For vodka, trouble in America started before Russia invaded Ukraine
After Russian labels were removed, empty shelves in a section of the vodka aisle of a Pennsylvania liquor shop had to be filled.
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Vodka has been the spirit of choice since James Bond, as well as characters in “Mad Men”, and “Sex and the City,” and it continues to hold the top spot on the U.S. liquor markets.
According to the Distilled Spirits Council of the United States, vodka was the top-selling spirit since the 1970s. It generated $7.3 billion of revenue in 2021. This is $2 billion more than the next-highest-selling spirit, mezcal and tequila. In the United States, more than 78.1 millions 9-liter vodka cases were sold. This is roughly equal to the combined 9-liter American whiskey, mezcal and tequila cases.
In the United States, whiskey distilleries gained a foothold in 1940s. World War II-era orders made them shift to alcohol production for ammunition. Then they climbed to the top in 1970s. Spirits and cocktail historian David Wondrich stated that there was an approximately 40 year period when “everything went vodka way.”
Wondrich explained that they found a spirit market with people who either drink vodka or who consume all kinds of other spirits.
It has led to brands like DiageoSmirnoff and Ketel One are available in the smirnoff section. Constellation Brands‘ Svedka, Pernod Ricard’s Absolut, Bacardi’s Grey Goose, and E&J Gallo’s New Amsterdam.
Fifth Generation in Austin produces Tito’s. It is America’s top-selling spirit brand. In 2021, Fifth Generation sold more than 11,000,000 cases with 6.3% year-over-year growth, according to Impact Databank data.
Over the past few years vodka popularity has declined due to many factors. These include the introduction of spirits such as tequila or mezcal, and the rise of handcrafted cocktails that place more emphasis on spirits such whiskey and Bourbon.
Wondrich stated that vodka used to be on the path of outselling all other products combined. However, this trend has been reversed. They found a way to make vodka as mildly offensive as possible, which was then able to get people bored.
According to IWSR Drinks Analysis data, vodka accounted for 33% of all spirits sales in America. Whisky made up 26% of that market, while the wider whisky category, which includes U.S. whiskey and Irish whisky, made up 25%. Agave-based spirits such as tequila or mezcal made it up 6.1%.
IWSR Drinks Market Analy shows that vodka represented 32.1% of 2020’s total market, while whisky made up 30.5%. Agave-based spirits made up 9.4%.
Brandy Rand, the COO Americas of IWSR Drinks Market Analysis stated that between 2000-2020, vodka experienced a compound annual rate of 4.2% against whisky’s of 3%. But, vodka has grown significantly in five years. Whisky’s growth rate is 5.1%-1.7%.
Rand stated that “we expect the whisky industry to surpass vodka in volume by 2022” and added that “whisky is substantially higher than vodka (and has for many years), as whisky tends to be high-priced, while vodka accounts for the majority of vodka’s value.
However, vodka has been somewhat harmed by the rise in popularity of mezcal and tequila. U.S. spirit industry revenue grew by 12 percent to $35.8 Billion between 2021 and 2030, with mezcal and tequila accounting for over 31%.
“Tequila has a very good possibility of eventually outpacing vodka because it’s not something that’s just for margaritas anymore,” said John Coyle, director of sales and engagement at T Edward Wines & Spirits, a New York-based wine and spirit importer and distributor. “For someone interested in drinking a cocktail or who is running a cocktail program, tequila gives you a lot of stuff to play with, there’s a palate of flavors that you can use with all different beverages – vodka, it’s just one.”
The growth can be partly due to the celebrity investments and elevating tequila/mezcal. This is most evident with Diageo’s acquisition of Casamigos, worth $1 billion in 2017. It was started by George Clooney. Stars include Kendall Jenner (model) and Dwayne Johnson (actor). launched tequilas in 2021, while Constellation Brands made an investment in the mezcal started by “Breaking Bad” co-stars Bryan Cranston and Aaron Paul.
