BevAlc Insights’ 2H 2020 Vodka Forecast
Vodka lost share to tequila and RTD cocktails during the pandemic but appears to be rebounding — what lies ahead?
Vodka is a staple among U.S. consumers, bested only by whiskey as the top-selling spirit on Drizly. But while the spirits sector as a whole have been on an upswing, vodka is lagging behind in sales growth — a trend that has only been exacerbated by the pandemic. Don’t count vodka out just yet, however. Though the numbers may look bleak, the mammoth vodka category is here to stay.
What’s Slowing Vodka’s Growth?
Vodka’s momentum has been slowing for the past several years. According to the IWSR, vodka sales volume in the U.S. grew 1.2 percent in 2019 and 1.5 percent in 2018 — slightly below the overall distilled spirits sales volume in both years (2.3 percent in 2019 and 1.9 percent in 2018). Year-to-date, the category share has shrunk on Drizly, currently sitting at 8.6 percent of overall platform share compared to 10.59 percent of share at the same time last year.
During the initial weeks of Covid-19’s effects, it seemed like vodka’s off-premise sales could benefit from pandemic-related purchasing behavior; consumers were reaching for familiar products and stocking up on value-driven, large-format vodkas, which create easy and accessible cocktails when mixed with juice or club soda. “Vodka sales have been strong in the early months of 2020 but have since leveled out somewhat,” says Adam Rogers, the North American research director for the IWSR. “This has since slowed slightly as consumers return to the ‘new normal’ where pantry loading has diminished and overall rate of consumption has leveled out.”
Over the Covid-affected, 23-week period ending August 8, off-premise dollar sales of vodka were up 20.7 percent over the previous year, according to Nielsen. However, overall off-premise spirits dollars were up 33 percent over the previous year during the same time period, indicating that vodka has not performed as well as other spirits categories amidst the pandemic. It has also lost share to other spirits categories on Drizly.
Some of vodka’s slowing growth in recent years may be an effect of the premiumization trend that has taken hold in categories like bourbon and tequila. “The vodka category has performed quite opposite to the rest of the spirits industry in that premiumization is not occurring,” says Rogers. “Consumers believe paying for an ultra- or super-premium priced vodka is not a good financial decision since the quality-to-price ratio is also strong in the premium and standard price segments.”
The rise of ready-to-drink (RTD) beverages and hard seltzers — which has spiked during the pandemic — has cannibalized sales from vodka. While the spirit was once the go-to for simple, low-calorie cocktails, RTDs and hard seltzers have created competition with the added bonus of convenient packaging. The success of vodka-based RTD High Noon, which markets itself as a hard seltzer, is just one example; it has increased 47.05 percent in share within the RTD category on Drizly from last year.
But these seemingly sluggish numbers may also point to the simple fact that vodka already comprises a large portion of overall spirits sales. “You can’t expect vodka to grow at the same percentage as categories that are much smaller than vodka,” says Daniella Vizzari, the assistant marketing manager for Crystal Head Vodka, which has not experienced a drop in sales. “If [sales share] did drop I would assume it would be due to the size and maturity of the category compared to other spirit categories.”
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Indeed, vodka was still the largest spirit category by volume in the U.S. in 2019, according to the IWSR, and Tito’s Handmade Vodka was the top-selling spirit. “Despite recent year-over-year share drops, vodka remains the top selling spirit on Drizly, and plain vodka holds the majority share of the overall category,” says Liz Paquette, the head of consumer insights for Drizly.
The category itself has changed over the years as U.S. vodka regulations have shifted to allow distillers to distill the spirit from any agricultural material (rather than just potatoes and grain). As recently as April, the U.S. Alcohol and Tobacco Tax and Trade Bureau (TTB) removed regulatory language that previously defined vodka as a product “without distinctive character, aroma, taste, or color,” which could pave the way for more innovation within the category.
“This gives distillers the power to be more creative with what they are producing,” says Vizzari. “Different raw materials result in very different flavor profiles.” Crystal Head, for example, produces separate vodkas from Canadian corn and English wheat and will soon launch a vodka made from Blue Weber agave.
Already it seems that innovation — along with marketing that resonates — is driving growth within the subcategory of flavored vodka. After losing share in the vodka category on Drizly from 2016 to 2018, flavored vodka has grown in share and now accounts for 12.42 percent of vodka volume. Overall, flavored vodka accounts for 1.22 percent of total platform share on Drizly, up from .28 percent year-over-year.
“New product launches have contributed to category growth,” says Paquette. She points to Ketel One Botanical, a collection of fruit- and botanical-infused vodkas with lower alcohol and lower calories marketed towards health-conscious consumers, as a recent success story.
“Low-sugar, real fruit juice, and lower ABV for sessionability are all buzzwords that consumers gravitate towards as they try to be more mindful of what they consume in general,” says Rogers. Distillers are also approaching flavored vodkas more mindfully, focusing on how each product fits in with overall brand development.
For these reasons and more, Vizzari remains optimistic about the category’s long-term success. “It is in a healthy place from an industry standpoint,” she says, “and we have reason to believe that as the dust settles on the virus, we will continue to be a strong player in the industry.”
