Spirits | Soft Drinks

The US, gin, and tonic

The hunt for good news at the moment is proving quite the challenge, but Richard Woodard for one is feeling positive. Whisper it, but could high-end gin finally be about to make it big in the US, thanks in no small part to a tonic water brand?

Among the many changes affecting the world in recent weeks, a new vocabulary has emerged to describe our transformed lives: social distancing, self-isolation, lockdown, contact tracing and pantry loading – otherwise known on the European side of the Atlantic as consumer stockpiling. 

The prospect of being shut indoors for weeks, or even months, coupled with the enforced closure of bars and restaurants, has made booze a major element of this hoarding trend.

It's little wonder, in the current circumstances, that many governments have classified alcohol production as an "essential" service.

Looking at the US, it's also little wonder that some astronomical Nielsen numbers have emerged. In the week ending 21 March – the period of peak pantry loading – retail sales of spirits were 75% higher than in the same week of 2019.

Things calmed down after that, but not by much. In the six weeks to 11 April, spirits sales in the country were up 33.3%, and they also jumped 32.4% in Easter week – even though the category doesn't usually get the kind of bump from the holiday period enjoyed, for instance, by wine.

High spirits in the US

The big beneficiaries were mostly, but not totally, predictable: tequila, American whiskey, RTD spirits and gin. Yes, gin. In that crazy week to 21 March, gin sales rocketed by 89% and, according to Nielsen, the sector was still one of the main growth drivers by the time Easter had come and gone.

What the broad Nielsen figures don't tell us is exactly what kind of gin people were buying. The US has long been the great blank spot amid the current global gin boom – a market with a history of consuming large volumes of low-priced fare, and showing little affinity with the great driver of premium category sales, the gin & tonic.

It's entirely possible, then, that shoppers were hoovering up the usual selection of standard and value gins, such as Seagram's, Bombay, Gordon's and Gilbey's. But, Nielsen's analysis casts doubt on this theory, with the company reporting that premium and ultra-premium spirits brands continue to outstrip the lower-price tiers in growth terms.

There are a few notes of caution, however. For the week ending 4 April, Nielsen reports that prepared cocktails, American whiskey and tequila led the way in terms of increasing their buyer base, whereas gin (and scotch) gained the most ground in terms of volume per buyer. 

To be plain: if gin is to really take hold in the US, it needs more people buying it, not just the same people buying more of it.

Fever pitch for Fever-Tree

There's another factor at play here, beyond the pantry loading and the long-running, but often frustratingly ineffective, efforts by brand owners to build premium-plus gin's presence Stateside: the activities of premium tonic maker Fever-Tree. 

The success enjoyed by gin in markets such as the UK and Spain has centred not merely around the expansion of the number of brands available, and the diversity of botanicals, it's also been about the ceremony of the G&T. The glassware, the garnish and the tonic. Fever-Tree spearheaded the tonic revolution and, over the last couple of years, the company has placed the US firmly in its sights.

Off-premise sales accounted for 70% of Fever-Tree's US sales last year.

There's more to this than merely wanting to replicate the success of the UK on the other side of the Atlantic, however. The UK gin market is saturated and maturing, giving fewer opportunities for growth in tonic sales. 

This is exacerbated by the ascent of flavoured gins, many of them less suited to mixing with tonic, and by the proliferation of 'me-too' premium tonics on the shelves. As the UK plateaus in terms of significance for Fever-Tree, another market is needed to take its place.

Fever-Tree's US office opened in 2018. Within a year, the company's US revenues had jumped 33% (28% at constant currency), accelerating in the second half of the year thanks to the impact of improved distribution and a bigger marketing push. The brand accounted for two-thirds of premium mixer growth in the market.

The four key drinks Fever-Tree is championing this year: highball, mule, spritz and tonica. Image: Fever-Tree

Off-premise growth, but uncertainty for on-premise

Before the Covid-19 outbreak changed everything, Fever-Tree had enjoyed a strong start to 2020. Buoyed by a price optimisation initiative that was well received by key customers, according to co-founder & CEO Tim Warrillow, and the status of Spanish-style 'tonicas' as one of four key drinks to be championed by the brand this year.

There are also reasons to be positive in the current lockdown scenario. Off-premise sales accounted for 70% of Fever-Tree's US sales last year (in the UK, the split was 50/50), and the company has been focusing strongly on online activity via Google and Amazon.

Go back to those Nielsen figures and there's an interesting nugget lurking in the fine detail. In terms of non-alcoholic beverages, which segment was the best-performing during the six weeks to 11 April? The answer is tonic water, with sales up 66% on a year ago.

None of this is definitive, of course. As analyst Edward Mundy at Jefferies cautions in an otherwise positive note: "More evidence is needed that US growth is sustainable and that the concept of premium mixers (and the G&T) will resonate." 

These are hardly normal market conditions right now, and on-premise, still the best place to push new brands and new drinks, remains almost entirely absent from the equation.

But, when we all emerge blinking in the daylight of the new world that will evolve from the current catastrophe, we may discover something different about US consumers: that some of them spent the strange spring of 2020 finally turning into the kind of G&T zealots that are so familiar, and so beloved by brand owners, in Spain and the UK.

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