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Introduction
There are powerful forces affecting the emergence and future of a “premium” market for
white spirits. The global economic recession and the rise of a savvier, more discriminating
generation of consumers have rewritten the rules on how price and product positioning intersect
with the impact of internationally distributed “branded” products versus “locally” produced ones.
The global growth of “branded” white spirits demonstrates that premiumisation not only exists,
but represents a wedge in both developing AND mature market for emerging sectors of the
spirits trade.
Total world consumption of spirits is on track to reach 2.239 million 9L cases by 2012,
an increase of 5.25% since 2003. While “locally” produced spirits command the greatest share
of spirits consumed, this is a category that is in decline. To illustrate this point, consider China
& India: China is the largest spirits market in the world, consuming 606 million cases, with
India next in line (284million cs), together accounting for 42% of global consumption. “Local”
spirits dominate these numbers, and as such, consumption figures in Asia alone are forecasted to
decline 3% from 2008-2012. When isolating consumption of “branded” spirits, the U.S. (161
million cs) is the largest consuming spirits country, accounting for 34% of global consumption.
(Vinexpo, 2005) As such, consumption figures are forecasted to rise 8% in the U.S. during the
same period.
Among the top ten “branded” spirits in 2008, three of them were vodka, topped by
Diageo’s Smirnoff Vodka, in the #1 spot at 25.7 million cases. Among the world’s top ten
“local” spirits, four of them were white spirits. Likewise, Wyborowa Vodka, a Pernod Ricard

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brand, was the fastest growing “branded” spirit in 2008, up 30.3% in sales against sales in 2007
(Millionaires Report, 2009).
This highlights the trend that consumption of “local” spirits is in decline while
consumption of “branded” spirits is on the rise. Trading over to “branded” from “local” spirits in
developing markets OR up through “branded” spirits in product-rich, saturated
developed/mature markets is a clear example of premiumisation within the marketplace
Premiumisation of the Global Market for Spirits
The concept of premiumisation originated in the alcohol industry in the 1990s, referring
to the practice of introducing a brand or repositioning an existing one as premium or luxury in a
mature market. It is well known that humans are hardwired to ‘trade up’ to better and more
valuable products and services when the perception of price is isolated as a factor in purchasing
decisions. (htt16) Premiumisation’s target consumers are time-poor and cash-rich, and as such,
are more comfortable paying higher prices if the exclusivity and extra value are there. (htt17)
“Bling” is a thing of the past and therefore, products need to overdeliver: great quality
drinks in great packages. Innovation plays a key role in premiumisation, so bringing new or
repackaged products to market is more important now than ever, inviting the consumer to
continue the journey of premiumisation. ( Diageo Premiumisation Seminar with Andy Fennel,
Chief Marketing Officer, 2010)
In developed markets, premiumisation is as simple as moving consumers to the next
logical price tier, such as moving from Johnny Walker Red to Johnny Walker Black, i.e.,

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spending more money on a better product in the same category. Diageo leverages brands such as
Tanqueray Ten and Don Julio Blanco Tequila that will premiumise their offerings in some of
their biggest, product-saturated categories. In developing markets, premiumisation could follow
this pattern within local spirit categories OR result in patterns wherein consumers switch to
internationally branded spirits versus local spirits. (htt22)
One of the most salient factors driving the international growth of premium white spirits
is the global spread of a cocktail culture in on- and off-premise. Bartenders and consumers alike
are on the lookout for more esoteric spirits as ingredients in these cocktails. Historically, white
spirits are more versatile for mixing, offering greater flexibility for bartenders, giving clean
flavours that essentially offer a blank slate. However, high price points of premium white spirits
have made it less economically feasible for on-premise to mix in popular drink recipes.
Serendipitously, the global recession has changed behavior, forcing people to more often
entertain at home. Mintel's Drinks Report showed that off-premise is gaining market share on
the on-premise market, paving the way for the potential for a NEW, ever-expanding market for
premium/superpremium white spirits. (htt23)

