For vodka, America’s troubles started before Russia invaded Ukraine

Empty spaces on the shelves of a Pennsylvania liquor store vodka department after Russian labels were removed.

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The ghost of choice for James Bond for characters in “Mad Men” and “Sex and the City,” vodka has long occupied the dominant position in the American beverage market.

According to the United States Distilled Spirits Council, vodka has been the top-selling drink in the U.S. since the 1970s, generating more than $7.3 billion in revenue in 2021, $2 billion more than the second-best-selling alcoholic beverage, tequila. and mezcal. More than 78.1 million 9 liter cases of vodka were sold in the US in 2021, roughly the same number of 9 liter cases of American whiskey, tequila and mezcal and rum combined.

Initially, it gained a foothold in the US in the 1940s, when whiskey distilleries were mandated to switch to producing alcohol for products such as ammunition and rubber during World War II. cocktail historian David Wondrich said there was a period of about 40 years when “everything went like vodka.”

“What you got was a liquor market where people were either vodka drinkers or drinking everything else,” Wondrich said.

That has boosted brands like Diageo’s Smirnoff and Ketel One, Constellation Brands’ Svedka, Pernod Ricard’s Absolut, Bacardi’s Gray Goose and E&J Gallo’s New Amsterdam.

Produced by the Austin-based Fifth Generation, Tito’s is the top-selling brand in all spirits in the US, with more than 11 million cases in 2021 growing at 6.3% year-over-year, according to data from Impact Databank.

But in recent years, vodka’s popularity has begun to wane due to a variety of factors, whether that be the further introduction of spirits like tequila and mezcal to the market, the growth of the handcrafted cocktail movement that put more emphasis on spirits such as whiskey and bourbon, or a consumer desire to switch to other spirits that simply had more flavor.

“There was a point where vodka was on its way to selling everything else together, and that’s absolutely reversed and a lot of the other stuff grows at the expense of vodka,” Wondrich said. “It’s this dynamic where they figured out how to bring out the least offensive product that most people would tolerate, and then people got bored.”

The growth of whiskey and tequila

According to data from IWSR Drinks Market Analysis, vodka made up 33% of the volume of the entire US spirits market in 2010, while the broader whiskey category (which includes American whisky, scotch and Irish whisky) made up 24.6% and agave-based spirits such as tequila and mezcal made up 6.1%.

In comparison, vodka made up 32.1% of the market in 2020, while the whiskey category was 30.5% and agave-based spirits 9.4%, according to IWSR Drinks Market Analysis.

Brandy Rand, COO of the Americas at IWSR Drinks Market Analysis, said vodka had a compound annual growth rate of 4.2% between 2000 and 2020 compared to whiskeys 3%. However, in the past five years, whiskey has significantly outgrown vodka, at 5.1% to 1.7% respectively.

“We expect the whiskey category to overtake vodka by volume by the end of 2022,” Rand said, adding that given the revenue generated by the overall category, “whiskey is currently significantly higher than vodka (and has been for years). is), as most whiskeys tend to be premium priced, while standard priced vodka makes up most of the value of the vodka category.”

The explosion in the popularity of tequila and mezcal has also come somewhat at the expense of vodka. The U.S. spirits industry grew 12% to $35.8 billion in 2021, with tequila and mezcal accounting for more than 31% of the total increase in spirits revenue.

“Tequila has a very good chance of eventually surpassing vodka because it’s not just for margaritas anymore,” said John Coyle, director of sales and involvement at T Edward Wines & Spirits, a New York-based importer and distributor of wine and spirits. drink. “For someone who is interested in drinking a cocktail or who has a cocktail program, tequila gives you a lot of things to play with. There’s a flavor palette you can use with all the different drinks — vodka, it’s just one.”

Some of the growth is likely due to celebrity investments and the increase in tequila and mezcal, most notably with Diageo’s $1 billion acquisition of Casamigos in 2017, founded by George Clooney. Celebrities from model Kendall Jenner to actor Dwayne “The Rock” Johnson launched tequilas in 2021, while Constellation Brands made an investment in the mezcal founded by “Breaking Bad” co-workers Bryan Cranston and Aaron Paul.

