Vodka and Brandy Market

Part
01
of three
Part
01

Ciroc Brand Awareness

The Ciroc brand is less popular among Millennials in the US. However, its popularity among the whole US population, in general, is higher than in other countries, based on website traffic data.

CIROC BRAND AWARENESS AMONG MILLENNIALS IN THE US

  • Market Watch sheds light on the decreased net sales of Ciroc among Millennials in the US, as well as increased sales of Ketel One Botanical, suggesting that Ciroc is not particularly popular among Millennials given that brand which shows that Ciroc is not much popular among Millennials and they prefer Ketel One over Ciroc.
  • Although the Ciroc brand has observed a 17% growth in the US in general, it still faces "stiff competition across the category, particularly as millennials enter spirits through a variety of offerings," according to Keenan Towns, Diageo North America's Vice President.
  • Diageo, the company that owns Ciroc, noted in a report that Ciroc has been underperforming in the US, stating that "Ciroc’s weaker performance mostly due to lapping the Apple innovation with Mango."

AWARENESS AMONG GENERAL US POPULATION


RESEARCH STRATEGY:

We commenced our research by conducting a direct search for Ciroc's brand awareness among Millennials in the US. Despite searching several sources that targeted the Ciroc brand, we were only able to gather a very limited amount of information regarding the brand's drop in sales among Millennials in the US. Through this search, we found that Millennials prefer other brands, among other findings, from which we concluded some insights into US Millennials' awareness of the brand.

We then looked for research publications, surveys, and case studies that focus on Ciroc. We were hoping to find insights or data regarding US citizens' perception of the brand, with a special interest into US Millennials' thoughts and opinions about the brand, from which we could draw conclusions about the brand's popularity among this demographic. We searched through various research databases including Researchgate, Pew Research, and Deloitte, among others. None of these databases provided any data on Ciroc or vodka trends specific to the US that would help us make assumptions about how well-known Ciroc is among US Millennials. None of the sources contained any relevant information, likely due to the unavailability of such data because no previously-conducted research or case studies focus on brand awareness of Ciroc in the US, among Millennials or the general population.
We then attempted to review Ciroc's social media handles. We were hoping to analyze the comments and reactions of the US Millennials from which we could conclude the brand's awareness among Millennials. The company's YouTube handle contained videos that posses very few likes with no comments at all. Comments and mentions were not visible on the brand's Instagram account and Facebook posts inspired few responses from within the US. Additionally, the comments were very limited and people were more focused on asking for pricing information or when the brand's product would be available on Amazon.
We then expanded our scope to include the awareness of people in the US in general, as well as looking for marketing data on Ciroc's presence in the US, from which we could gather relevant insights, facts, or statistics that we could use to triangulate or assume how well-known Ciroc is in the US. We searched through news articles, magazines, and business-oriented publications. We also searched through private company databases to get a glimpse of the brand's popularity statistics, if available. The information we obtained was focused on Ciroc's ad spend in the US, as well as the brand's collaborations in the US. This data was not sufficient to make assumptions or conclusions on brand awareness in the US. We then searched through website analysis databases, hoping to find an estimate of the traffic to Ciroc's website originating in the US. We were able to determine that the majority of the traffic on the brand's website comes from the US, suggesting that there is more awareness of the brand in the US than in other countries.
Based on our findings, we were able to provide some insights into how well-known Ciroc is in the US, especially among US Millennials, which we have discussed in the helpful findings above.
Part
02
of three
Part
02

US Vodka Market

Operators in the Unites States Vodka market are benefiting from substantial market share gains for Vodka and the rising popularity of Vodka among consumers. However, Vodka lacks popularity among bartenders and price disparity resulting from government tax, and monopoly continue to pose as significant challenges to the Vodka industry.

1. STRENGTHS

  • Statistics indicate nine straight years of market share gains for the entire American distilled spirits industry. Vodka also belongs to the distilled spirits brands.
  • Vodka is the largest category of the spirits brands sold every year in America and represents one-third of all spirits sales volume. The year 2018 was another solid sales year for Vodka along with other distilled spirits.
  • In 1976, (43 years ago) Vodka overtook whiskey as the United State’s best-selling spirit and has maintained this position till date.
  • One notable strength of Vodka is that it remains the most popular spirit among clients in the United States and the entire world.
  • According to Forbes, Vodka is by far "the most widely-consumed liquor" across the United States.

