Small shops are seeing their sales rise by offering convenience, ready to drink and price marked formats of vodka, rum, gin and whisky. Asian Trader finds out how indies can raise their spirits
Vicky Mundy of Diageo:
My top tippling tips
1. Display mixers alongside your spirits to provide your shopper the full basket solution.
2. Merchandise all fractionals together to allow shoppers to find what they want quickly and easily.
3. Stock the right range for your shopper and the mission they are on, such as something for tonight, ready to serve, smaller sizes, PMP and pre-mix.
4. Bring top selling spirits brands out from behind the counter and onto open sale on the shop floor.
5. Retailers should ensure they chill their Pre-mix as it should be merchandised in the chiller.
There are two current statistics that show how important the spirits category is to independent retailers.
Firstly, spirits is the fourth highest purchasing mission for a convenience shopper, and secondly, the average convenience basket spend triples from £5 to £15 with a spirit purchase (him!).
Of course, independent retailers have known how important the category is to their businesses for years, but they must keep up with the latest trends and new product launches to maximise sales.
IGD research suggests that in convenience there is plenty of room for growth as penetration of the category is at just 1.2 per cent.
Spirits is a massive category which lists countless brands. This also makes it a fast moving category with lots of innovation and trends emerging.
For example, for many years spirits were solely sold from behind the counter, yet the latest advice from leading manufacturers, like Diageo, is for retailers to stock a small selection of top selling brands on the shop floor as the counter can create a barrier to purchase.
The spirits category can also turn into one of the highest grossing impulse categories during certain times of the year. New Year and Christmas are always good selling periods for spirits, but there is scope for further development over the festive period.
With supermarket opening hours changing, weather issues and most shoppers on a top-up shop, convenience retailers are perfectly poised to be the number one retail channel in the week leading up to New Year.
The convenience channel also benefits from sales uplifts on other events such as Father’s Day, Valentine’s Day or Halloween with shoppers on impulse and top-up missions.
There are also birthdays to consider which provide a year round opportunity and are the number one gift buying occasion.
Clearly with so many purchasing missions offered by spirits, the category is one which retailers need to focus on all year round.
While the spirits category continues to perform well for independent retailers, it isn't being helped by the UK Government.
Recent years have seen the industry affected by the tax escalator, which ensures that tax on alcoholic beverages rises by at least 2 per cent above inflation each year.
Despite UK Chancellor George Osborne recently ditching the controversial beer duty escalator, his refusal to do the same with wine and spirits has sparked outrage from the drinks industry.
This, coupled with high commodity prices, has seen spirits prices rise over the review period, just at the time that the recession has caused consumers to cut back on their spending.
Since its introduction, spirits duty has increased by 44 per cent, adding on average £2.38 onto a 70cl bottle of vodka.
Lobbying by beer and pub groups have successfully halted the escalator for beers, and prompted a tax reduction of 1p, but there has been no such luck for the rest of the alcohol industry from the latest budget.
Spirits manufacturers and associations have recently been very vocal about this situation.
A spokesperson for Diageo said: “Cutting duty on beer while increasing it on spirits punishes the UK spirits industry for its success in this harsh economic climate. Scotch is the UK’s biggest food and drink export. This move risks that success.”
The Wine and Spirit Trade Association’s chief executive Miles Beale was also critical of the two-tier duty system.
“This is bad news for the UK wine and spirits sector, with year on year duty increases hitting consumers and businesses hard,”
“The Chancellor ignored the growing value of the English wine industry and the UK spirits industry.”
The UK’s spirits and liqueurs industry is made up of hundreds of different brands and products.
Roughly divisible into ‘dark’ and ‘white’ spirits, the market is dominated by vodka, whiskey, Scotch whisky, brandy, gin and rum.
Each category tends to do well among certain specific target groups; vodka, for example, is popular with younger drinkers, while older consumers tend to opt for dark spirits such as rum or Scotch.
The long-established spirits marketplace is dominated by a handful of leading companies such as Diageo, Pernod Ricard UK, First Drinks and Halewood International, rendering it difficult for new players to compete successfully.
Customer loyalty is an important feature of the industry, with some people always buying the same brand for decades.
According to IGD the spirits category is worth £729 million. The UK spirits and liqueurs market has grown in value by 28 per cent at current prices between 2007 and 2011 (Key Note).
Consumption within the UK spirits market will continue to increase over the next four years. It is predicted that the industry will go up by a further 4.6 per cent between 2010 and 2014 (Mintel)
The main spirits categories all increased in value, including the liqueurs category. The off-trade has been performing better than the on-trade in recent years for a variety of reasons.
Lack of consumer confidence, along with high rates of unemployment and reduced consumer spending power, has contributed to a growing gap between off-and on-trade sales across the whole alcoholic beverages industry.
Sales through the off-trade have increased, while sales through the much more expensive on-trade channel has suffered.
Other factors posing challenges to the industry are general health concerns regarding alcohol consumption, notably binge drinking, and the minimum pricing strategy that could be a future government’s response to alcohol-related harm.
