Discovering the luxury spirits market
I recently spent a couple a weeks brushing up my most certainly un-Caledonian tainted English in Edinburgh. Between courses though, my thoughts often reverted to an ongoing project with Swiss Style Magazine: to better understand the luxury market in Switzerland. But ‘when in Rome’, as a keen observer on the industry as a whole, I could not help but notice that the past decade has seen an incredible boom in luxury goods and services right across Scotland. Nowhere is this more evident than in the big cities, particularly Glasgow and Edinburgh, which have become major centres of luxury shopping: Edinburgh’s Princes Street and Glasgow’s ‘Golden Z’ shopping area are now among the most prized retail centres in the UK. Everything from cashmere and diamonds to designer handbags and clothing is sold in greater quantities than anywhere in the UK outside of London.
It was during one of my peregrinations through Edinburgh that it dawned on me that there is a segment of the luxury market I had overlooked: the luxury spirits market; and a product that originated from the Scottish Highlands well represented it: Whiskey. By happenstance, a headline story in the daily Scotsman informed me that when Richard Lochhead – Scotland’s Cabinet Secretary for Rural Affairs and self-described “minister for whisky” – recently announced a £1.9m government grant for a new distillery on the remote western Isle of Harris, he jokingly expressed disappointment at not being offered a celebratory drink.
Scotland’s whisky business certainly looks worthy of a toast. As the nation debates whether or not to leave the United Kingdom, its most iconic industry is on a bender.
The CHF 900 billion global market for alcoholic beverages is experiencing a period of unprecedented change. While much of the market is still in the hands of small, local enterprises, truly global players are steadily emerging. In Switzerland, locally produced spirits account for only 18 percent of the market, with 82 percent imported. Whisky remains the most popular import, accounting for 21 percent of the market, followed by vodka, with 18 percent. I pondered on the question of how these numbers translated into the luxury part of the equation. Are the growing numbers of affluent consumers around the world as well as in this country with their rapidly changing tastes, fuelling the high end spirits markets? If so, what is driving the trend and what is it that consumers are buying?
Upon further inspection, I gather that the Swiss spirits sector has seen a trend toward the luxury segment, experiencing healthy and stable growth both in the on and the off-premise. Historically, the market is relatively fragmented with no clear market leader. The top four companies control about 36% of Swiss total volume sales, and this is reflected in the premium product lines.
As I started out my investigations, I was reminded of a comment that an executive at a major luxury house had made when defining his group’s strategy: “There are four main elements to our business model – product, distribution, communication and price. My mission is to do such a fantastic job on the first three that people forget all about the fourth.”
As in other segments of the market, observers will feel a growing fatigue with ‘fast’ luxury products and more and more consumers are looking for products that provide them with ‘lasting value’. During my own back-of-envelope surveys, I came to the conclusion that, in Switzerland at least, discerning consumption is growing and with it, the value of brands come under greater scrutiny.
I share this opinion with Julien Chavance, Commercial Director at Pernod Ricard Swiss SA, a group that led with a controlling and handsome 15% of the Swiss spirits market in 2012 (Source IWSR). The company’s success in the high end of the market can be attributed to its portfolio of renowned names such as Martell, Perrier-Jouët, The Glenlivet, Mumm and Royal Salute.
He told me when we recently met that, “In Switzerland as elsewhere, consumers continue to prioritise quality over price when it comes to purchasing fine spirits. In my experience, consumers are becoming more sophisticated and discerning, looking for roots in heritage, craftsmanship and genuine rarity.” When it comes to correlating heritage with this country, he flashes a smile when reminding me of the group’s Swiss roots. After all, the founder of one of the two entities that led to creation of the Pernod Ricard Group in 1975 was Swiss-born Henri-Louis Pernod.
But with time, the lines between premium and luxury are becoming increasingly blurred across the greater industry. This leads to the question of how to define a true luxury spirits product, as opposed to spirits that are merely expensive? Chavance, a seasoned professional, replies without hesitation:” We sense a strong movement towards authenticity, a movement towards brands that have heritage, craftsmanship and quality at their heart. I believe that the high-end consumer yearns for something remarkable and truly special. He is sensitive to stories of collaboration, provenance, quality and exclusivity, traits of true luxury status, rather than the price tag.”
