Summer’s the season for backyard barbecues, picnics in the park or just kicking back on the porch with a tall, cold drink, watching the world go by. About the only thing as hot as the summer sun are the white spirits consumers are using to build those frosty cocktails.
White spirits — vodka, gin, rum and tequila — are experiencing tremendous consumer interest, and for the most part constitute a growing category. There were some big bumps in the road last year for the industry as a whole as well as individual brands. The ride looks smoother this year, though, allowing a number of brands to step back on the gas and regain momentum. Last year, vodka again dominated the spirits landscape, comprising about 25% of all spirits sales in the U.S., gaining 4.0% from the previous year, with sales of more than 37 million 9-liter case nationally (3.9% in the control states, with sales of more than 9.1 million cases). Indeed, as such a major segment of the spirits industry, StateWays featured coverage of the entire vodka category by itself in our last issue (May/June 2002). This article tackles the smaller yet significant spirits categories of rum, gin and tequila.
As many commentators have noted, the surge in growth of white spirits in recent years, especially above-premium and imported brands has been largely due to the economic boom times of the ’90s. And that has essentially continued, despite the recent recessionary economy and the fallout from last September’s terrorist attacks. Indeed, the shift to more “cocooning” fueled another trend that has been growing in recent years. Consumers exposed to the explosion of flavored cocktails appearing in restaurants and bars are now trying to recreate them at home. And the continuing resurgence of classic cocktails like the Martini has spurred interest in high-end brands. In addition, the new and varied flavor combinations are resulting in new flavored products. It’s what consumers are demanding and suppliers are taking notice.
Rum Rocks
Besides vodka, another fast-growing segment last year was rum. Total volume was up 6.4% nationally in 2001, and the top 10 brands grew at an even faster 8.5% clip (in the control states, the rum category increased by 5.9% through the last 12 months ending 3/31/02, to more than 3.8 million mixed cases).
The big news in the segment last year was the sale of Seagram’s spirits brands, which left the fate of two of the biggest players, Captain Morgan and Malibu, up in the air. At issue were antitrust concerns and a legal spat between Allied-Domecq and Seagram’s. All was amicably resolved earlier this year with Diageo acquiring the Captain Morgan brand while selling its Malibu brand to Allied-Domecq.
Malibu, one of the hottest-selling rums in the U.S., is now part of the Allied Domecq Spirits portfolio.
While the two companies hadn’t announced plans for their new brands at the time of this writing, successful programs for both will likely continue. Captain Morgan, which grew 14.1% nationally last year (11.8% in the control states), has been making good use of personal appearances by the “Captain,” urging consumers to be seen with him, then posting photos of their good times with him on the brand’s website.
Malibu, now happily ensconced in the Allied Domecq family of brands, has been one of the hottest-selling spirits brands in the U.S., with a four-year annual compound growth rate of 14.5%. The brand sold 922,000 9-liter cases nationally last year, a 10.2% increase (Malibu gained 7.2% in the control states, to 138,000 mixed cases).
Bacardi O had a tremendously impressive debut last year, with depletions of 230,000 cases in about four months.
Segment leader Bacardi posted a 3.5% gain last year nationally to 7.66 million 9-liter cases, maintaining its position as the best-selling spirit in the U.S. (The brand was up 2.4% in the control states). In another sign of industry consolidation, the family-controlled company announced a strategic alliance with Brown-Forman in April. The partnership, called Gemini Alliance, will combine many of the companies’ marketing and distribution functions in an effort to further strengthen brands in both.
As with vodka, the hot trend in rum right now is flavors. Bacardi Limon, which has been on the market for seven years now, was joined last fall by Bacardi O, an orange-flavored rum. Bacardi O posted sales of 230,000 cases in less than four months. Both flavors will get new ad executions this summer as well as promotions that push the variety of drinks that can be made with them. Off-premise support will include p-o-s such as pole-toppers and shelf cards and cross-merchandising co-packs where legal.
Whaler’s line of flavored rums is now being handled by Heaven Hill Distilleries.
Whalers, a Hawaiian rum that comes in five flavors, was acquired by Heaven Hill Distilleries this year. The distillery plans to expand distribution and increase awareness of the brand and its flavors through cross-promotion. In some markets, 50 ml samples of Vanille will be packed with Burnett’s Vodka. In others, samples of Great White and Coconut will be packed with 750 ml bottles of Vanille.
Pernod Ricard USA has joined the flavor trend with its recently debuted Mojito Club, a citrus-flavored rum meant to recall the famous Mojito cocktail. The company says Mojito Club can be consumed in a variety of ways, alone over ice or as a key ingredient in many different cocktails mixed with juices, sodas, sparkling waters or other spirits. The 50-proof flavored rum has a suggested retail price of $15, and an array of in-store p-o-s materials are supporting the launch, including recipe fact cards, shelf talkers and three-case wire display racks.
Pernod Ricard USA just launched Mojito Club, a citrus-flavored rum.