In terms of the UK spirits category, 'white' spirits gin and vodka now account for over 40 per cent by volume and are by far the largest sector of the spirits market. Vodka has been the driver of volume growth in the UK spirits market for a number of years. It is now the highest selling spirit category in the UK by volume and sales value, worth an estimated £2.2 billion.
The overall UK gin market saw a £44 million decline in sales between 2006 and 2011. However, sales of premium gins such as sloe gin are increasing.
Part of the success of the 'white' spirit market can be attributed to attracting new users to the market, with a growing number of brands looking to position themselves as accessible by using strategies such as flavour innovation to provide less common user groups such as women and under-25s with a gateway into the market.
Fine spirits are typically reserved for specialist alcohol convenience shops.
Dark spirits have proved to be a resolute category in 2012, with value and volume sales achieving growth through established segments such as whisky as well as growing ones such as dark/golden rum (Key Note).
The market is likely to continue to broadly rely on two groups of users: firstly the core dark spirits lovers and purists who are the driving force behind segments such as brandy/Cognac and single malt whisky, and secondly the more flexible and adventurous younger users who are open to embracing new flavours and variants on dark spirits such as rye whiskey and spiced rums.
First Drinks, a leader in the UK spirits industry, has published its Market Report for the third year running.
The 2013 report reviews current industry trends and takes an in-depth look at key spirit categories.
It particularly outlines the changing landscape of spirits and the increasingly important role of premium brands, up 18 per cent, which are outperforming total alcohol.
Evident from this year’s research is that despite continued austerity, consumers are still looking for quality drinking experiences both in the on and off-trade. The reports says that by really understanding consumers and shoppers, opportunities for growth exist for both brands and retailers.
Using its industry intelligence, key trends identified in the First Drinks Market Report 2013 highlight the changing retail environment in the convenience off-trade.
It reports that with the multiples all price matching and being increasingly competitive, more emphasis has had to be placed on the in-store shopping experience.
The duty escalator also continues to encourage brand owners to introduce smaller formats to deliver spirits at an affordable price point
The report predicts £10 billion category growth over the next five years, with convenience continuing to grow as an important trading channel.
However, it says that spirits penetration within convenience is low, but that the opportunity for growth is significant. Fractionals, seasonal events, versatility, gifting solutions and premium growth are identified as the key drivers in convenience.
Gifting, especially, is a key focus for the spirits category with one in three purchases being a gift.
Gifting also encourages trial of spirits and brings new shoppers into the category. The report indicates that alcohol gifting presents a great opportunity for independent retailers, estimated to be worth £572 million.
Furthermore, it says gifting is not just a seasonal trend, with 60 per cent of gifting taking place all year round e.g. for birthdays.
Market analysts IPSOS' recent report, Trends in the Spirit Industry report, highlights more trends in the category.
It shows that despite the weak economy, premium and super-premium brands are growing thanks to a focus on provenance and aspirational consumers.
The report advises retailers to make the most of brands using social media in marketing. Social media provides an excellent opportunity for alcohol retailers to connect with consumers. There are plenty of innovative social media campaigns going on currently.
In the UK there is an increasing interest in cocktails, with consumption to grow by over 10 per cent in the next 2 years (IPSOS)
All of the major producers are innovating, redefining and creating new categories in the spirits industry.
For example, flavours is one of the fastest growing sectors of the vodka category, while mixed-category variants have started to appear, with different spirits combined in the same product.
Also, packaging has evolved, increasing consumer convenience.
First Drinks has unveiled 'How Convenient', a sprits category strategy created exclusively for the convenience and wholesale channel.
How Convenient provides five clear strategies, attempting to make life easier for retailers, providing impetus to maximise sales opportunities and give consumers more reasons to buy.
How Convenient highlights five key category drivers; fractionals, versatility, seasonal events, gifting solutions and premium growth, while providing clear solutions to activate them effectively.
For example, the guide says that one in four sales in the channel is now a 35cl bottle, a sector which is seeing 5% growth year on year (IGD), so every sub-category should be represented at this size and across all the best-selling brands.
First Drinks has increased its range of fractionals which it identifies as a key channel driver. With the duty escalator still in place, fractional bottles are becoming an increasingly viable option for retailers to keep their prices relevant for convenience shoppers.
Fractionals can also allow convenience shoppers to access premium categories such as Cognac and malt whisky where price has traditionally been a barrier to purchase.
An initiative earlier in the year saw Grant’s whisky and Three Barrels brandy launch glass on-packs exclusively to the convenience channel. It was supported with in-store POS, posters and dedicated microsites with both brands RRP’s remaining as standard to create a Father’s Day gifting solution with added value for retailers.
More recently, First Drinks launched price marked 35cl packs on Grant’s Family Reserve Scotch whisky and Three Barrels VSOP French Grape Brandy exclusively to the convenience, specialist and wholesale channel.
The company unveiled the new packs following its How Convenient research findings into consumer trends and buying patterns in the convenience channel, which shows shoppers view price marked packs to be a promotion.
