5 +315.0 +265.0 +230.0 +332.5 +345.0 +445.0 +205.0 Consumption* over production Excluding 'Other' ‘Other’ wine is most likely to be made from must and non-grape ingredients All volumes in million cases (rounded) Source: Production: OIV rounded; Consumption: The IWSR Database 2015 rounded, (based on 125 countries, plus 21 Sub-Saharan African) wine review The two sides of Languedoc-Roussillon Giles Gough talks trends and the next big thing with Isabelle Pangault, chief winemaker at French co-op Foncalieu The Languedoc-Roussillon has long been known for its consistency. More recently, however, wineries from the south of France and indeed Sud de France, the region’s trade body, have focused on promoting the LanguedocRoussillon’s diversity. It’s a natural step given consumer interest in regionality, and not surprising given that its vineyard area ranges from the Rhône Valley in the east to the Spanish border to the south-west. Even so, notions of diversity and terroir are a far cry from the wine lake and the perception of the Languedoc-Roussillon as a largely commercial wine-producing area, a perception which still dogs many local wineries today. The bid to change the image of the Languedoc-Roussillon is a long-term, ongoing process. A quality pyramid of appellations has been in place for a number of years now, which has helped many producers to market their wines and champion quality much more efficiently. However, declassification of French wine regulations and the flexibility allowed by the IGP Pays d’Oc also gives many winemakers the opportunity to explore other blends, single varietals and styles. This has formed a key weapon for many producers in the south of France as they look to compete with established brands from the New World, which traditionally have not been hampered by regulation and red tape. As a winemaker, Isabelle Pangault enjoys the relative freedom that working in the area affords: “It is one of the rare places where you have two cultures that meet – the traditional AOP system, and international grape growing and a modern way of winemaking with IGP Oc. There are many opportunities to create things, to have fun and to experiment. It’s like the OldNew World.” Such experimentation includes blends of syrah, cabernet franc, malbec and cabernet sauvignon, which Foncalieu is producing in IGP Côteaux d’Ensérune, just to the south of Béziers. The thought of cabernet sauvignon blended with syrah may raise the brow of many a wine aficionado. However, the fact is that, in the south of France, a more robust cabernet sauvignon can be grown, unlike cooler climates to the north. “Blends like cabernet sauvignonsyrah can work (in the Languedoc-Roussillon). Our cabernet sauvignon is a bit riper than in Bordeaux, so it can handle spicier wines like syrah.” In 2014, Foncalieu also made a picpoul noir rosé, which is already said to be garnering interest from buyers in the US. Though perhaps lesser-known than its white cousin, picpoul blanc, which makes the re-emerging picpoul de Foncalieu vineyards. Below: two of the co-operative’s brands pinet, picpoul noir is an ancient grape and is one of the 13 varieties used to make the Rhône’s prestigious Châteauneuf du Pape. It is not just with experimentation that southern French producers are enjoying success. The Languedoc-Roussillon also has the climatic and topographic diversity, often referred to as terroir, to produce wines more associated with other regions. Foncalieu, for example, produces syrah-viognier red and rosé blends. “You will never get the same style (as Côte-Rôtie) because the yields are different. However, because of the Mediterranean climate, we can get the concentration we need.” The beauty, though, unlike smaller appellations, is that because of economies of scale, good wines can be produced at affordable prices. Côte-Rôtie is produced in the northern Rhône, which has a continental climate, as does the region to the north, Burgundy. Characterised by cold winters and hot summers, prime facie both are very different to the average, Mediterranean growing conditions seen in the Languedoc-Roussillon. However, given its sheer size there are numerous pockets and subregions suitable for growing cooler-climate style wines. Pinot noir, traditionally associated with Burgundy, is said to be performing well in the south of France. Asked about how these match up compared to the cooler climate, Pangault responds: “Ours is very similar to what you would call a Burgundy style; it is light in colour and delicate with cherry and smoky notes. We have a vineyard in Puichéric which is a bit more oceanic. It means nights are cooler and the climate is generally more suited to pinot noir, which allows us to have a fresh and delicate expression – not burnt or overripe.” However, she admits that the diversity of the region also means there is a broad range of styles coming out of the area and, one assumes, different levels of success in producing leaner wines. While it seems the Languedoc’s staple of big, ripe, full-bodied and spicy red wines is here to stay, there is no doubt that plantings in the region are diversifying. Moreover, there is real momentum behind marketing France’s south as not just capable of producing wines similar to those from more prestigious regions – and at a better price – but also as a producer of fine and quality wines in its own right. ■ February 2015 33 wine review Your next great wine – where from? Gregory Dal Piaz looks at some wine styles and origins that are beginning to gain wider recognition in the world Our view of wines is changing. While it may still be dominated by Burgundy and Barolo, cabernet and chardonnay, much of what has been familiar in the past is inching out of the reach of ordinary consumers. Prices are rising for the world’s recognised wine styles and brands, creating openings and impetus for some rising stars. That is not to say that öküzgözü from Turkey is about to replace your cabernet, but it does mean that you just