The Homa Files

Takeaway: During the era of excess, brand cache was largely derived from sky-high prices as carefree consumers enjoyed opportunities to showcase and indulge in their abundances. However, like most businesses, spirit makers now face a ‘new normal.’

Diageo has found that its customers demand the same style at substantially lower prices and has concluded that many of its premium products have fallen out of fashion.

In response to this challenge, the company will launch a new ‘cheap chic’ brand of vodka as a direct attack on competitors such as Constellation Brands, which offers more moderately-priced labels.

Marketers stayed tuned: Is cheap chic here to stay? Or is it a short-term strategy aimed to ease dormant consumers back into the market in hopes that they will trade up to torpid top-shelf titans?
 
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Excerpt from Wall Street Journal, “New Label, Made in Sweden, Will Go Up Against Constellation’s ‘Cheap Chic’ Svedka Brand” by David Kesmodel, March 24, 2010.
 
Diageo plans to unveil a Swedish vodka in the U.S. this summer in a direct assault on Constellation’s Svedka, a fast-growing “cheap chic” brand that has stolen market share from Diageo’s Smirnoff and other vodkas.

The strategy suggests Diageo may not feel confident that the industry will be able to boost prices much in the next 12 to 18 months or begin seeing consumers move back toward upscale brands.

Diageo’s new Rökk, its first Swedish-made vodka in the U.S., is part of a flurry of new liquor products that the London drinks giant is rolling out in the U.S.

The new products, many of which are midpriced brands, show how Diageo is trying to appeal to drinkers that are reaching for relatively inexpensive—yet distinctive— brands in the sluggish economy. Many of the moves reflect how times have changed in an industry long focused on introducing upscale brands that tend to carry higher profit margins.

Vodka is the biggest category in the U.S. spirits industry. Sales of vodka are growing at the second-fastest rate after the much-smaller Irish whiskey segment.

The industry has engaged in heavy discounting to woo consumers, cutting into revenue for Diageo.

Svedka, a Swedish import, posted a 34% increase in volume last year, reaching 2.8 million cases, according to Beverage Information Group.

Rökk will sell for roughly $13 for a 750-milliliter bottle, a similar price to Svedka. Rökk also will compete against such Swedish imports as Absolut, which sells for about $20 and is the No. 2 vodka in the U.S. after Diageo’s Smirnoff.

Edit by BHC
 
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Full Article:
http://online.wsj.com/article/SB10001424052748704211704575139891106275422.html

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This entry was posted on March 31, 2010 at 7:30 am and is filed under Mktg - Pricing, Mktg - Product Line Mgnt. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.