The Future of Spirits: Capitalizing on New Opportunities and Preferences

Introduction

The spirits market has benefited from consumers' shifts away from beer and their trading up tendencies. However, this does not mean that the category has been immune from the economic downturn. Success is increasingly dependent on balancing traditional values that characterize quality with positioning that takes advantage of the category's renewed social currency among newer consumers.

Scope

*Detailed insights and analysis documenting the drivers and inhibitors of the spirits market

*Exclusive occasions, market and consumer survey data and analysis covering each category

*Strategic conclusions combined with actionable recommendations for all industry players looking to fully capitalize on this market

*Countries covered: France, Germany, Italy, the Netherlands, Spain, Sweden, UK, US, Australia, Japan, South Korea, China, India, Brazil, and Russia

Highlights

Alcohol sales growth is suffering from the affects of the global downturn, but longer term trends such as moderation for health or expenditure reasons are well established threats. The shift towards premiumization and a higher value/lower volume consumption pattern is set to continue but has lost momentum and is not forestalling the sales decline

Price and value-for-money are growing as influencing factors in what drinkers consume, where they consume and in what volume. The negative economic backdrop has clearly been a major motivator in this, and has further favored the off-trade over the on-trade.

The spirits category is in relatively good health in the context of the overall alcohol market. Spirits could also have an advantage in some emerging markets where the category is well established compared to beer and wine based on the strength of domestic/traditional spirits products and also an interest in global products such as whiskey.

Reasons to Purchase

*Consumer understanding: obtain a detailed understanding of consumer attitudes and behaviors towards spirits

*Market understanding: identify the key spirits markets and product innovation trends in 15 countries across four territories

*Ideation: find inspiration for innovative formulations and positioning that takes advantage of consumers' desires for premium and health attributes


Report Highlights
Alcohol sales growth is suffering from the affects of the global downturn, but longer term trends such as moderation for health or expenditure reasons are well established threats. The shift towards premiumization and a higher value/lower volume consumption pattern is set to continue but has lost momentum and is not forestalling the sales decline

Price and value-for-money are growing as influencing factors in what drinkers consume, where they consume and in what volume. The negative economic backdrop has clearly been a major motivator in this, and has further favored the off-trade over the on-trade.