might have a few opportunities to try öküzgözü soon. Today’s wine drinker is less bound by convention than those of decades gone by. The classifications of Bordeaux and Burgundy are less important, and intriguing to many new wine drinkers than the qvevri wines of Georgia or even the rieslings of New York’s Finger Lakes. The reasons behind this are complex, with some influence coming from rising prices and emerging wines tending to be well priced. But other, larger forces are at work, including a return to the appreciation of what is local and natural; the thrill of discovery is adding impetus to the exploration of these lesser-known wine regions and styles. While many of us in the trade can be dismissive of areas that have yet to see the full force and fruition of investment come to bear, it is worth noting that these regions are gaining increasing international attention for their wines, with each having its own apostles, ensuring access to an increasingly curious and adventuresome audience. It is time to start paying attention to wines beyond the usual suspects, as well as regions that will teach us a thing or two about the diversity and beauty of wine. It is time to start paying attention to the parts of the world we have never paid attention to before. Here are some regions that are quickly developing reputations as the next big thing in wine. Turkey Haven’t heard much about Turkish wine? That is hardly surprising, but no more so than not knowing that the Turkish wine industry has roots that stretch back thousands of years, recognised as having first produced a beverage known as ‘vino’ between 4000-3000 BC. Turkey is poised to become a major player in the wine world over the coming years. Already one of the most prolific grape-growing countries in the world, with annual yields over 4m metric tons1, sixth-highest in the world, Turkey is far better known for its production of table grapes and raisins than wine, but that is slowly changing. Roughly 28m litres2 of wine are produced annually in Turkey, accounting for perhaps half their total potential based on current vineyard 34 February 2015 Vineyard on Keuka Lake, New York plantings. Already a formidable number, the potential for a doubling of production at a time when quality is showing impressive improvements – the average price per litre of Turkish wines has increased from $1.36 in 2006 to $3.25 in 20113 – means Turkey is truly prepared to make inroads into the global premium wine market, something that few would have considered just a decade ago. And as for öküzgözü, this may well prove to be Turkey’s breakout variety. Among the indigenous Turkish varieties, of which there are many, öküzgözü strikes a fine balance between character and drinkability, reminiscent of Dolcetto with its fresh, fruity flavours and bright character. China While Turkey has an impressive vinous history, and great vineyard to accompany that story, China is more of an upstart in the wine world. But as is this case with the Chinese, when they decided to do wine, they decided to do it on a large scale. So large in fact that Chinese grape production swelled from 300,000 hectares in 2000 to nearly 600,000 today4, yielding over 10m metric tons of fruit5, making China the world’s leading producer of grapes. While production is exploding in China, wine production, while growing rapidly, is proceeding at a slower pace. Investments by international wine powerhouses, such as Domaines Barons de Rothschild and LVMH, are ensuring that the studies of terroir and production in early state trials are being undertaken with the highest international standards in mind. While Turkey has a bevy of indigenous varieties to promote, China must rely on imported clonal material and, due to its domestic market, the terroir, and international pressures, more than 60% of what has been planted in China has been cabernet sauvignon6. It remains to be seen whether the world at large needs another source of cabernet sauvignon but, in the short term, if Chinese cabernets can compete with the world’s best, these wines will be an easy way to benchmark the potential that China’s wine regions have. There is no doubt that somewhere in that vast country, with the money and the wherewithal being applied, world-class wines will emerge. While Turkey and China are the biggest stories in the wine world it is also worth noting what have been some of the biggest headlines of this past year: New York’s Finger Lakes The region, long known for its rieslings, is the site of some international investment that opened more than a few eyes. Paul Hobbs and Johannes Selbach formed a joint venture to develop a 67-acre site on the south-eastern shore of Seneca Lake. While this is not the first outside investment in the region, it is the biggest and most widely covered by the media, portending increasing media coverage for the great, and largely undiscovered, wines of the region. The Republic of Georgia After years of increasing interest in so-called orange wines and fermentations in amphorae, Georgia is finally getting the word out about its qvevri wines. The traditional wines of Georgia, fermented in these clay qvevri, are a historical link that connects the modern day interpretations of this style of wine to their roots. While certainly not for every palate, qvevri wines can be fascinating and have served to open the door to both the historical and modern day wines of regions previously unknown to the wine cognoscenti. ● Gregory Dal Piaz has been involved with wine for over three decades, beginning on the restaurant side of the business, before moving to retail, and now as editor-in-chief of Snooth.com. Article edited and reproduced courtesy of ProWein. References 1 http://tinyurl.com/ogcevfm 2 Durmus Ozdemir Turkey’s Arduous Journey from Vine to Wine http://tinyurl.com/pxgeqky 3 http://tinyurl.com/ogcevfm 4 Per Karlsson BK Wine Magazine: The world’s grape growing (vineyard) surface area 2000-2012 http://tinyurl.com/p42umg3 5 