A later meeting with Jan Lunelli, Country Director at Diageo Suisse SA, the Swiss subsidiary of the world’s largest spirits maker, cast further light on my ‘spiritual’ quest. The slim and sporty manager, who joined Diageo some four years ago having accumulated extensive experience at Red Bull and Philip Morris, knows his business.
“We may be a somewhat young company, since Diageo was created in 1997 through the merger of Grand Metropolitan and Guinness PLC, but our brands and our business have a rich heritage (‘Ed’ Diageo’s earliest ancestor company is Justerini & Brooks, better known as the J&B brand of whiskey, formed in 1749 and 10 years later, Arthur Guinness fired up his brewery in Dublin). As of the beginning of this century, we made the strategic decision to focus exclusively on premium spirits.”
“Although we had a portfolio of brands across different categories,” continues the effervescent German-Italian Lunelli, “we concentrated our efforts towards the luxury segment by creating ‘Diageo Reserve’, the luxury division of Diageo, the portfolio of which includes Johnnie Walker Blue, Platinum, and Gold Labels, Cîroc Vodka, Ketel One Vodka, Zacapa Rum, Don Julio Tequila, and Tanqueray No. TEN Gin. Over the years, we honed our expertise in creating the innovation and marketing necessary to succeed in the luxury market. Switzerland, with a multicultural population and its international attractiveness to high net-worth residents and visitors, is a great test bed. The challenge was tough, but exciting.”
Diageo, as other leaders of the luxury spirits market, have adopted models focused on luxury marketing, often concentrating on gifting and limited editions, on spectacular events and on innovation to keep their portfolios fresh and adapt to the changing needs of consumers.
They converge in using touch-points to connect with the affluent market. For example, Mr Chavance told me of the continuous collaboration Pernod Ricard has with the world-class Ecole Hôtelière of Lausanne, where students are introduced to the particularities of the luxury beverage market.
As is most other segments of the luxury market, luxury is about creating consumer experiences. Jan Lunelli explained how Johnnie Walker Blue Label recently partnered on a collection with Porsche Design Studio, creating a limited edition Private Bar priced from CHF 220,000. “All Private Bar buyers have access to an added dimension of exclusivity,” says Lunelli, “in that every piece is one-of-a-kind, based on each buyer’s selection of rare, handpicked materials of timeless appeal.”
Although not immediately apparent, I was reminded that the importance of packaging in the luxury market also extends to high-end spirit.
I recently attended the presentation of a limited edition polyurethane resin vessel containing Dom Perignon Rose Vintage 2003 created by Pop Artist Jeff Koons. The vessel, an opulent doll that nestles the bottle of Dom Perignon champagne, a brand that is part of the Moet-Hennesy – LVMHGroup, within its bulbous belly, is a copy of the chromium stainless steel 8-foot tall sculpture that he had created, which resembles a balloon sculpture dedicated to a 25-thousand year old fertility totem. It was also one of the most primitive works of art to depict the human shape. At CHF 20,000 this package could be the perfect treat for champagne connoisseurs who also enjoy collecting art pieces.
Along these same lines, Chivas collaborated with Italian design house Pininfarina for the launch of ‘Chivas 18 by Pininfarina’, a series of exclusive limited editions, for the company that belongs to the Pernod Ricard stable of brands. The design has a rich blue, metallic finish outer case, reminiscent of the metal work for which the Italian company is best known, and a wood veneer that represents the oak casks used in the ageing of Chivas 18.
Perhaps ironically, the future of on-trade spirits sales might be dependent on the new laws suggested by the Swiss Federal Government currently coming into effect. The new law bans “happy hours”. A common type of “happy hour” in Switzerland was known as “Schnagga abend”, which meant that every drink costs only CHF 5.
For the time being, though, the word luxury no-longer necessarily suggests triviality and showing off, although admittedly, you make a stronger statement made when you walk up to a bar and order a Ketel One Martini. Beer, I’m afraid, has become a bit boring.
Article by Danièle Mégardon and Swiss Style Staff