High-end rums also are faring well despite their limited resources and the slow-down in restaurant sales last year. Rare, aged rums are slowly finding an audience. Value brands also had a good year, because of their mixability and appeal to a variety of consumers. Ronrico, distributed by Jim Beam, saw a 7.4% sales increase last year (up 5.2% in the control states), despite only modest support. Todhunter’s Cruzan Rum gained 32.8% nationally (up 17.3% in the control states), benefiting from the rollout of a line of flavored products. And Bacardi’s Castillo brand grew about 4.5% (up 6.9% in the control states).
The consumer shift to both high-end and value rum brands again demo nstrates the pressure being put on more traditional premium brands. Both Mount Gay and Myers’s saw slight declines last year nationally, off 1.2% and 3.2% respectively. Myers’s may have been neglected in the brand shuffle during the sale of Seagram’s brands. And Mount Gay, from Remy Amerique, likely suffered somewhat as consumer interest turned to flavored rums. Still, Mount Gay is promoting a new, lightweight, unbreakable, polyethylene bottle for summer convenience.
Rum’s mixability and reputation as a fun, party spirit, however, should continue to boost overall category volume.
Genuine Gin
The gin segment hasn’t fared as well as other white spirits. Volume has been basically flat or in decline for several years. Last year, volume declined about 1.1% (down 1.6% in the control states).
Bombay Sapphire, from Bacardi USA, is one of the few gins that has been showing impressive sales growth.
“There’s not a lot of innovation in the category, so there aren’t as many reasons for consumers to enter it,” said Joanne Kletecka, group marketing director for Allied-Domecq. “Consumers have the perception that gin is not as mixable as other white spirits.”
While consumers may see gin as an acquired taste suitable only for Martinis and gin-and-tonics, distillers believe the segment has growth potential. High-end brands like Bombay Sapphire are doing well (up more than 20% nationally last year; up 12.4% in the control states), and there has been more innovation in recent years.
Segment leader Seagram’s went through an adjustment period last year after being acquired by Pernod-Ricard. With a new sales force in place, the brand is in its third year of a turnaround strategy.
“A lot of people think we’ve lost ground to vodka,” said Paul Campbell, global marketing manager for Seagram’s Gin at Pernod-Ricard, “but there are a lot of loyal users out there. We’re doing a better job of raising awareness and people are starting to take notice.”
The brand’s “urban elegance” campaign that kicked off a year ago will be expanded this year with an aggressive push into radio. The “Seagram’s Gin Live” music tour will go to 25 markets this year. Point-of-sale materials will have fresh creative tied to the tour.
The brand also is sponsoring Method Man, an urban rap artist, and will help promote his new album release in June with events and public relations.
Beefeater retooled its package last year and is debuting new ads and promotions.
Beefeater is pushing mixability to convince consumers that even a “bold spirit” like Beefeater Gin can be enjoyed in a variety of drinks. New ads in the two-year-old campaign are in settings even more relevant to younger consumers. Summer promotions will feature co-packs with mixers — predominantly Bloody Mary mix — to show consumers other ways to drink the product. Indeed, Beefeater’s “Bold Taste of Summer”-themed point-of-sale materials now in the market also include case cards, tear pads offering $1 rebates on ice, recipe neckers, channel talkers, static clings and a year-round Beefeater bottle-shaped wire rack, as well as Weber grills and BBQ grilling utensils.
In addition, the brand’s partnership with In Style magazine in support of fine arts gets bigger this year. The fashion show sponsored by the two partners expands to five markets and kicked off in June.
Tanqueray, which had a modest gain in volume last year, is going back to basics. Recognizing that gin is distinctive, the brand is capitalizing on its strengths.
Tanqueray has debuted a new ad campaign featuring distinctive personalities such as Tony Bennett.
“We’ve never changed or apologized for who we are,” said Steve Meyers, Tanqueray senior brand manager, at Schieffelin & Somerset. “After September 11, people were talking about comfort drinks, not just comfort food. Tanqueray and tonic is one of those simple comfort drinks. That’s where we’re focusing the brand. Returning to basics captures the essence of the brand.”
Advertising, promotions, sampling and other programs all focus on the distinctiveness of the product. A new ad campaign compares distinctive personalities like Hugh Hefner, Tony Bennett and model Iman with Tanqueray, which has been “distinct since 1680.”
The brand is hosting T&T parties in a variety of on-premise venues this year. Off-premise, point-of-sale materials and promotions also will be geared to pushing T&T, including co-packs with tonic where legal.
The superpremium Tanqueray 10, introduced two years ago, is slowly getting word-of-mouth and expanding its distribution. The product is one of a handful of new approaches to the segment.
Hendrick’s, introduced last year by a Scotch distiller, is now available in more than a dozen states and will be rolling out to more this year. Created to capture the feeling of sipping gin and tonic while eating finger sandwiches in an English rose garden, Hendrick’s has a hint of rose petals and cucumber in it.
Bafferts went even further in dialing down the emphasis on botanicals. The product contains only four, making it taste more like a flavored vodka than a traditional gin, yet its taste is still reminiscent of gin.