Diageo, which also owns the more expensive tequila brand Don Julio, reported that tequila sales grew 56% in the first half of fiscal year 2022 compared to the previous year, and predicted that tequila sales will accelerate. than the rest of the spirits industry for the next five to ten years.

“The appeal of the category in the demographics is significant. It’s crossed over, the multicultural growth is very strong,” Diageo CEO Ivan Menezes said of tequila during the company’s most recent earnings conference call in January. “It cuts by age segments, it cuts by gender, it cuts by dayparts, the occasions and the nature of drinks. It’s not just shots and margaritas like it was many years ago.”

Connection with Russia

Vodka now also faces another challenge: its historic ties to Russia.

In the wake of Russia’s invasion of Ukraine, lawmakers, pub owners, retailers and consumers seeking to support Ukraine have called for boycotts of brands with ties to Russia, or in the case of some vodka brands, alleged ties to Russia.

US President Joe Biden on Friday issued an executive order blocking US imports of several Russian products, including vodka and other alcoholic beverages.

“The entirety of our sanctions and export controls is crushing the Russian economy,” Biden said.

Several states, including North Carolina and West Virginia, separately banned the sale of alcohol made in Russia. The Pennsylvania Liquor Control Board had all of its licensed stores remove Russian-made products, with board chairman Tim Holden saying, “Given the evolving political-economic environment, it’s just the right choice.”

While several vodka brands link to Russian heritage through marketing or branding, most vodka consumed in the US is not of Russian origin.

Imported Russian vodka makes up less than 1% of total vodka volume in the US, according to Rand, which Rand said “is not material to category growth.” According to IWSR Drinks Market Analysis, about half of the vodka consumed in the US is made in the US.

While Russia is the world’s largest vodka producer, accounting for over 30% of global production, over 90% of it is consumed domestically.

Vodkamerk Stolichnaya, meaning “capital” in Russian, took the step last week to officially rebrand to Stoli to further distance itself from Russia. The Luxembourg-based Stoli Group, which produces the vodka in Latvia, said the rebranding was driven by “the founder’s vehement stance towards the Putin regime, the determination of the Stoli staff to take action and the desire to accurately represent Stoli’s roots in Latvia.”

Workers prepare shipping boxes for Stolichnaya vodka, managed by the SPI Group, on the production line in Riga, Latvia.

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“Although I have been banned from Russia since 2002 for my opposition to Putin, I have remained proud of the Stolichnaya brand,” said Yuri Shefler, the founder of Stoli Group in a statement. “Today we made the decision to change the name completely, as the name no longer represents our organization. Above all, I wish that ‘Stoli’ represents peace in Europe and solidarity with Ukraine.”

Shefler has fought the Russian government over the global trademarks for the vodka in recent years, as Russia alleges that the trademarks were wrongly sold by a company amid Russia’s privatization following the dissolution of the Soviet Union.

The vodka industry has been shocked by its connections to Russia before. By the 1980s, when Stolichnaya was still under Russian control, according to Wondrich, it had become the most imported vodka in the US by a “huge amount”. However, amid the Cold War and the backlash after the Soviet Union’s shooting down of Korean Air Lines Flight 007 in 1983, the brand’s popularity in the US declined dramatically. At the same time, the Swedish vodka brand Absolut was launched in America, boosted by an ad campaign featuring Andy Warhol.

“The Russian tie has always been a bit of a vulnerability to vodka, although almost none of it is Russian in America,” Wondrich said. “But people work in broad symbolism and it’s not going to help.”

Smirnoff, for example, was founded by a Russian émigré who fled the country during the October Revolution and eventually opened a distillery in Connecticut after the end of Prohibition in 1933 and later sold to Diageo. Still, the perception of Russian tires does exist – Smirnoff’s website currently has a large image showing the company’s history and that it’s “proudly made in America”.

Wondrich said that while vodka will likely remain the top-selling spirits category in the U.S. for years to come, it likely won’t regain the position as most of the market as it once had.

Coyle agreed, noting that vodka has been “pushed off center”.

“If you go to a cocktail bar, there will always be a vodka cocktail,” Coyle said. “But the days of James Bond calling for a specific brand of vodka, which is on the wane, that won’t be the next boom in the spirits industry.”