Premiumization Strategies in Alcoholic Drinks: Innovating to drive value through brand and product enhancement

Report overview

Due to rising affluence and increasing levels of health consciousness, growth in alcohol consumption has slowed in Western markets in recent years, while the sales of brands perceived as ‘premium quality’ have risen. Meanwhile in the developing world, wealthier consumers are following the same trends, whilst lower-income consumers are increasing their consumption of beer and other branded alcoholic drinks as they are increasingly able to afford them. Consumption occasions have has also changed. In markets that traditionally have a strong on-trade focus such as the UK, people are drinking more at home than in bars, restaurants and clubs – a trend that was established by the time of the 2007-2010 global financial crisis, but that was also exacerbated by its impact on incomes.

This report will evaluate the growth and importance of premium alcoholic drinks across beer, cider, flavored alcoholic beverages (FABs), spirits and wine. It will provide insight into effective premiumization strategies and make recommendations on how premium brands can succeed in an economically challenging and competitive market.

Key findings...

Over the next 10 years, 1.2bn people in Asia- Pacific will be born into or move into the global middle class, representing the largest single expansion in consumer spending power ever recorded.

Using unique flavors and ingredients has become a focus area for differentiating products and adding perceived value, as they can enhance a drink’s positioning of authenticity, heritage, quality, or exclusivity.

Consumers increasingly want to know the story behind a brand, as part of the discovery that sets them apart from others and giving them ‘insider’ status into a perceived exclusive world.

As consumers seek out masstige products due to the challenging economic environments, manufacturers and retailers are looking beyond price to image, packaging, and marketing to deliver an affordable premium experience.

Dos Equis premium beer has grown in the US based on a positioning as ‘interesting’, meeting consumers’ self-expression needs. Heineken and Samuel Adams have struggled in the same market, as competition has eroded their uniqueness and points of difference.

Use this report to...

• Understand the underlying economic, social, and psychological consumer drivers of premiumization and how they have evolved.
• Review case studies highlighting strategies that manufacturers are using to drive consumers to their premium brands, reclaiming premium status and defending against masstige brands.
• Learn how product attributes (e.g. sensory features) and brand attributes (e.g. ego gratification) can be used to drive up the price of alcoholic drinks.
• Identify the fastest growing alcoholic drinks segments and sales channels and learn the long term impact of the recession on consumer behavior.
• Compare the opportunities for premiumization by market and assess the future challenges and opportunities for developing high-end products in the future.
• Gain insight into the intelligence on changing economic and market forces and how they are influencing premiumization strategies.

Key issues...

Premiumization involves persuading consumers to pay more for the same volume of alcohol, by providing them with product and brand attributes that fit with their desire to improve their lives, or their perception of their lives.

The key consumer-level factors that drive premiumization are the desire to improve social status, the desire to improve taste experience, and the desire to have a better understanding of the products they consume.

The global financial crisis has slowed the trend towards greater going-out spend in total, while continuing to hit on-trade drinking behaviors. This has reduced the opportunity for premium drinks launches, which have tended to start in the on-trade.

Due to the recession and low consumer confidence, going-out spending has fallen in developed markets and there is evidence of consumers switching to cheaper brands of alcohol. However, growth remains strong in the developing world.

The concept of ‘masstige’ and democratized luxury has affected consumers across all income groups. Going forward, consumers will continue to expect to pay bargain prices for high-quality products, and retailers will force manufacturers to oblige.

Your questions answered...

• How has the recession impacted consumer behavior with regards to purchasing premium alcoholic drinks and how will this influence future consumer trends?
• What obstacles do marketers face selling Western-style premium alcoholic drinks in China and India, and how can they be overcome?
• What challenges will premium brands face in the future and how can they maintain or enhance their premium positioning?
• What are the key consumer drivers of premiumization in alcoholic drinks and how have they changed over time?
• How have specific brands used premiumization strategies to drive sales?
• How big of a threat are private label and masstige brands to premiumization?
• How can marketers deal with declining onpremise sales and what new opportunities for premium brands exist in this channel?