http://tinyurl.com/nfrppqf 6 Li Demei Decanter China: Finding the Best Wine Grape in China http://tinyurl.com/p42umg3 beer, cider and pre-mix news in brief By Simon Molony UK A decade of decline in UK beer sales has come to an end, with a 1.3% rise in UK beer sales in 2014, according to figures provided by the British Beer & Pub Association (BBPA). The turnaround in the fortunes of Britain’s favourite pub drink follows two historic cuts in beer duty by the Chancellor. The 1.3% rise in 2014 followed nine consecutive years of decline, which saw beer sales slide -24%. The BBPA says that huge tax rises were the major culprit, with a beer duty hike of 42% from 2008 to 2013, under the beer tax ‘escalator’ policy. This sent the duty (plus the VAT on the duty) from 42p ($0.63), to 65p ($0.97) on a typical pint. Beer sales in pubs have begun to stabilise, showing a small decline of -0.8% in 2014, but this was the smallest decline in sales since 1996. Off-trade sales grew 3.5%, matching the growth of last year, and taking off-licence and supermarket sales above on-trade sales for the first time on record. BBPA CEO Brigid Simmonds said: “British beer is back in growth – and we want to keep it that way. But with 70% of pub drink sales being beer, the picture for our much loved pubs is still fragile.” Africa Diageo reported an overall net sales increase of 5% in Africa for the six months to end-December 2014. Performance in the Africa Regional Markets, where organic net sales were up 16%, has improved due to strong growth in beer in Ghana and Cameroon. Across Africa, beer sales were up 5% over the six months. Nigeria remained a challenging market as consumers continued to trade down to value beer, and the stout category continued to lose share to lager which impacted Guinness. “However, the successful launch of Orijin and the improved performance of Satzenbrau drove growth in beer despite softness in other brands and destocking,” said Diageo chief executive, Ivan Menezes. Menezes stated: “We have continued to build our route to consumer and invested in our brands, with marketing spend up 12%.” Spend on beer was up 6% as investments on Guinness and the ‘Made of More’ platform increased 20%, while the Orijin brand was rolled out nationally in Nigeria. In east Africa robust growth in beer and spirits drove an 11% increase in organic net sales. Double-digit net sales growth of both Tusker and Guinness in East Africa, and value offerings Balozi in Kenya and Kibo Gold in Tanzania, more than offset the continued decline of Senaor that resulted from excise duty changes. Globally, beer represents 17% of Diageo’s net sales, and the category grew 2% during the reported period. Declines in North America and Asia-Pacific, and flat growth in Europe were offset by the increasing sales in Africa and strong performance in the Latin America region. Russia The Carlsberg Group has closed two of its breweries in Russia, following the suspension of operations at the facilities last year. Following an evaluation of its brewing operations in Russia, where market conditions have deteriorated due to increases in excise duty and tougher regulations impacting consumption and profitability, Carlsberg has decided to close breweries in Chelyabinsk (Baltika-Chelyabinsk) and Krasnoyarsk (Baltika-Pikra). A statement from the Carlsberg Group said: “The sales and distribution organisations will be maintained in the two cities, but supplies will in future be sourced from the remaining eight Russian breweries.” The closures will result in a pre-tax, non-cash write-down of approximately DKK0.7bn ($106.4m). “This amount will be included in special items for 2014 and will have no impact on 2014 operating profits,” according to Carlsberg. ● In other news Carlsberg has embarked upon a three-year project to develop a biodegradable, bio-based bottle made from sustainably sourced wood-fibre. The ‘Green Fibre Bottle’ is being developed in collaboration with packaging company ecoXpac, Innovation Fund Denmark and the Technical University of Denmark. Andraea Dawson-Shepherd, senior VP for corporate affairs, said: “If the project comes to fruition, it will mark a sea-change in our options for packaging liquids.” The bottle will be made entirely of bio-based and biodegradable materials, mainly sustainably sourced wood-fibres. Anheuser-Busch to acquire craft beer producer USA Anheuser-Busch, the US arm of leading global brewer Anheuser-Busch InBev, is buying Seattle-based Elysian Brewing Co., which produces craft beers including leading brand Immortal IPA and Loser Pale Ale. The multinational seeks to captalise on the increasing popularity of craft beers in the US market, where overall sales are declining. Total volume sales were down -0.8% in North America during the first half of 2014. Elysian sold over 50,000 barrels of beer in 2014, distributing in 11 states in the US as well as Taiwan, Australia, Japan and Canada. SABMiller reveals Q3 results for fiscal 2015 USA SABMiller announced group net producer revenue (NPR) increased by 4% in the three months to end-December 2014. The group posted NPR per hectolitre growth in all regions. Continuing volume weakness in China and US shipments saw a decline of -1% in lager volumes, although soft drinks performance remained strong across the board with volumes up 4% in the period. “We continued to drive steady net producer revenue growth, notwithstanding varied local market performances, as we benefited from the breadth of our global portfolio of businesses,” said SABMiller chief executive Alan Clark. “Our Latin America and Africa businesses continued to grow both volumes and revenues, together with Europe, while more difficult trading conditions, particularly in China, held back the overall group performance,” Clark said. Africa and Latin America posted the highest group NPR growth of 7% and 5% respectively in the third quarter. Please send any news on these categories to [email protected] February 2015 35
© Copyright 2024