The spirits category is in relatively good health in the context of the overall alcohol market. Spirits could also have an advantage in some emerging markets where the category is well established compared to beer and wine based on the strength of domestic/traditional spirits products and also an interest in global products such as whiskey.
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Overview 1
Catalyst 1
Summary 1
Table of Contents 2
Table of figures 3
THE FUTURE DECODED 4
INTRODUCTION: Spirits is a major component of the overall alcoholic drinks market 4
TREND: The overall alcoholic beverage market is defined by its maturity and the moderate consumption behaviors of consumers 4
Sales performance in the alcoholic beverages market highlights the contrast between the saturated, static markets of the West and the developing potential of key emerging markets 5
Trends in consumers' consumption occasions mirror the flat performance in sales volumes 8
Males remain the dominant gender in overall alcohol occasions, although female consumption is growing stronger 11
Alcohol consumption occasions decline with age, as moderation behaviors rise and consumers' priorities shift 16
Moderation, driven by rising attentiveness to health issues, is increasingly characterizing many consumers' alcoholic beverage consumption behaviors 20
Moderation has also been influenced by economic circumstances, but consumers remain resistant to the concept of cutting back on alcohol for purely financial reasons 25
Alcohol abstainers: although a minority, those that never drink account for a sizeable share of LDA consumers 30
Key takeouts and implications: growth potential in the alcohol market will be centered on tapping new consumer groups and the sustenance of trading up behavior 35
TREND: The spirits category is subject to high levels of regional variation, but the overall market sees steady if unspectacular growth 36
Sales in the spirits category are increasing in many featured countries 36
The number of spirits occasions is increasing in most featured countries 40
The diverse nature of the spirits market and national tastes makes truly global strategies very difficult 42
The spirits category overall exhibits a high degree of male dominance 43
A segment analysis reveals more complex gender patterns in spirits 48
Spirits occasions are generally more common among older age groups although the industry is showing greater success at tapping into demand among younger age cohorts 49
Segments in the spirits sector demonstrate substantial variation when analyzing by age 51
Key takeouts and implications: variation seen in spirits markets between countries and segments emphasizes the advantages of diverse product portfolios and the need for nuanced targeting 52
TREND: On and off-trade dynamics in the spirits market: national variations in drinking culture dictate the bias in spirits consumption by channel 53
The shift in alcohol sales from the on-trade to the off-trade reflects a trend predating the global economic downturn 54
The economic climate is influencing consumers' propensity to consume on-trade and also their product choices 59
Recent trends show increased motivation among consumers to consume off-trade 62
Time scarcity and related external pressures on alcohol consumption occasions adds impetus to the move to the off-trade 67
The frequency and location of on-trade consumption habits around the world underlines preferences for moderate relaxed drinking occasions 70
Consumers drink with greater frequency when at home than they do on-trade 75
Brand choice is being influenced by price both on- and off-trade, although this is, perhaps surprisingly, more marked off-trade 79
By consumption location, the spirits market shows less predictability on a country by country basis than is true of other alcohol categories 84
Volume statistics also give mixed results in spirits 87
Certain spirits segments have defining impacts upon the on and off-trade 89
Whisky is less definitive as a guide to overall on-trade trends in Europe compared to other regions 89
Vodka is an important market driver within the on-trade setting 92
Key takeouts and implications: the rise of the off-trade is a doubled-edged sword for the spirits market 95
INSIGHT: Changing consumer preferences in spirits: spirits continue to benefit from consumers' premiumization tendencies but face challenges due to price sensitivity and healthy positioning 95
Some consumers are shifting between categories based on price and value-for-money considerations, but habit and experiential attributes remain highly important 96
The revitalization of the spirits market is demonstrated through consumers' association of them with high energy drinking occasions 102
The influence of health on alcohol choice: while proving advantageous for other categories, spirits face greater challenges in effectively laying claim to healthy positioning 111
The popularity of lower alcohol versions of brands reflects both health awareness and the general trend for moderation, but this is a difficult trend for the spirits industry to harness 115
Authenticity cues have widened beyond heritage to include purity as a leading judge of quality in spirits 118
Key takeouts and implications: changing consumer perceptions of the suitability of spirits by occasion have important consequences for the industry 120
INSIGHT: Innovation trends in spirits: upscale claims and guarantors of quality dominate innovation 121
Premiumization is still the most common trend seen in new releases in the spirits industry 122