2. WEAKNESSES

  • American business enterprises have been borrowing enormous amounts under extremely accommodating conditions such as low-interest environment after the last financial crash — without effectively improving the state of their liquidity profiles. Some vodka distribution companies, including Diageo PLC (quoted on NYSE) whose brands include Smirnoff, Ciroc, and Ketel One vodkas have long-term debt profiles.
  • The "perceived lack of flavor" weakens the love of Vodka among mixologists, although this lack of flavor seems to be the power behind its versatility among its consumers at the moment. Most mixologist (bartenders) feel the versatility, and perceived lack of flavor of Vodka directly affronts to their mission.
  • Vodka lacks popularity among bartenders. Several bartenders interviewed by Business Insider revealed that they looked down on (stigmatize) their customers who order Vodka. Bartenders feel there is something about Vodka that makes its consumers "either look boring or troublesome — or perhaps both."
  • A significantly large number of people regard Vodka's "popularity as lack of seriousness."
  • Consumers generally limit their consumption by sticking to the "two or three [vodka] marks" they know well, unlike with rival/competing spirits brands like whiskey.

3. OPPORTUNITIES

  • All major United States-based professional sports leagues like auto racing, hockey, etc., are sponsored by an alcohol brand. These sporting events attract significant audiences, particularly young adults, as well as middle-aged men, who are substantial consumers of alcohol.
  • Strategies designed and aimed at integrating alcohol (including vodka) consumption into the lifestyle of individuals, cultural as well as ethnic experiences, have become popular and can be used by vodka brands in promotions aimed at associating vodka products with sports, cultural events, and musical events.
  • The National Hockey League (NHL) recently signed a three-year deal with the New Amsterdam Vodka, to make it the official Vodka of the league. Other Vodka brands seeking promotional benefits can explore similar opportunities.
  • Trade associations have represented the interests of the United States alcohol industry (including Vodka brands) to the media, the public, as well as the government. Across the United States, trade associations have brought together industry members and advanced common interests. The most significant alcohol industry trade associations existent in the United States include the Beer Institute, the Distilled Spirits Council of the United States, and the Wine Institute.
  • The Distilled Spirits Council of the United States adequately represents the interest of operators in the Vodka industry.
  • Series of corporate political activities conducted in many parts of the United States alcohol industry have created a favorable regulatory environment for operators in the sector (including Vodka.)
  • Most consumers are eager to try spirits brands, and millennials, in particular, are ready to open their wallets for the purchase of high-end, premium spirits.

4. THREATS

  • The United States vodka category is experiencing stiff competition right now among domestic and global players.
  • Some imported Vodkas have been embarking on aggressive price cuts. Competitors in the Vodka segment have to be very conscious in their pricing strategy on a per-state basis to ensure the right value proposition for consumers.
  • The biggest challenges faced by Vodka brands hinge on how to "stand out in the crowded vodka market" and embark on smarter/innovative packaging and marketing.
  • The market power of millennials and GenZ continues to grow, and their distinct brand preferences, sustainability demand, experiential, and personalized taste differ from those of older generations. Older Vodka brands that were once revered need to respond. They need to create new products and seek new ways to interact with their new consumers.
  • Substantial allegations of tax raises and the United States government's monopoly on spirits brands have raised the average price from $5.79 to about $61.92 per case. The cost of purchasing a bottle of Vodka is now higher than the cost of an average mixed drink of equivalent quantity purchased at bars or restaurants. This price disparity resulting from government tax and monopoly may not augur well for operators within the Vodka market.
Part
03
of three
Part
03

US Brandy / Cognac Market

The U.S. Cognac market is extremely strong and laden with opportunities. Outside of its heavy concentration among three key players, there are few glaring weaknesses or threats facing this market in the U.S., though some such factors exist.