Report Highlights

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Table of Contents
Premiumization Strategies in Alcoholic Drinks
Executive summary 10
Market overview 10
Consumer drivers of premiumization 11
Premiumization through product attributes 12
Premiumization through brand attributes 13
The evolution of premiumization strategies 14
Future outlook 15
Chapter 1 Introduction 18
Introduction 18
The scope of the report 19
Methodology 19
Chapter 2 Market overview 22
Summary 22
Introduction 23
The evolution of premiumization 23
Growth trends in premium alcohol 25
Value and volume trends 25
Growth variations within categories 31
On-premise versus off-premise 33
Upscale NPD analysis 36
Premium development fell in 2009 due to the downturn 36
Premium NPD is focused on spirits and RTDs 37
Chapter 3 Consumer drivers of
premiumization 40
Summary 40
iv
Introduction 41
Economic factors 42
Consumer confidence is still low 42
Personal income has been hit by the recession 43
Alcohol spending is lagging behind incomes in developed markets 44
Spending on alcoholic drinks is concentrated among the wealthy 45
Social factors 47
The developing world middle class is poised for massive growth 47
Middle-class values support premium alcohol purchasing 50
‘Luxury’ products are increasingly available to mass consumers 53
Psychological factors 53
Individualism presents a valuable marketing target 54
The importance of descriptors 56
Three key attributes are associated with premium alcohol consumption 60
Ego gratification 60
Pleasurable experience 63
Educated choice 65
Chapter 4 Premiumization through product
attributes 70
Summary 70
Introduction 71
Pleasurable experience 72
Enhanced taste 72
Unique flavors and ingredients 74
Sensory experience 77
Packaging 79
Unique shapes and materials 79
Eco-friendly design 82
Technical innovations 84
Educated choice 85
Manufacturing process 85
Craft production 86
Organic ingredients 89
Health benefits 92
Chapter 5 Premiumization through brand
attributes 98
Summary 98
Introduction 99
Ego gratification 100
v
Exclusivity 100
Brand name 101
Endorsement 103
Self-expression 105
Educated choice 109
Brand story 110
Authenticity/provenance 111
Value for money 113
Private label 113
Ethical values 115
Chapter 6 The evolution of premiumization
strategies 120
Summary 120
Introduction 121
Case study 1: Courvoisier-Repositioning by leveraging brand heritage 122
Case study 2: Cîroc - Reviving growth through celebrity endorsement 125
Case study 3: Jameson Irish whiskey – Focus on ‘younger’ on-premise
consumers 127
Case study 4: Russian Standard – Global expansion based on heritage and
craft 129
Case study 5: Dos Equis – Inspiration through advertising 132
Case study 6: Heineken and Samuel Adams – Maturity leads to loss of cachet 134
Heineken 134
Samuel Adams 135
Case study 7: Patron tequila – Creating a super-premium niche segment 136
Case study 8: Svedka –Offering quality for a lower price 138
Chapter 7 Future outlook 142
Summary 142
Introduction 143
Volume growth and premiumization will clash 144
Continued lagging in on-premise sales 146
Re-creating on-premise experiences at home 148
Enhancing the on-premise experience 151
The consumer focus will shift towards value for money 152
Self-expression will partly displace conspicuous consumption 152
‘Cheap chic’ will gain momentum 154
The democratization of luxury has devalued ‘premium’ 155
Delivering on brand promise 156
China and India offer opportunities, but present major obstacles 157
vi
Appendix 160
Index 160
References 161
List of Figures
Figure 2.1: The evolution of premiumization 24