Natural and organic spirits have begun to increase in number 125
Private label tags have not been common in spirits compared to the beer and wine markets 127
Micro brewing has previously seen success in beer and wine and the trend is also gathering pace in the spirits category 128
Key takeouts and implications: maintaining the emphasis on upscale releases 128
ACTION POINTS 130
ACTION: Build a compelling case for brand loyalty in the off-trade 130
ACTION: Promote the connection of spirits with food 131
ACTION: Maintain investment in, and exploitation of opportunities within the healthy alcohol market 134
ACTION: Continue to invest in product differentiation through packaging innovation 136
ACTION: Be ready for renewed trading up opportunities during the post-recessionary period 139
Maintain a strong focus on innovation and R&D during times of economic uncertainty 139
Start planning for the longer term by continually tracking consumers as an economic recovery begins to become a reality 140
APPENDIX 142
Definitions 142
Methodology 142
Further reading and references 143
Ask the analyst 144
Datamonitor consulting 144
Disclaimer 144
List of Figures
Figure 1: Alcoholic beverages market value and growth, 15 countries, across Europe, North and South America, and Asia Pacific 6
Figure 2: Alcoholic beverages market value (US$ millions) and volume (million liters), by country, Europe, 2003-13 7
Figure 3: Alcoholic beverages market value (US$ millions) and market volume (million liters), Brazil and the US, 2003-13 7
Figure 4: Alcoholic beverages market value (US$ millions) and market volume (million liters) by country, Asia Pacific, 2003-13 8
Figure 5: Number of alcoholic beverage occasions (millions), in 15 countries across Europe, the Americas and Asia Pacific, 2004-14 10
Figure 6: Number of LDA per capita alcoholic beverage occasions, in 15 countries across Europe, the Americas and Asia, 2004-14 11
Figure 7: Male dominance in expenditure on alcohol mirrors that seen in occasion numbers 13
Figure 8: Number of alcoholic beverage occasions (millions), Europe, comparison by gender, 2009 13
Figure 9: Number of alcoholic beverage occasions (millions), Europe, by gender, 2004-14 14
Figure 10: Number of alcoholic beverage occasions (millions), US and Brazil, comparison by gender, 2009 14
Figure 11: Number of alcoholic beverage occasions (millions), US and Brazil, by gender, 2004-14 15
Figure 12: Number of alcoholic beverage occasions (millions), Asia Pacific, comparison by gender, 2009 15
Figure 13: Number of alcoholic beverage occasions (millions), Asia Pacific, by gender, 2004-14 16
Figure 14: Number of alcoholic beverage consumption occasions (millions), by age, in 15 countries across Europe, the US, South America and Asia Pacific, 2004-14 18
Figure 15: Number of per capita alcoholic beverage consumption occasions, by age, in 15 countries across Europe, the US, South America and Asia Pacific, 2004-14 19
Figure 16: Consumer Survey: the level of attention given to 'ensuring you do not drink too much alcohol in general', by age, in 15 countries across Europe, the Americas, and Asia Pacific, 2008 19
Figure 17: Consumer Survey: How much attention do you give towards the following? Potential weight gain from drinking alcohol 22
Figure 18: In Europe, Italians are showing the highest overall commitment to consciously moderating their alcohol consumption 23
Figure 19: Over a quarter of US drinkers strongly agree that they are making an effort to moderate consumption 23
Figure 20: Asia Pacific consumers, compared to consumers globally, are less committed to moderating their alcohol intake, despite relatively high overall levels of interest in restraint 24
Figure 21: Consumer Survey: Please indicate to what extent you agree or disagree with the following statements: I make a conscious effort not to drink too much alcohol 25
Figure 22: Europeans are highly attentive to alcohol spend, but its impact on overall consumption is limited 27
Figure 23: Brazilians and Americans show a greater likelihood to cut consumption and are more attentive than Europeans, but a stark gap is still apparent 27
Figure 24: Asia Pacific exhibits a similar attentiveness/behavior gap in their alcohol consumption 28
Figure 25: Consumer Survey: How much attention do you give toward the following? The amount of money you spend on alcohol 29
Figure 26: Consumer Survey: Please indicate to what extent you have done the following more or less frequently in the past six months: Cut down on the overall amount of alcohol you buy/consume 30
Figure 27: Rate of alcohol abstention (% of LDA population and number of abstainers, millions), in 15 countries across Europe, the Americas, and Asia Pacific, 2009 33
Figure 28: Rate of alcohol abstention (% of LDA population), by gender, in 15 countries across Europe, the Americas, and Asia Pacific, 2009 34
Figure 29: Rate of alcohol abstention (% of LDA population), by age, in 15 countries across Europe, the Americas, and Asia Pacific, 2009 35
Figure 30: Spirits market value (US$ millions) and volume (liters millions), by country, Europe, 2003-2013 39
Figure 31: Spirits market value (US$ millions) and volume (liters millions), Brazil and the US, 2003-2013 39
Figure 32: Spirits market value (US$ millions) and volume (liters millions), by country, Asia Pacific, 2003-2013 40
Figure 33: Number of spirits consumption occasions (millions), Europe, Brazil, the US, and Asia Pacific, 2004-2014 41
Figure 34: Per capita spirits consumption occasions, Europe, Brazil, the US, and Asia Pacific, 2004-2014 42