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Premiumisation of the Global Market for White Spirits, by Type
VODKA is the second1 largest global spirits category (23%) demonstrating the impact of
white spirits on the general spirits market. (Vinexpo, 2009). Vodka’s raw ingredients are
relatively cheap, plus it doesn’t need to be aged. Companies have invested in more complex
distilling and filtering methods as well as flavor ingredients to distinguish their brands.
Marketing campaigns often highlighted “more exotic backstories” to justify higher prices and
profits. (Rothbaum, 2007)
The launch of Absolut in 1979 and its now-famous ad campaign helped the brand attain
its pop-culture status. (Adams Liquor Handbook, p.122. , 1999) “Absolut had pioneered selling
distilled spirits on image, persuading consumers to buy prestige in a bottle for $20.” (Howard,
2004) The Vodka industry’s marketing approach naturally evolved into identifying highly
desirable public personas or lifestyle trends to repackage their product and re-ignite brands. In
the summer of 2009, Diageo launched an advertising campaign for its Ciroc vodka brand for the
US market featuring media mogul Sean “Diddy” Combs. (htt8) In May 2010, Skyy Vodka
leveraged the global cocktail culture by making it the official vodka and promotional partner for
Sex and the City II. (htt9)
In recent years, the leading Vodka companies have leveraged history AND pedigree to
re-excite the market and incite consumer demand. Roustam Tariko, founder and president of
Russian Standard Vodka, said "In today's world, consumers value authenticity and origin highly
in their choice of brands. Our Certification of Origin [indication on each label] will help vodka
lovers distinguish Russian Standard from the many vodka brands that pretend to be Russian, but
1 Topping this global list is the enigmatic “locally produced” category at 55% of Spirits consumed (Vinexpo, 2009)

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are not." (htt12) In June, 2010, Diageo announced updates to their Smirnoff label, changing the
main icon from a spike to a "Regal Eagle", which is accompanied on the bottle by a reference to
Smirnoff's historical connection to the Russian Tsars. (htt10)
However, the global economic crisis has had a significant impact on the vodka market,
particularly in Russia, where changing market dynamics have halted the much-lauded
premiumisation trend. A report from IWSR on Russia's spirits market, released this week,
claims that the downturn has also led to disruptions across the supply chain, with many suppliers
and distributors going bankrupt or halting production. Alternatively, the disruptions have
presented an opening for healthier companies with stronger distribution channels to gain market
share by selling consumers on “branded spirits” rather than “local” ones. ( Diageo
Premiumisation Seminar with Andy Fennel, Chief Marketing Officer, 2010)
There are three main markets for ‘branded’ GIN – the US, Spain, and the UK, accounting
for 60% of the total global market. (htt2) The US is the world’s largest “branded” gin market.
Conversely, Spain is dominated by “locally” produced Gin, accounting for 75% of sales. (htt2)
Nevertheless, Spain is the largest gin-drinking country in Europe with a total market of some 3.4
million cases, and is still the only market in the world where the super-premium gin segment is
larger than that of super-premium vodka. (htt3) The UK is the largest exporter of gin in the
world with approximately 70% of production worth £200M going overseas to some 200
countries around the world. (htt2)
Importantly, the premiumisation trend in gin has been far less evident than in other white
spirit markets. The International Wine & Spirit Research (IWSR) reports that the global gin

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market declined an average of 4.7% per year, from 2003-2007. Four of the top five largest gin
markets posted falls and that this trend continued in 2008. (htt2)
Conversely, premium “branded” gins have enjoyed significant growth in recent years - up
a phenomenal 46% between 2001 and 2005. More impressive have been sales in the
superpremium Gin sector, growing by 15% between 2006 and 2008. (htt5) A small collection of
brands, such as Beefeater (owned by Pernod Ricard), Tanqueray (Diageo) and Bombay Sapphire
(Bacardi), are outperforming the gin category, and several premium and super-premium gin
brands, notably Hendrick’s from William Grant and Martin Miller’s, are also showing signs of
gaining market traction. (htt6) Beefeater 242, Pernod-Ricard’s super-premium sector Gin, was
launched in 2008 and is already distributed in over 25 markets worldwide, proving that there’s
already sizeable momentum behind the brand. (htt7)
Despite growth in the premium Gin sector, tremendous criticism of the Gin market has
come to the fore. Diageo Global Brand Director Shivaun Lucey explains why Gin lost market
share. “Many Gin Brands made the decision to start to compete by being like vodka, as opposed
to being proud of what gin was about…great depth of flavor and richness” (htt4) Another
criticism of Gin’s market leaders revolves around the school of thought that a spirit type should
be defined by its provenance, i.e., where it was produced. “The new [Gin] definition tightens up
things but it would have been better if was geographic," says Beefeater's Nick Blacknell.
"Producers have moved out of [London] before realising the asset." As a result of not "realising
the asset" all major brands of gin are now produced either in Scotland, or the North of England,
but can in fact be produced anywhere in the world. Unlike provenance regulations governing
2 Beefeater’s Superpremium Gin, which undergoes a 24 hr steeping process of 12 botanicals and teas.