Findings

1. Strengths

  • A strength of the U.S. Cognac market is its strong market growth, both overall and by category. According to Beam Suntory's Cognac Direct, Stephanie Kang: "Consumer interest in Cognac has never been stronger and the growth in the category reflects this."
  • In the U.S., sales of nine-liter cases of Cognac rose by 12.5% year-over-year between 2017 and 2018, as there were 6.4 million such cases sold in 2018.
  • The market has increased by a whopping 73% between 2014 and 2018, which is the highest level it has attained dating back to at least 2002.
  • In addition to its overall growth, the U.S. Cognac market has also grown in each of its categories. The Very Special (VS) Cognac category, which includes product that has aged for a minimum of two years, increased by 7.4% between 2017 and 2018, as determined by the volume of nine-liter cases sold.
  • The VSOP (Reserve/Old) Cognac Category rose by 31.5% between 2017 and 2018, as determined by the volume of nine-liter cases sold.
  • The Extra Old (XO) Cognac category, which includes product that has aged for a minimum of six years, increased by 7.6% between 2017 and 2018, as determined by the volume of nine-liter cases sold.
  • Lastly, the "Other" Cognac category also increased by 8% between 2017 and 2018, as determined by the net volume of nine-liter cases sold.

2. Weaknesses

  • A weakness of the U.S. Cognac market is that it's overwhelmingly dominated by three key players. The leading producer, Hennessy, has a 60% market share, followed by Rémy Martin with approximately 15%, and Courvoisier with approximately 10%. What's more, the Cognac market growth in the U.S. has mainly resulted from those key players.
  • The strength of the U.S. Cognac market and its heavy concentration among three top producers is also a weakness, as some retailers can't keep pace with the rising demand.
  • Despite smaller players gaining traction, the demand for Hennessey's Cognac, in particular, is presenting a challenger to some retailers. For example, a co-owner of a retail chain with 15 locations in Indiana, Andy Lebamoff, explained that issue in stating: "I order 100 cases of Hennessy every two weeks, and I never know if I’m going to get it.
  • Lebamoff also noted that he can't maintain an adequate supply of Hennessy at his stores and though some Cognac products also sell well, they aren't "as popular as Hennessy." He noted that Hennessy constitutes "a different tier for consumers."
  • The growing need for more supply of Cognac has led the market's top producer, Hennessy, to open a new facility for bottling, which is expected to increase its capacity output by 40% by 2020. However, prior to then, it has been noted that the company is going to need to carefully manage its supply in order to keep an adequate supply of its product in retail stores.

3. Opportunities

  • An opportunity within the U.S. Cognac market is the creation of specialty Cognacs beyond the customary XO, VSOP, and VS designations. The creation of specialty Cognacs provides blenders with a chance to emphasize more detailed qualities of Cognac compared to traditional iterations.
  • The recent introduction of flavored Cognacs also presents an opportunity with the U.S. market, which provide new options for consumers given their growing interest in Cognac as a whole.
  • Another opportunity for the U.S. Cognac market involves consumer education, as industry experts note that American consumers want to know the details about these products. As Cognac Frapin's International Business Director, Bertrand Verduzier, explained: "More interest into what’s inside the bottle, more interest in how it is made, where it comes from and what’s behind the production—that’s where we find interest.
  • Another industry expert, Patrick Raguenaud, who is the President of the Bureau National Interprofessionnel du Cognac's Producers' Association stated: "We are seeing in the U.S. market the arrival of a generation of consumers interested in authentic spirits, a generation that favors the know-how and the expression of the terroirs. This generation is interested in understanding and learning.
  • U.S. millennials also present a sizable opportunity for the Cognac market, as they are interested in both the culture of cocktails (described as "a thriving area of interest among" them) and what is called "approachable luxury" (they perceive Cognac as a form of that).
  • Americans' interest in trying out new things presents another opportunity for the U.S. Cognac market. Alexandre Gabriel who is the President of Ferrand, stated: "Broadening the base at a time when the category is surging and more consumers are entering the category makes perfect sense, especially as American consumers are constantly looking to new ways to enjoy their favorite tipple." Furthermore, an executive for D’Ussé Cognac, Ned Duggan, noted that [t]here is still room for innovation at every stage of the [Cognac] production process."