Other gin brands also are looking to make a bigger push to take advantage of consumer interest in white spirits. Plymouth, for example, was just picked up by The Absolut Spirits Company (and Future Brands) and looks forward to increased levels of support. Indeed, in an exclusive interview with StateWays, Plymouth Gin managing director Nick Blacknell noted that Plymouth has been “reborn” of late and is now the second-best-selling gin in the U.K. A superpremium product at 82.4 proof, Plymouth was first made in 1793, uses a balanced blend of seven botanicals in its formula (juniper, corriander, lemon and sweet orange peels, angelica root, orris powder and cardemon), and is still produced in a 150-year-old pot still in a “hand batched” method.
Heaven Hill is promoting its Burnett’s Gin as the “Gem of Gin” this summer.
For its part, Burnett’s Gin, from Heaven Hill Distilleries, is part of a Burnett’s Vodka and Gin “Summer Sparklers” promotion. The gin, however, also has its own p-o-s program promoted as “Gem of Gin,” including case cards, a counter mat and a counter unit.
Tequila Hit Hard
Tequila was the hardest hit of any segment in the industry last year. Flying high from several years of fast-paced growth, events conspired against the segment, causing it to crash and burn. A shortage of agave meant dwindling supplies and much higher prices.
Hurt most were premium brands that make up the bulk of the segment. The top 10 brands — almost 80% of the segment — were off a combined 12.8% in volume nationally, though the top 10 in the control states were off far less. Category leader Cuervo was down 7% nationally (0.6% in the control states). Sauza, off more than 12% nationally, had a sales decline of only 0.2% in the control states. Only one brand in the national top 10, Pancho Villa, saw positive growth nationally (up 23.9% in the control states). Lower-priced mixtos, which rely more on flavoring than actual agave content, were favored by on-premise accounts and consumers alike because of price. Less expensive tequilas were up in volume about 3.2% nationally, not nearly enough to offset the decline in the overall segment.
“Last year was certainly a challenging one for the category,” said Jeso Chancon, brand manager for Sauza at Allied Domecq. “Prices went up and supply went down, but by the end of the year the category started to come back.”
As supply constraints ease, pricing has stabilized. Major brands like Sauza are working hard to readjust pricing back down across the country as supplies increase.
Jose Cuervo still has about half of the U.S. tequila market and is looking for a rebound after the entire category had difficulties last year.
For its part, category dominator Cuervo has been promoting its 1800 line. A superpremium tequila, 1800 is handcrafted at the Los Camichines distillery in Jalisco, Mexico and is rested up to 12 months in handcrafted French oak barrels. The 1800 tequila portfolio includes 1800 Reposado and 1800 Anejo in the superpremium category, and the ultrapremium 1800 Coleccion. A new ad campaign, themed “Tell no one,” is supported by print advertising, but focuses on electronic media and event marketing.
Coming off its Cinqo de Mayo cross-promotion with Frito-Lay, Sauza is pushing Margaritas this summer. The brand’s margarita mix won a gold medal from the American Tasting Institute recently. To tout the award, Sauza is offering a “Gold Medal Margarita Pack” of tequila and mix where legal.
Two Fingers Tequila, from Heaven Hill, is hoping that eye-catching p-o-s materials and consumer sweepstakes will give sales a bump.
Two Fingers, off by 16.7% nationally, is hoping to win back business with programs aimed at younger consumers who are attracted to the extreme look of the brand’s black bottle. New eye-catching p-o-s lets consumers know about a sweepstakes offering prizes including a trip to the highest volcano in Mexico and lava lamps. An on-pack promotion merchandises red and orange colored “lava” salt for margaritas.
Contrary to other white spirits, even high-end tequilas weren’t immune to trouble last year. The recession and decline in restaurant business hurt sales of some, while supply problems hurt others.
“Bars that used to advertise 85 to 100 tequilas aren’t doing that anymore,” said Kevin Richards, brand manager at Sazerac Company. It’s a costly proposition to stock that many expensive brands when business is down.
“There was some fall off at the high end for brands that don’t have estate agave available,” said Kathleen DiBenedetto, group product director at Jim Beam Brands. “If brands dropped out, though, it wasn’t because of price. People are maintaining their habits. After 9/11, they may not be eating out as much, but they’re enjoying the same things at home.”
Brands like Jim Beam’s El Tesero, Sazerac’s Hacienda del Cristero and Heaven Hill’s El Conquistador use education and brand ambassador programs to tell consumers and retailers about fine tequilas and how they’re made.
While supplies are growing and prices easing, the tequila category isn’t out of the woods yet. Tequila producers are facing a 60% tax increase on their products in Mexico, which will be a major hit to small producers. They may look to increased prices in the U.S. market to cover the tax.
Also, the increased acreage of agave planting in the wake of recent supply shortages could result in a glut of agave juice in two or three years. Producers must walk a fine line in the meantime, cautiously stimulating demand without raising prices or creating shortages like last year’s.