Figure 2.2: Value and volume growth in the global alcoholic drinks industry, 2004-09 28
Figure 2.3: Global alcoholic drinks price growth by category, 2004-2014 30
Figure 2.4: Global alcoholic drinks volume growth versus price growth, 2004-2009 31
Figure 2.5: On-premise and off-premise category trends, 2004-2014 34
Figure 2.6: Share of upscale launches as % of total alcoholic drinks launches, 2006-2009 36
Figure 2.7: Sector share of upscale alcoholic drinks launches (%,) 2006-2009 38
Figure 3.8: Key consumer drivers of premiumization 41
Figure 3.9: Consumer confidence 2006-2010 43
Figure 3.10: GDP at purchasing power parity (PPP) in $ per capita, selected major economies,
2004-2014 44
Figure 3.11: US alcoholic beverages over/under-spending by household economic status, 2009 46
Figure 3.12: Trends in global middle class growth 48
Figure 3.13: Maslow’s hierarchy of needs 51
Figure 3.14: How the hierarchy of needs determines consumption behavior 52
Figure 3.15: How the trend towards individualism encourages premium product consumption 55
Figure 3.16: Key attributes of upscale alcoholic drinks launches, 2006-2009 56
Figure 3.17: Key product attributes in upscale alcoholic drinks launches, 2006-2009 59
Figure 3.18: The three key attributes associated with premium alcoholic drinks consumption 60
Figure 3.19: Ego gratification product attributes in upscale alcoholic drinks product launches, 2009
61
Figure 3.20: Naked Chase Pure English apple vodka from Chase Distillery 61
Figure 3.21: Aka Budo variant of TaKaRa Oishii Chu-Hi from Takara Shuzo 62
Figure 3.22: Jefferson’s Presidential Select Bourbon from McLain & Kyne Ltd 63
Figure 3.23: Pleasurable experience product attributes in upscale alcoholic drinks product launches,
2009 64
Figure 3.24: L'Amateur David Leclapart Champagne and The Glenlivet XXV Scotch whisky 65
Figure 3.25: Educated choice product attributes in upscale alcoholic drinks product launches, 2009
66
Figure 3.26: Zaya Gran Reserve Rum and Finsbury Grain Vodka 67
Figure 4.27: Product-level aspects of premiumization 71
Figure 4.28: Belvedere Intense vodka from Moët Hennessy and Ravenswood Winery’s slogan 73
Figure 4.29: Samuel Adams Utopias 74
Figure 4.30: 10 Cane rum and Tanqueray Rangpur 75
Figure 4.31: Bulldog gin 76
Figure 4.32: ORO Brut Reserva Cava and Gold POP Disco 77
Figure 4.33: O2 sparkling vodka and Krait Prestige champagne lager 78
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Figure 4.34: Le Rituel par Christian Louboutin de Piper-Heidsieck 79
Figure 4.35: U'Luvka vodka, Crystal Head vodka, Absolut Masquerade vodka and Solerno Blood
Orange liqueur 80
Figure 4.36: Summer Draft beer 81
Figure 4.37: Stella Artois pouring ritual and glass 81
Figure 4.38: Veuve Clicquot DesignBox and Full Circle wine in a plastic bottle 83
Figure 4.39: Coors Light cold activated can from MillerCoors 84
Figure 4.40: Ty Ku liqueur 85
Figure 4.41: Tito's Handmade vodka 87
Figure 4.42: Hendrick’s gin and Pur Spirits 88
Figure 4.43: Last Drop Finest Aged 1960 Blended Scotch Whisky 89
Figure 4.44: Prairie Organic vodka and Purus vodka 90
Figure 4.45: Benromach Speyside organic single malt scotch 91
Figure 4.46: Biodynamic Beta-Delta wine 92
Figure 4.47: Stampede Light Plus and Select 55 beer 94
Figure 4.48: White Lotus vodka 94
Figure 5.49: Brand-level aspects of premiumization 99
Figure 5.50: Suntory The Owner’s Cask 101
Figure 5.51: Glenmorangie Single Malt Scotch Whisky varietals 102
Figure 5.52: Blackbird Vineyards’ wines 103
Figure 5.53: Danny DeVito limoncello and Trump super-premium vodka 104
Figure 5.54: Celebrity Cellars wines 105
Figure 5.55: Johnnie Walker Striding Man Society 106