Diageo also has Don Julio Tequila, a higher-end brand of tequila. It reported that tequila sales increased 56% in its first half 2022 fiscal. They forecast that tequila sales will continue to grow at a faster rate than other spirits for the next five to ten years.
The appeal of the category across all demographics is substantial. “It has crossed over,” Diageo CEO Ivan Menezes stated about Tequila during the January earnings conference call. It cuts across all age groups, genders, dayparts, occasions and even the type of drink. This is not the same shot and margaritas it was many decades ago.
Vodka is now also facing another challenge — its historical ties to Russia.
Following Russia’s invasion, legislators, bar owners and retailers as well as consumers who want to support Ukraine called for the boycott of companies that have links back to Russia or, in some cases, are perceived to be linked to Russia.
On Friday, Joe Biden, the President of the United States issued an executive order blocked U.S. imports of several Russian productsIt includes vodka, and all other alcoholic beverages.
Biden stated that Russia’s economy is being crushed by all of the sanctions and export restrictions.
Separately, several states including West Virginia and North Carolina banned Russian-made alcohol sales. Pennsylvania Liquor Control Board ordered all licensed liquor stores to remove Russian-made alcohol. Board Chairman Tim Holden stated that, “Given our evolving political-economic environment, it’s just what the law requires.”
However, although many vodka brands make a connection to Russian heritage via marketing and branding, the majority of vodka that is consumed in America isn’t Russian.
Rand estimates that imports of Russian vodka make up less than 1 percent of total vodka volumes in the U.S., which Rand says “is not material for the category growth.” IWSR Drinks Market Analysis shows that roughly half of all vodka in the U.S. comes from the United States.
Russia is the biggest vodka producer worldwide, with more than 30 percent of world production. But, 90% of that vodka is consumed in Russia.
Vodka brand Stolichnaya (which roughly means ‘capital’ in Russian) officially changed its name to Stoli last Wednesday to distance itself further from Russia. The vodka producer in Latvia from Stoli Group in Luxembourg, Stoli Group, stated that its recent rebranding was motivated by the founder’s strong opposition to the Putin regime, the determination of Stoli workers to act, and Stoli’s Latvian roots.
Stolichnaya vodka is being produced by SPI Group workers at Riga.
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“While I was exiled to Russia from 2002 because of my opposition to Putin”, Yuri Shefler – the founder of Stoli Group, stated in a statement. Today, the company has decided to change its name completely as it no longer represents the organization. I want ‘Stoli,’ more than anything else to be an emblem of solidarity with Ukraine and peace in Europe.
Shefler is currently battling the Russian government over global trademarks of vodka. Russia asserts that the trademarks were sold incorrectly by a company during Russia’s privatization after the collapse of the Soviet Union.
Russia has had a negative impact on the vodka market in the past. According to Wondrich, Stolichnaya, which was under Russian control in 1980s, had become the largest importer of vodka in America by “huge amounts” during that time. The brand’s popularity decreased dramatically in America due to the Cold War, backlash after the Soviet Union shot down Korean Air Lines Flight 017 in 1983. Absolut, the Swedish vodka brand, launched in America during this time, supported by an advertising campaign featuring Andy Warhol.
Wondrich explained that the Russian connection has been an issue for vodka because it’s not American vodka. However, people operate in broad symbolism which is not going to help.
Smirnoff, for example, was founded by a Russian émigré who fled the country during the October Revolution, ultimately opening a distillery in Connecticut after the end of prohibition in 1933 and later being sold to Diageo. Still, the perception of Russian ties exists – Smirnoff’s website currently features a large image noting the company’s history and that it is “proudly made in America.”
Wondrich stated that vodka would likely continue to be the most popular spirit in America for many years. However, the majority of Americans will not be buying it again.
Coyle agreed with Coyle, noting vodka was “pushed out the center stage.”
Coyle explained that there would always be vodka cocktails at any bar where you visit. But the days when James Bond demanded a particular vodka brand are over, and that isn’t going to lead to the next surge in growth for the spirits industry.