Figure 35: National preferences vary considerably in the spirits market 43
Figure 36: Number of per capita spirits consumption occasions, by gender, Europe, 2009 45
Figure 37: Number of per capita spirits consumption occasions, by gender, Brazil and the US, 2009 46
Figure 38: Number of per capita spirits consumption occasions, by gender, Asia Pacific, 2009 46
Figure 39: Number of spirits consumption occasions (millions), by gender, Europe, Brazil, the US and Asia Pacific, 2004-2014 47
Figure 40: Percentage share of spirits consumption occasions, by gender, Europe, Brazil, the US and Asia Pacific, 2004-2014 48
Figure 41: Not all spirits subcategories are dominated by men in market value terms 49
Figure 42: Number of spirits consumption occasions (millions), by age group, in 15 countries across Europe, the Americas and Asia Pacific, 2009 50
Figure 43: Number of per capita spirits consumption occasions, by age group, in 15 countries across Europe, the Americas and Asia Pacific, 2009 51
Figure 44: Spirits preferences show marked differences with age 52
Figure 45: Overall alcoholic beverage market volume sales (millions liters), by on-trade versus off-trade, in 15 countries across Europe, the Americas and Asia Pacific, 2003-08 55
Figure 46: Share of overall alcoholic beverage market volume sales (%), by on-trade versus off-trade, in 15 countries across Europe, the Americas and Asia Pacific, 2003-08 56
Figure 47: Share of overall alcoholic beverage consumption occasions, by on-trade versus off-trade, Europe, 2009 57
Figure 48: Share of overall alcoholic beverage consumption occasions, by on-trade versus off-trade, Brazil and the US, 2009 57
Figure 49: Share of overall alcoholic beverage consumption occasions, by on-trade versus off-trade, Asia Pacific, 2009 58
Figure 50: Number of on-trade alcoholic beverage consumption occasions (millions), in 15 countries across Europe, the Americas, and Asia Pacific, 2004-14 58
Figure 51: Number of off-trade alcoholic beverage consumption occasions (millions), in 15 countries across Europe, the Americas, and Asia Pacific, 2004-14 59
Figure 52: In light of recessionary conditions, Europeans, especially the French, Germans and Italians, are showing a tendency to restrain their eating out 61
Figure 53: Americans and Brazilians are showing an above average propensity for cutting back on their eating out due to the downturn 61
Figure 54: South Koreans stand out in Asia Pacific through their significant cut backs in on-trade eating 62
Figure 55: Europeans are making a greater effort to drink more frequently at home than they are to change the frequency of their on-trade visits 64
Figure 56: Brazilians and Americans are notably contrasting in their behavior toward changing the balance and relative frequency of drinking both on- and off-trade 64
Figure 57: The more developed markets of the Asia Pacific region have seen only a limited change in on- and off-trade drinking behavior compared to the emerging markets 65
Figure 58: Consumer survey: In the past six months, please indicate to what extent you have done the following more or less frequently: Cut down on the number of times you drink in bars, restaurants, etc. 66
Figure 59: Consumer survey: In the past six months, please indicate to what extent you have done the following more or less frequently. Made a conscious effort to drink more frequently at home. 67
Figure 60: Consumer survey: In the last month, on average how many times did you have a drink in a bar, restaurant, pub, etc? 69
Figure 61: Consumer survey: In the last month, on average how many times did you have a drink at home or in somebody else's home? 70
Figure 62: Europeans' propensity for alcohol consumption on-trade is particularly strongly tied to restaurant visits 72
Figure 63: US consumers' moderate drinking patterns on-trade favor restaurants and local bars 73
Figure 64: Brazilian consumers' on-trade drinking is more frequent across most channels than their US or European peers 74
Figure 65: Asia Pacific consumers show a greater propensity for more frequent alcoholic beverage consumption in restaurants and local bars 75
Figure 66: European drinking patterns reflect a trend for regular off-trade social drinking and a propensity for frequent weekly drinking at home 77
Figure 67: Half of US drinkers are prone to social drinking in others' homes several times a month 77
Figure 68: Brazilians show a high propensity for regular weekly alcohol consumption in the home 78
Figure 69: Asian consumers exhibit a much lower propensity for social drinking in the homes of others 78
Figure 70: UK and Spanish consumers show the most striking tendency to trade down in brand terms off-trade compared to on-trade 81
Figure 71: A quarter of Brazilians are switching to cheaper alcohol brands both on- and off-trade 81
Figure 72: Australians have shown a particular tendency to purchase cheaper brands for off-trade consumption in recent months 82
Figure 73: Consumer survey: In the past six months, please indicate to what extent you have done the following more or less frequently: Bought cheaper brands of alcoholic drinks when drinking in bars, restaurants, etc. 83
Figure 74: Consumer survey: In the past six months, please indicate to what extent you have done the following more or less frequently: Bought cheaper brands of alcoholic drinks when drinking at-home. 84
Figure 75: Share of spirits consumption occasions, by on-trade versus off-trade, Europe, 2009 86
Figure 76: Share of spirits consumption occasions, by on-trade versus off-trade, Brazil and the US, 2009 86