Figure 5.56: Three Olives vodka 107
Figure 5.57: Colorado Native beer and Snap Tag 108
Figure 5.58: Nuvo L'Esprit de Paris sparkling liqueur and p.i.n.k vodka 109
Figure 5.59: Thomas H. Handy Sazerac rye whiskey 112
Figure 5.60: Double Cross vodka 113
Figure 5.61: Sam’s Club Rue33 vodka and Costco’s Kirkland tequila 114
Figure 5.62: Rodney Strong sustainability practices 116
Figure 5.63: 360 vodka 117
Figure 5.64: Stiletto Vodka 118
Figure 6.65: Pass the Courvoisier record cover 122
Figure 6.66: Courvoisier the future 500 123
Figure 6.67: L’Essence de Courvoisier 124
Figure 6.68: Courvoisier Exclusif and Courvoisier cocktails 124
Figure 6.69: Le Nez de Courvoisier at Charles de Gaulle airport 125
Figure 6.70: Sean Diddy Combs for Cîroc 126
Figure 6.71: Cîroc advertisements and Cîroc Nights on Facebook 126
Figure 6.72: Jameson Irish Whiskey 127
Figure 6.73: Jameson outdoor projection advertisement and television advertisement 128
Figure 6.74: Jameson silver bottle 129
Figure 6.75: Russian Standard bottles 130
Figure 6.76: Russian Standard beauty pageant promotion 131
Figure 6.77: Russian Standard Nightlife Tour promotion 131
Figure 6.78: Dos Equis “Most Interesting Man” advertisement 132
Figure 6.79: Dos Equis Most Interesting Man online and Dos Equis Most Interesting Academy 133
Figure 6.80: Heineken Draught Keg 134
Figure 6.81: Heineken television commercial, 2010 135
Figure 6.82: Sam Adams lager 135
Figure 6.83: Patron tequila range 137
Figure 6.84: Patron travel retail display 138
viii
Figure 6.85: Svedka vodka bottle and advertising 139
Figure 7.86: Forecast value and volume growth in the global alcoholic drinks industry, 2009-2014
145
Figure 7.87: Global alcoholic drinks forecast volume growth versus price growth, 2009-2014 146
Figure 7.88: Global alcoholic drinks forecast on-trade volume sales (liters of pure alcohol m), 2009-
2014 147
Figure 7.89: Perrier-Jouet sensitive journey 149
Figure 7.90: Examples of ready-to-drink alcoholic beverages 150
Figure 7.91: Perrier-Jouet champagne bar 151
Figure 7.92: Dewar’s craftsmanship 153
Figure 7.93: Courvoisier connoisseurship 154
Figure 7.94: Gran Tierra Chilean wine 155
Figure 7.95: Jack Daniel’s advertisement 157
Figure 7.96: Wenjun white spirits 158
List of Tables
Table 2.1: Global alcoholic drinks market value & value forecast by country, ($bn), 2004-2014 25
Table 2.2: Global alcoholic drinks market volume & volume forecast per category, liters pure
alcohol (m), 2004-2014 26
Table 2.3: Global alcoholic drinks market share of throat by category (liters pure alcohol), 2004-
2014 27
Table 2.4: Global alcoholic drinks average pricing and weighted pricing growth ($/liter alcohol),
2004-2014 29
Table 2.5: US spirits market premiumization and growth (%), 2007-2009 32
Table 2.6: Global beer segment share of throat (% by volume), 2004-2014 33
Table 2.7: Region share of upscale alcoholic drinks launches (%), 2006-2009 37
Table 2.8: Sector share of upscale alcoholic drinks launches (%), 2006-2009 38
Table 3.9: Alcoholic drinks spending as percentage of GDP, by country (%), 2002–2012 45
Table 3.10: Middle class population size (m) & share of global total (%), 2009-2030 49
Table 3.11: Top 20 descriptors in upscale alcoholic drinks launches (%), 2006-2009 57
Table 3.12: Top 10 fastest growing descriptors in upscale alcoholic drinks launches (%), 2006-
2009 58
Table 4.13: Selected examples of process claims in premium products 86
Table 5.14: Selected examples of celebrity-endorsed brands 104
Table 5.15: Selected examples of premium brand stories 110
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