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Cognac and Scotch, Gin, Vodka and Tequila are only regulated by production methods, and
loosely at that. (htt27)
In spite of reportedly sustained growth (Global Market Review of Tequila – Forecasts to
2014), the TEQUILA category remains dominated by the US and Mexico. Between 2003 and
2008, the US and Mexico accounted for 84.4% of Tequila’s global volume of 23 million cases.
(htt28) Over the years, Tequila consumption in the US has broadened from being primarily
centered around the Margarita cocktail to growth categories such as ‘sipping’ and ‘aged’
Tequilas. More recently, there has been another trend in the U.S., capitalizing more on white
Tequila than on the darker, more expensive offerings, perhaps because it is easier to drink and
more similar to other white spirits, such as vodka or gin. Patrón leads the white Tequila category
in the U.S. Duty-free sales of Patrón rose 30% in 2009, is available at 114 airports worldwide,
and has secured high-profile partnerships with airlines ranging from British Airways to Swiss
International Air lines to Delta. (htt14)
Perhaps the greatest evidence of the premiumisation trend is being seen in the RUM
market. While the low-price and standard qualities rose by 1.1 and 1.4% respectively on
compound annual growth basis between 2003 and 2007, the premium and super-premium
segments rose by 9% and 3.3%, respectively.
Rum’s growth potential is attracting increased investment from multinational companies
that is transforming the category. For many years, rum was essentially a cottage industry
dominated by Caribbean, Central or South American producers. The increased investment has
resulted in improvements in production methods, presentation and innovation, closing the gap
between rum and other spirits categories. An IWSR report in early 2009 revealed that "This

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growing critical mass of investment and so-called share-of-mind is helping to raise the image of
rum and drive up overall category sales." (htt15)
There are powerful forces driving growth in the rum market that parallel dark spirits’
perceived qualities AND provenance. While rum is a mixable spirit used in many cocktails,
aged 'sipping' white rums appeal to spirits connoisseurs and are consumed much like older
Cognacs or Single Malt Scotches. And just like fine Scotch whiskies and Cognacs, rum brands
have been able to trade successfully on their provenance. The exotic and glamorous nature of
many rum-producing countries, their increasing popularity as tourist destinations and the
popularity of the Latino culture in many international markets has further bolstered rum's image.
There is controversy, however, that over-emphasizing flavored rums confounds efforts to
promote rum as a premium spirit. While there may be something of a conflict between the two
approaches, both appear to offer routes to growth, which in itself says something about the
potential of the category and the opportunities the rum market offers. (htt21)
Case Study of a Premium White Spirit: SVEDKA Vodka
In 1998, Guillaume Cuvelier founded a small entrepreneurial team of industry experts in
New York City dedicated to creating a high-quality product that could be distinguished for its
soft, silky drinkability. As an industry insider, Cuvelier knew to position SVEDKA as a fun, yet
high quality premium white spirit at a great price. He believed the “tradition” message didn’t
make much sense, since Vodka, unlike other spirits (e.g., Scotch), was not aged, so tradition
really didn’t play an important part in the purchaser’s decision. SVEDKA’s target consumer was

