Vodka’s premiumisation challenges and convergence with hard seltzers

Premium-plus vodka in the US faces some headwinds in its efforts to reconnect with consumers sceptical about the need to trade up – but RTDs, especially hard seltzers; a revival of the vodka-and-soda serve; and ‘better for you’ products offer growth opportunities for the future.

The US market for premium-and-above vodka shrank at a volume CAGR of -3.1% between 2015 and 2019 – and fell by a further -3.5% during 2020, according to IWSR Drinks Market Analysis. Consumption is expected to decrease at a CAGR of -2.4% between 2021 and 2025, IWSR forecasts predict.

IWSR research director Adam Rogers traces premium-plus vodka’s travails back to the 2008/9 economic crash, which prompted widespread downtrading. “There was a shift towards standard brands that advertised quality without the fuss or luxury associated with the premium brands,” he explains.

“The price-to-quality aspect became more pronounced. Consumers didn’t find it necessary to spend the additional money on high-end vodka brands when their expectations were met by more affordable products – and that mindset hasn’t completely waned.”

The fact that vodka isn’t an aged product makes it harder for brand owners to encourage consumers to trade up, compared to the maturity-related pricing ladder that exists in Bourbon, malt Scotch, Tequila or rum. Premium-plus gins are currently growing in popularity as well.

“The differing taste profiles between standard and premium vodka brands are so nuanced that the average consumer doesn’t feel the need to trade up to premium-and-above offerings,” says Rogers.

Vodka brand owners will need to bring fresh innovations to the market, focusing on specific flavours in tune with today’s consumer preferences, and new packaging ideas tapping into the convenience trend.

Botanicals and low-strength

Using botanical flavours in vodka bridges the gap between the category and premium-plus gin. Since Diageo launched Ketel One Botanicals – a 30% ABV flavoured range – in 2018, other brands have followed suit.

These include Grey Goose Essences and Finlandia Botanical (both 30% ABV), and Belvedere Organic Infusions (40% ABV). According to Alex Tomlin, SVP of marketing at Bacardi North America, Grey Goose Essences aims to target the aperitivo/spritz consumption occasion and the ‘mindful drinking’ trend with its lower ABV, gluten-free status and 73 calories per serve.

“Vodka brands began using botanicals a few years ago and found enough early success that many other brands have now followed suit,” says Rogers. “Barrel-aged vodka (or Starka) was attempted years ago, but never established enough consumer demand to maintain relevance, and ‘smoked vodka’ is one trend that remains in the early stages of development.”

Hard seltzers and vodka-soda serves

One knock-on effect of the continuing boom in RTDs in general and hard seltzers in particular has been a rise in demand for vodka-and-soda, boosted by the ‘better-for-you’ consumer trend.

“The increase in hard seltzers has propelled the vodka category to showcase products that can offer a similar taste, but with a more premium alcohol base,” says Rogers. “Through RTD brand extensions, premium vodka brands have revived interest in the vodka-and-soda, while offering more convenience in packaging and serve. This also keeps consumers invested in the brand across different occasions.”

Tomlin adds: “RTDs are a great way to convert people to the spirits category, with proprietary research showing that 65% of RTD drinkers [are] new to the brand, with a large number of those drinkers going on to purchase the spirits brand later.”

Vodka’s relative neutrality in flavour terms also makes it a natural choice when formulating RTD products. In fact, IWSR data shows that of the RTD products launched in the US in 2020, spirit-based RTDs accounted for 40% of SKUs, with vodka holding the largest volume share. In addition, 51% of RTD consumers in the US claim that vodka is their favourite RTD alcohol base.

Consumer messaging

Premium-plus vodka brands are increasingly adapting their marketing message to target contemporary consumer concerns, but in such a crowded category it can be hard to be heard, says Rogers. “There are a lot of vodka brands already focused on messaging around social causes, or causes that are meaningful to the consumer,” he says.

It can be similarly difficult to cut through when talking about origin and authenticity, he warns. “If brand owners wish to emphasise provenance, the taste profiles must differ enough for the consumer to notice,” he says. “There are hundreds of craft vodka brands in-market aiming to capture consumer attention through authenticity and artisanal production, so using that playbook wouldn’t create the disruption a premium vodka would be looking for.”

Pernod Ricard USA hopes to use Absolut Elyx’s single-estate status to pique the interest of knowledge-hungry post-Covid consumers. “Time during the pandemic lockdown has elevated intellectual curiosity, and discerning consumers are keen understand the ‘how’ behind the ‘what’ of brands,” says a company spokesperson.

Tomlin also believes that the enforced switch to at-home consumption during the pandemic has created a new group of cocktail-curious consumers who have been experimenting with their own creations. “As drinking establishments open up again, they’ll be greeted by better-informed drinkers who are looking for more premium spirits,” he says. “For professional cocktail craftspeople, this is welcome news, because aficionados make better appreciators.”

For Rogers, the right price positioning and partnerships with consumer-relevant brands and influencers are effective tactics for brands to employ. He cites the example of Pink Whitney, the pink lemonade-flavoured New Amsterdam spin-off, and its highly successful tie-in with BarStool Sports and its ‘Spittin’ Chiclets’ ice hockey podcast.

Pink Whitney, launched in 2019, is expected to prompt a number of other lemonade flavour launches from vodka brand owners, also mirroring a major RTD category trend. But Rogers cautions that this ‘me too’ phenomenon could be counter-productive in terms of future category growth and dynamism. “In general, too many brands follow trends reactively, which shortens the life cycle of the trend and leads to the category being saturated with similar brands,” he says.

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