After years of growth in the United States, vodka is slowing down. For the first time since the clear spirit took the sales crown in 2006, whiskey is projected to pass it this year, and widen the gap for years to come. It doesn’t appear to be a passing trend, but a serious and long-term shift in American consumer preferences.
Vodka is still the volume king, meaning that more gallons of the stuff get sold every year, and that will continue for some time at least. But in dollar value, whiskey has made a big comeback:
Past and Projected Future U.S. Spirit Sales (billions)
That different products win out in value and volume says a lot.
Vodka managed to gain ubiquity in part because it’s inoffensive and inexpensive. It was a particular favorite of the baby-boomer generation and popular in the 1980s, as it wooed a premium market with fancy bottles and sophisticated marketing. Imported brands became lucrative. When that growth plateaued, flavored vodkas provided a big, but short-lived, gain.
Adding different flavors worked extraordinarily well for vodka companies in their heyday. Stalwart brands such as Smirnoff and Absolut expanded their offerings with citrus, chili, and cherry-flavored vodkas. Lesser-known entrants went wilder; Pinnacle Vodka has over 40 flavors, including Cinnabon, cotton candy, and birthday cake, while 360 Vodka offers double chocolate, Georgia peach, and buttered popcorn. Flavored vodkas made up less than 10 percent of sales in 2003 according to Euromonitor; now they are nearly a quarter.
But that growth was only shoring up the vodka market's structural weakness. “They’ve reached the envelope sort-of as far as they can push it in terms of flavor innovations,” Euromonitor analyst Jared Koerten says. “So just in the last year we’ve seen growth slow down very significantly. In 2013 I think we’re looking at only 1 percent growth in vodka, which is a fifth of what it had been for the last five years in a row.”
And last year, for the first time, there was evidence that flavored vodka wasn’t expanding the market, but cutting into unflavored sales. Smirnoff remains the biggest liquor brand out there in terms of volume, and its struggles in the past year-and-a-half are emblematic of vodka’s difficulties:
Rolling 12-month Volume Growth Breakdown
A recent Credit Suisse analyst note calls the shift away from vodka and towards whiskey a “generational rejection.” American consumers, it says, increasingly want something with “authenticity, heritage, and taste.” Vodka doesn’t provide that, and big-brand, ultra-sweet, flavored vodka least of all.
This is becoming evident in the pricing of vodka, which is falling relative to the overall liquor market while bourbon is rising:
Part of the reason for bourbon’s overall price rise is the growing popularity of super-premium bourbon—whiskey priced at $30 per bottle and up, made in a manner similar to single-malt Scotch whisky, where each bottle is filled from a single aged barrel instead of being a blend of spirits. Buffalo Trace created the first such single-barrel bourbon in the 1980s, after bourbon had become commoditized. While big brands like Jim Beam have done wells with cheaper bourbons, the big out-performers of late have been pricey offerings like Woodford Reserve, and the more aged stuff is outgrowing “value” bourbons like Old Crow. Big brands have released smaller-batch aged products; bottles of Pappy Van Winkle can surpass some old Scotch single malts in price.
Growth in the U.S. Whiskey Market by Bottle, 2008-2013
As a result, bourbons overall have been one of the fastest-growing parts of the whiskey market in the US (The other success story is Irish whiskey, thanks mostly to a strong marketing campaign for Jameson’s, aimed at younger drinkers in bars):
Past and Projected U.S. Sales of Whiskey (billions)
Still, despite their success in the premium market, whiskey makers aren’t shying away from populism either. As the vodka makers did, they’re trying to extend their reach by introducing flavored products.