Yesterday, we published the first part of an interview with veteran consultant and Park Street ceo Harry Kohlmann, in which we discussed how small distilleries are changing the dynamic of the industry (see WSD 03-26-2014). Today, we’re continue our conversation exactly where we left off.
Wine & Spirits Daily: What do you think is the most important factor in a brand success?
Harry Kohlmann: Overall, I would say that a new brand’s success is driven by its ability to differentiate itself in the market and that the differentiation [needs to be] relevant for a target consumer group which is large enough to make it a viable business. The consumer brand DNA has to speak to a targeted consumer group in a way that it breaks through the clutter.
WSD: Vodka is a particularly overcrowded category right now. Do you have any advice on how to differentiate within that realm?
Harry: If you analyze the vodka market over the past thirty years, you’ll see an interesting evolution of how the vodka market developed: Absolut was first to break out as an innovation brand, and then Grey Goose and Belvedere topped it; this was followed by the rise of lower price point brands that were still premium, like Svedka; then you have Tito’s suddenly at the craft brand level coming in and maybe Ciroc on the celebrity-endorsed, African American side and you wonder what’s next? That is certainly a lot of activity, and those are only highlights of brands that made it. The pressure to innovate in vodka is enormous.
We have a host of clients that have different ideas about what is next, but it’s definitely not going to be just another Swedish vodka at $15 or $20 that is undifferentiated. It has to be something differentiated and I don’t think it’s about provenance only. I think it’s more about a story. Through social media and through mobile internet, today’s consumer is much more open to hear background stories on brands and is willing to connect on a deeper level than what had typically been conveyed by packaging and print advertising.
Therefore, if somebody has a provenance story for their vodka, it should be connected to the brand DNA through certain elements that are really tied to the product itself. For example, if a product is emphasizing a country of origin, is there a particular ingredient that is only available in that country and what is the story that makes it relevant for the consumer? Does this particular ingredient out of this country resonate with the consumer or is there a particular benefit that is affiliated with that ingredient?
WSD: Speaking of what’s next, I regularly report on suppliers who think that rum is going to be the next category to premiumize. Do you think it seems like a realistic possibility that premium rum is going to take off?
Harry: I can definitely tell you that a lot of people believe in that and that a lot of people are putting significant resources behind it. If you look at Zacapa or Atlantico or Diplomatico, these are brands that have had some early success. I don’t think there’s anything that speaks against ultra-premium rum to be as successful as ultra-premium vodka. It just hasn’t happened yet and there is no indication yet who will be the runaway winner in the segment.
WSD: Do you think premiumization in the spirits category in general is going to continue?
Harry: Yes, I think premiumization will continue to be one of the growth drivers in the industry. There is a certain trend with regards to the [spirits] market that is a reflection of what might be happening in society. On the one side, we have the ultra- and super-premium segments that were hit hard in the recession and that came back strong and are going to get stronger and stronger.
On the other side of the spectrum, we have the entry or regular premium segment, which was one of the beneficiaries of the recession, taking advantage of down-trading activity. When you look at examples such as New Amsterdam or Svedka –that’s obviously on the vodka side but you have it across categories — you see the rise of more sophisticated brand propositions in the entry level premium segments. Brands in that segment actually borrow a lot of attributes from the ultra- and super-premium categories and make them affordable on that level. Brands that do this successfully are gaining notable traction in the market. During the recession, a lot of consumers were educated that it’s okay to buy these type of products and they liked them.
Moving forward, consumers might share their brand loyalty and behave differently in on-and off-premise settings. In an on-premise setting, a consumer might order the super-premium product that provides a good badge value and shows his or her personality and gives a lot of additional benefits–enabling the consumer to essentially co-brand with the product, while when at home, that same consumer may consume a premium product that has a lower price point.
WSD: On-premise suffered in 2013. Do you see the suppliers changing their strategies or staying the course?
Harry: I think everybody is trying to see what the real trends are, but my sense is that there is a certain segment of suppliers that are actually increasing their activities in the on-premise from a brand building perspective.
The challenge for large suppliers is determining where they receive the best return on investment when they look to increase volume. The volume expectations across the industry are much higher than what the industry will provide in terms of growth, so the question is where can you secure the growth better or where can you control it better?
I think the off-premise is easier to control or at least that’s the perception… so a lot of effort went into driving off-premise sales, which has led to an overall decrease in on-premise supplier spending. Another driving force for off-premise activities have been the liberalization of off-premise tastings in many states over the last ten years. Having said this, I still believe that it’s difficult to imagine an ultra-premium brand becoming a blockbuster success without on-premise activities.
WSD: Thank you for your time, Harry.
CONTROL STATE TRENDS UP IN FEBRUARY
The wicked winter battered on-premise sales this year, but control state numbers for February are in and they were solid. Spirits volumes were up 2.2%, outpacing its 12-month volume growth of just 1%, per NABCA data. Furthermore, spirits sales grew 4.6%, outpacing its 12-month trends of 3.8%, while price/mix for February was up 2.4%.
You may recall, in our January report of NABCA data, for the first time in four and a half years, Irish whiskey was not the fastest growing category in control states – cordials were. It was a short lived trend, as Irish whiskey once again maintained the title of fastest growing category in February, up 11.4%. Vodka, the largest spirits category, grew 2% for the month.
Moet Hennessy and Constellation Brands were the big winners in control states for the month, per UBS analysis. Moet Hennessy volume growth was literally off the chart at 27%, while Constellation volumes were 7.7%. Brown-Forman, Remy Cointreau, Campari and Beam all delivered volume growth in the range of 0.6% – 1.8%. As has been the case for months, the big players, Pernod, Bacardi and Diageo, saw sales slip 2.1%, 2.6% and 4.2%, respectively.
FIRE IN THE HOLE! RUM CAPTAIN TAKES ADMIRAL TO COURT FOR INFRINGEMENT
For the second time this year, Diageo is publically lashing out at one of its competitors. Yesterday, Diageo sent WSD a statement declaring it had filed a lawsuit in Canada against Heaven Hill Distilleries for allegedly infringing on the Captain Morgan character trademark. Diageo calls Heaven Hill’s use of its Admiral Nelson’s rum trade dress “blatantly confusing,” and believes it is “clearly intended to mimic the Captain Morgan brand to trade upon the brand’s goodwill and create consumer confusion.” Meanwhile, Heaven Hill declined to comment on the lawsuit.
ACCOLADE WINES’ PARENT COMPANY, CHAMP PRIVATE EQUITY, has received a $300 million loan that will help it achieve its goal of becoming a “full-service global wine proposition” across all tiers of the market, reports The Grocer. GE Capital International is funding the company for the second time, having previously provided them with a $220 million loan in 2011.
WINERY EXCHANGE HAS ACQUIRED PASO ROBLES wine brand Chronic Cellars. Chronic Cellars was founded by the Beckett Family, and is positioned as a “counter-culture” wine brand that produces red blends such as Purple Paradise and Sofa King Bueno. Despite having limited distribution and availability up until this point, Winery Exchange claims Chronic Cellars has a cult-like reputation among millennials.
Until tomorrow, Emily
“People don’t mind being challenged to do better if they know the request is coming from a caring heart.”
– Ken Blanchard
Source: Wine & Spirits Daily