John Moore, Business Unit Director at First Drinks, commented: “Blended Scotch whisky and brandy are both in the top five spirits categories in the off-trade and continue to perform well. We know that price marked packs instil consumer confidence in brands and to capitalise on this opportunity, we have launched price marked Grant’s and Three Barrels 35cl packs.
“We believe this initiative will help further boost blended whisky and brandy sales as well as introduce new, price-conscious consumers into the categories.”
Grant’s and Three Barrels price marked 35cl packs are on shelf now and retail at £8.99 and £9.99 respectively.
POS is as always, a key element to driving sales in spirits. This summer, Diageo launched a new innovative pre-filled 20cl Counter Top Unit designed to drive impulse purchases of spirits within the convenience sector.
The unit contains price marked bottles of Gordon’s, Smirnoff and Bell’s, and should be placed on counter tops. This is to help overcome the barrier to purchase in convenience that often arises when spirits are kept behind the counter.
Each 20cl bottle contains eight serves, providing value for budget conscious shoppers who are looking to buy ‘something for tonight’.
The counter top unit contains 4 x Smirnoff 20cl, 4 x Bell’s 20cl, and 4 x Gordon’s 20cl. The unit has an eye catching bright design which communicates value for money to shoppers.
The unit is sold as a closed pre-filled case and retailers can easily set it up by tearing off the perforated edge to open the unit, utilising space on their counter top in a more profitable way.
Growth in 20cl, 35cl spirits and other fractionals supports the evidence that shoppers are increasingly buying within a budget and looking for ways to save on spend during each shopping trip.
One of the strongest-performing spirit brands within the 35cl format category is Absolut Original, with volume growth of +32.7 per cent and value growth at +36.8 per cent year-on-year (Nielsen).
Diageo has a number of 50cl, 35cl and 20cl sized products available across its portfolio, including Smirnoff, Gordon’s, Bells and Captain Morgan’s Spiced for consumers who seek the quality of well-known brands with the convenience that these formats offer.
Diageo also offers Smirnoff Red Label 70cl, the UK’s leading vodka, which has a 26.9 per cent value share of the vodka category in the UK convenience channel and is growing at 2.2 per cent year on year.
Pimm’s has recently launched a new Blackberry and Elderflower variant, a blend of Pimm’s No.6 Vodka Cup with British flavours blackberry and elderflower. This new variant is available in 70cl and 1L formats and, in addition, a premix format is available, which contains a mix of the new variant with lemonade.
Gordon’s, the UK’s leading gin from Diageo, launched a new flavoured gin and two premix cans recently.
In March, Diageo announced its investment in the frozen alcoholic cocktails segment with the launch of Parrot Bay ‘freeze and squeeze’ cocktails.
The range comprises single serve, ready-to-drink cocktails in three flavours: Berry Daiquiri, Citrus Daiquiri and Pina Colada.
The cocktails are packaged in an innovative liquid pouch format, which is frozen prior to consumption.
Maxxium UK is one of the leading distributors of premium spirits, including The Famous Grouse whisky and Jim Beam bourbon which have out-performed their respective total categories in the independent impulse channel for the first three months of the year (Nielsen).
Bolstering the opportunity for retailers to tap into summer take-home drinking occasions, Maxxium has recently launched Jim Beam Lime Splash, a 330ml RTD combining Jim Beam White bourbon with lime-lemonade to create a unique refreshing blend aimed at an 18-24 year old audience.
Packaged in a vibrant white can, Jim Beam Lime Splash benefits from striking on-shelf standout.
Jim Beam Lime Splash is 4.6 per cent ABV and best consumed chilled.
Southern Comfort, part of Bacardi Brown-Forman Brands, has once again been encouraging the nation to own ‘Whatever’s Comfortable’, with the return of their popular TV advert.
Launched last year, the global creative was the brand’s most significant marketing spend to-date.
The ad has been on screens since April and Southern Comfort will be up-weighting the campaign with 46 per cent more investment for 2013/2014, including increased digital and social media presence to raise awareness and drive purchase ahead of key summer trading months.
The Famous Grouse has launched ‘The Famous British Summer – Enjoy it while it lasts’ campaign.
Come wind, rain or shine, The Famous Grouse is determined to celebrate summer time in true British fashion this year.
Launched this month, the campaign encourages consumers to embrace the holiday season on home shores.
The heavyweight campaign will comprise TV advertising, limited edition packaging, a new summer cocktail menu, in-store and on-trade activation as well as PR and social media activity ensuring the campaign has a broad reach across target audiences.
The campaign will coincide with the introduction of a new limited edition gift carton carrying the message ‘Enjoy It While It Lasts’, along with limited-edition glasses in selected stores, which will be available through cash and carry and impulse channels.
This will be promoted by a highly visible in-store presence, with bespoke display units showcasing the limited edition packaging. On-pack messaging will also feature the seasonal promotion giving consumers the chance to win a holiday.