Figure 77: Share of spirits consumption occasions, by on-trade versus off-trade, Asia Pacific, 2009 87
Figure 78: Overall spirits market volume sales (liters millions), by on-trade versus off-trade, in 15 countries across Europe, the Americas and Asia-Pacific, 2003-2008 88
Figure 79: Share of overall spirits market volume sales (%), by on-trade versus off-trade, in 15 countries across Europe, the Americas and Asia-Pacific, 2003-2008 89
Figure 80: Whisky is not especially popular in European on-trade venues, with the notable exception of Russia 91
Figure 81: Whisky is not particularly popular in Brazil's on-trade, but performs on a par with the overall spirits market in the US 91
Figure 82: Whisky is more geared towards on-trade consumption in Asia-Pacific, most notably in China 92
Figure 83: Vodka is a popular on-trade spirit in most European markets 93
Figure 84: Vodka is not overly popular as an on-trade spirit in the Americas 94
Figure 85: Vodka's on-trade split is similar to the spirits market as a whole in the Asia-Pacific region 94
Figure 86: Consumer survey, factors influencing consumers' alcoholic beverage choices, 2008 98
Figure 87: Italians and Spanish consumers have shown a particular tendency to switch types of drink based on price 100
Figure 88: Consumers in the Americas are switching alcohol types based on price more than their global peers 101
Figure 89: Consumers across Asia Pacific are more likely to trade down in type of alcoholic drink than their peers globally 101
Figure 90: Consumer Survey: In the past SIX MONTHS, please indicate to what extent have you done the following more or less frequently? Chosen cheaper type of drinks (e.g. beer instead of spirits) 102
Figure 91: Spirits are most popular among consumers enjoying high energy nights out 104
Figure 92: Spirits are generally not popular as an accompaniment to food in the home 105
Figure 93: Popularity varies from country to country, but spirits have a fairly secure following among consumers drinking in the off-trade 106
Figure 94: Spirits are slightly more popular for consumers when eating in the on-trade rather than the off-trade 107
Figure 95: Overall, spirits are almost as popular as wine as an on-trade drink for consumers when not eating 108
Figure 96: Spirits have a strong following among consumers partaking in high energy nights out 109
Figure 97: Despite spirits lending an air of sophistication, the category is not particularly popular at dinner parties 110
Figure 98: Consumer Survey: In the past SIX MONTHS, please indicate to what extent have you done the following more or less frequently? Chosen alcohol on the basis of how well it goes with food 111
Figure 99: Southern Europe and Russia stand in contrast to the rest of Europe in how much health influences alcoholic beverage choice 112
Figure 100: Health is a below average influence on US consumers' alcoholic beverage choice 113
Figure 101: Australian and Japanese consumers stand out regionally with their lower concern for health in their drinks choices 113
Figure 102: Consumer Survey: Please tell us how much influence the following factors have in your alcoholic beverage choice: Health 114
Figure 103: A regular measure of spirits combined with a low calorie mixer represents one of the least calorific drinks among regular alcohol servings 115
Figure 104: The most mature European markets have seen relatively limited shifts in behavior favoring low-alcohol versions of well known brands 116
Figure 105: The contrast between Brazil and the US highlights the limited traction of health as a factor in alcoholic drinks purchases in mature markets compared to a greater degree of openness in emergent ones 117
Figure 106: Australia and Japan contrast the growing interest in lower alcohol brands in the Asian region's emerging markets and South Korea 117
Figure 107: Consumer Survey: In the past SIX MONTHS, please indicate to what extent have you done the following more or less frequently? Opted for lower alcohol versions of favorite brands 118
Figure 108: Consumers are seeking authenticity as an arbiter of higher quality and sensory gratification 119
Figure 109: Upscale is the most popular tag for new releases in the spirits market over the last five years 122
Figure 110: The number of new releases tagged as 'upscale' declined in 2009, but the annual total remains substantial 124
Figure 111: Products marketed as 'premium' or 'upscale' will not always be targeting the same market 125
Figure 112: Natural is a tag that has gained momentum in the spirits industry 126
Figure 113: Organic and ethics in general are becoming important concepts in the vodka market 127
Figure 114: Micro spirits have proved popular among US consumers 128
Figure 115: The Jack Daniel's whisky brand is attached to a range of cooking sauces and meat products 132
Figure 116: Much potential exists for pairing whisky with food 133
Figure 117: Flavored vodkas are being positioned as an accompaniment to food 134
Figure 118: The first protein-infused vodka reached the market in late 2009 136
Figure 119: Repackaging is something that can be employed to good effect for long-established brands 137
Figure 120: Packaging in spirits is important with a wide range of novel designs now seen in the marketplace 138
Figure 121: Absolut has created a strong identity through a relatively unremarkable design 139
Figure 122: Datamonitor's Recession and Recovery portal will facilitate forward thinking planning for those leading companies that start planning for the longer-term 141

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