Optimizing Vodka Sales
To maximize vodka sales, Paquette recommends that retailers build their inventory with best-selling brands. “Start by ensuring consistent stock of top-share plain vodka brands, like Tito’s, Smirnoff and Svedka,” she says. “Then consider investing in flavored vodka or regional brands that are top-selling items in your market.”
Drizly partners can use the DrizlyRetailer portal to access the “Top-Selling Items I Don’t Carry” report, which will indicate which best-selling vodkas — both on a national scale and in their market specifically — are not in their inventory. Retailers should cross-reference this with vodkas included in their “My Top-Selling Items” report in order to identify which products might be better to add to their selections.
“By leveraging the data from both reports,” says Paquette, “retailers can optimize their inventory strategy for their current selection as well as introducing new products.”
Drizly’s Top-Selling Vodka Brands in 2020
4. Grey Goose
5. Ketel One
7. New Amsterdam
9. Deep Eddy
Drizly’s Top-Selling Flavored Vodka SKUs in 2020
1. Deep Eddy Ruby Red Vodka
2. Pink Whitney by New Amsterdam Vodka
3. Deep Eddy Lemon Vodka
4. CIROC Summer Watermelon
5. Absolut Citron Vodka
6. Svedka Strawberry Lemonade Flavored Vodka
7. New Amsterdam Pineapple Vodka
8. New Amsterdam Peach Vodka
9. Svedka Mango Pineapple Flavored Vodka
10. Smirnoff Raspberry
However, retailers should also consider setting themselves apart from the competition with a few distinctive vodka selections. “Offer brands that offer the consumer a unique experience either via packaging, quality, or programming,” says Vizzari. Local brands, interesting flavors, or vodkas with interesting ingredients can all add extra value to the consumer.
Therefore, Rogers emphasizes the importance of understanding a retailer’s customers and suggesting brands based on their desires. “There are numerous brands on the market,” he says, “and even though consumers are not currently trading up to extremely high price points, they are still interested in the newer brands which cost a few dollars more than their typical purchase.”
Price point is an important consideration when assessing a retailer’s vodka SKUs, says Rogers. On one hand, it’s advantageous to carry vodkas at a range of price points, rather than simply carrying every entry-level vodka. “Lower priced brands are less of an emotional purchase for consumers then super premium,” says Vizzari. “I wouldn’t over-stock on the number of SKUs at the lower price points. Focus on brands that add value to the consumer.”
But at the same time, keep in mind the lack of premiumization taking hold among vodka consumers and price accordingly. “Independent or craft vodkas can command a higher price point than a nationally distributed brand,” says Rogers, “but the difference shouldn’t be so great that the consumer opts for price over supporting craft or local. The price differential needs to be balanced.”
Who is Buying Vodka?
Vodka appeals to many audiences across many markets, which is why it is one of the biggest spirits categories in the U.S. “While many bartenders have snubbed vodka over the years,” says Rogers, “the spirit’s relation to low-calorie beverage options (such as vodka and soda) has benefitted the category in recent years.”
On Drizly, vodka purchasers skewed slightly more female than the platform’s overall purchasers in 2020: 53 percent female and 47 percent male. This trend was even higher in the flavored vodka sub-category, where purchasers were 62 percent female and 38 percent male.
Markets with Top Share Growth in Vodka, Year-Over-Year
- Long Island: 2.42 percent
- Dallas: 2.23 percent
- New Jersey: 1.90 percent
Where are Vodka Sales Headed?
The vodka category remains strong, which means that even incremental growth is good for retailers. The IWSR projects that vodka will grow at a 2 percent compound annual growth rate volume from 2019 to 2024, and will end 2020 with a modest volume increase over 2019. “Vodka accounts for over 30 percent of volume in the spirits category,” says Rogers, “and therefore must be an integral part of a retailer’s portfolio in order to achieve growth.”
Easing Covid restrictions already seem to point to vodka reclaiming some of its lost sales share. While year-over-year vodka share has dropped, vodka has increased its share over the past two months (gaining share from 7.96 in May). “If Covid restrictions continue to ease,” says Paquette, “it will be interesting to see if the positive share growth in June and July continues on an upward trajectory and vodka regains its pre-Covid, year-over-year share.”
However, the growth of other categories, particularly RTDs, could continue to impact vodka for years to come, so retailers should keep overall purchasing trends in mind when making inventory decisions. Paquette recommends supplementing vodka inventory with vodka-based RTDs, which will capture sales among consumers who prefer a canned cocktail option. After all, the success of RTD cocktails could actually boost some vodka brands. “The vodka category will benefit from their brands’ association with RTD line extensions,” he says, pointing to Absolut’s Vodka Soda RTD as an example.
Given other recent trends, retailers may also want to consider stocking vodkas that emphasize health and wellness benefits or adding a few new flavored vodkas (though maybe not all of them; the IWSR projects that flavored vodka will grow at just a 0.1 percent compound annual growth rate volume from 2019 to 2024).
But one thing is certain: Vodka should absolutely continue to be a staple of retail inventories. “Vodka has always been good for retailers,” says Vizzari. “As long as retailers continue to stay on top of vodka trends, it will be good for them.”