4. Threats

  • Disruption is a threat facing the Cognac market in the U.S., as brands are coming up with new market approaches, product iterations, and ways to build their consumer bases.
  • A specific example of the disruption that's occurring involves the fact that Cognac's standard product categorizations, XO, VSOP, and VS, are being tested. As one source stated: ""The limits of those rigid rules are being explored by other bottlers to escape the VS/VSOP/XO/up ladder of age and price."
  • A potential threat facing the U.S. Cognac market is its heavy focus on VS Cognac, instead of being more-widely distributed, as that category has a 70% share of the U.S. Cognac market. That contrasts the global trend, where VSOP Cognac and categories above that account for most of the product sales.
  • Lastly, another threat (which was also listed as a weakness, as it constitutes both), is the fact that the U.S. Cognac market is overwhelmingly dominated by three key players (Hennessy, Rémy Martin, and Courvoisier).

Your Research Team Applied the Following Strategy:

In compiling the research presented above, we consulted highly credible industry sources, such as the Distilled Spirits Council and Beverage Media Group. The market strength data cited above came directly from the Distilled Spirits Council’s Economic & Strategic Analysis Department, as part of its 2019 U.S. Cognac Market report, which we used as a source. As was the case with that source, we ensured a U.S. focus to all of our research by only using U.S.-based sources and/or information specific to the U.S. Cognac market. The information provided in these sources discussed each of the categories for which we sought information about (strengths, weaknesses, opportunities, and threats).
Sources
Sources

From Part 02
Quotes
  • "Forming Alliances with Trade Associations and Other Sectors Trade associations represent alcohol industry interests to the media, the public, and the government. Within the United States, trade associations are well developed, bringing together industry members to advance common interests. The largest alcohol industry trade associations in the United States are the Beer Institute, the Distilled Spirits Council of the United States, and the Wine Institute."
  • "Alcohol producers have also supported other trade associations, and the largest alcohol producers (e.g., AB InBev) often hold affiliate memberships in alcohol retailer and wholesaler associations. Some segments of the alcohol industry have also established alliances with business associations (especially regarding taxes), the tobacco industry, and groups that sell their products to the alcohol industry. The relationship between the alcohol industry and the American Beverage Institute is one specific example of such an alliance."
  • "Sponsorships Strategies designed to integrate alcohol consumption into particular lifestyles, as well as cultural and ethnic experiences, have been documented in promotions that associate alcohol products with sports, cultural events, and music. While some countries (e.g., Costa Rica, France, and Guatemala) have banned sponsorship in sports and youth events, this is not the case in the United States. Sports and popular music events that appeal to young people are widely sponsored by alcohol brands. Sponsorships provide a direct way for the alcohol industry to promote their products and to create a positive, emotional relationship between the brand and consumers."
  • "All major U.S. professional sports leagues, including auto racing, are sponsored by at least one alcohol brand and sporting events attract substantial audiences, particularly young adults and middle-aged men, who are the heaviest consumers of alcoholic beverages. By sponsoring leagues, events, and/or teams, the alcohol industry is able to incorporate the brand into the name of the event through verbal pronouncements in sports commentaries, as well as signage on clothing, sporting arenas, and products sold to fans (Amis and Cornwell, 2005). Table C-3 describes the range of corporate sponsorships in auto racing leagues in the United States."
Quotes
  • "The vodka category is extremely competitive right now for domestic and global players,” says Matthew Pechman, vice president marketing at Heaven Hill’s Deep Eddy. “There’s a lot being invested into the category and it’s becoming more competitive from a pricing standpoint as well. The important point now is creating differentiation for consumers compared to the big players."
  • "The biggest challenges are continuing to stand out in the crowded vodka market, and being smarter on a packaging and marketing perspective. We have a very loyal consumer base, but it’s important to be relevant and create awareness among new users to the category"
  • "Black says even though a lot of growth is coming from the brands with higher prices, some of the imports have been taking aggressive price cuts. “We have to be very conscious of our pricing strategy on a state-by-state basis to make sure the value proposition is there for consumers"
Quotes
  • "Consumers are eager to learn about spirits, and millennials in particular are willing to open their wallets for high-end, premium spirits. Strategy& indicates that as millennials and GenZ grow in scale, they are embedding their distinct brand preferences – sustainable, experiential, personalized – that are “cool” to their generation. In many industries, including spirits, this has meant a scrapping of “old world” brands that were revered by their parents. Meanwhile, brand owners are responding by creating excitement with new products and new ways to interact with consumers, including the discoverability and exclusivity that consumers crave from the craft scene."