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a sophisticated, casual-cool, iconoclastic person. Above all, the brand strategy—a light-on-the-
wallet yet high-quality vodka—was reinforced. (Zuckerman review of Svedka Vodka, 2009)
Cuvelier selected Lidkoping, Sweden as the manufacturing site to “take advantage of the
Absolut tailwind”. Sweden’s entry into the European Union caused them to deregulate the
alcohol monopoly, making Sweden financially advantageous for startups. Cuvelier outsourced
production to large, established industrial facilities so as to minimize the startup capital needed
and expedite rollout. The glass bottles were imported from Germany, decorated in France, and
shipped to the factory in Sweden to be filled with vodka. The finished product was shipped in
cases to the United States. (Zuckerman review of Svedka Vodka, 2009)
Determining price would prove to be Cuveliere’s wisest decision. Cuvelier passed on
adopting a luxury pricing strategy, knowing that other brands would inevitably surface with
higher pricing and steal SVEDKA’s thunder. The under-$10/bottle market (the “standard”
segment) was already saturated, containing 80+% of the market share. (Distilled Spirits Study,
2000) He priced SVEDKA in the middle, positioning it as the only vodka to bridge both ends of
the spectrum: the new vodka drinker (40% of the market, 21-35 years old, ambitious, but not
brand loyal) AND the higher end consumer who was always looking for the best possible value.
By leveraging relationships within the industry, Cuvelier decided on “challenger”
distributors, i.e., mid-tier wholesalers who could give SVEDKA the attention it needed. He built
a small internal sales team to manage these distributors as key accounts. For vodka, independent
retailers, not the big chain stores, were identified for their capacity to give the brand strong and
sustained support not to mention invaluable credibility. SVEDKA’s pricing would be attractive
because it generated higher margins than established, high-volume brands at a sharper price.

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In 1999, Wine Enthusiast awarded SVEDKA 93 points and “Best Buy”, legitimizing it in
the eyes of millions for the first time. (Best Buy, 1999) In March 2000, Pacult’s Spirit Journal
gave SVEDKA four stars, deeming it “an outstanding value.” (Pacult, SVEDKA Vodka, 2000)
SVEDKA continued to submit, and win numerous awards throughout its history, which were in
turn funneled into copy for full page ads, point of sale, and on-premise events.
SVEDKA had sold 25,000 cases by the end of 1998, demonstrating that a premium white
spirit didn’t have to be expensive to be accepted as “premium”. By 1999, SVEDKA was
available in 15 states. The number increased to 44 within three years. (High Spirits: The Rise of
SVEDKA, 2003) By 2003, the brand had achieved national distribution. Cuvelier attributed
much of SVEDKA’s national success to his focus on distribution in the early years. It emerged
from a core, independent retail network, making the brand what it is today. (Zuckerman review
of Svedka Vodka, 2009)
After several years’ of success in the off-premise market, SVEDKA needed to build the
brand’s presence in trendy bars and restaurants (landing important accounts such as Starwood W
Hotel and Ruth’s Chris Steak House). Cuvelier believed that flavored vodka was another
necessary step if the brand were to be taken seriously in the category, so extended its brand,
offering citron, clementine, raspberry, and vanilla flavors in 2003 and 2004.
By 2006 SVEDKA reached an important industry milestone, selling one million cases.
By 2007, SVEDKA had become the fastest-growing imported vodka in the United States. In
March 2007, Cuvelier sold SVEDKA to Constellation Brands for $384 million. The move took
place amidst a consolidation in the industry. (Press, 2004) In its first quarter as part of a publicly
traded company, SVEDKA continued its growth trajectory with double-digit gains, tweaked its
bottle design in 2008 and according to a 2008 Information Resources Incorporated report, ranked

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fifth in combined liquor, food, and drug categories for imported vodka. By April 2009,
SVEDKA was the number-one growth brand within the top 100 premium spirits worldwide.
(Zuckerman review of Svedka Vodka, 2009) Most recently, amidst Constellation's disappointing
earnings in 1Q2010, SVEDKA vodka provided the sales highlight for the firm, with sales up
28% on an organic basis for the quarter. (htt25) The brand had become the third-largest
imported vodka in the United States, behind only Absolut and Grey Goose. (Group, 2009)
Conclusion and Personal Commentary
Could a flurry of recent makeovers in the white spirits sector signal renewed optimism
and potential for future growth among producers? Diageo this week unveiled a new-look for
Smirnoff’s vodka bottle, and after years of thrift in this and other firms' marketing departments,
creative types have once again been unleashed in 2010. Jeremy Lindley, Diageo’s global design
director, said that the company is working on four key themes for its branding: provenance,
heritage, personality and quality. (htt26)
Premium white spirits have not only demonstrated traction in the overall spirits market,
as evidenced by the premiumisation of white rum, tequila, gin and the ubiquitous vodka, but
have modeled strategies in both mature and developing markets that grow and reinvent
categories in even the most tumultuous of economic circumstances. The premiumisation of
White Spirits has a positive prognosis, given the impact of the cocktail culture, the off-
premise/at-home trade, the strength and latent effect of the vodka market, and the capacity for
Gin, Tequila and White Rum to continuously engage and challenge the status quo!

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