NEW YORK (CNN/Money) -
What does vodka have that whiskey can't deliver? About a hundred different fruity flavors.
Industry watchers say that's the reason vodka is taking a clear lead in the $2.5 billion U.S. spirits market, while whiskey brands are struggling to maintain their share of the market.
"It's the martinis that are wildly popular right now, especially the sour apple martini," said Alexander Paris, equity analyst with Barrington Research Associates. "With young adult consumers, sales of flavored spirits are definitely tracking higher than any other hard liquor."
According to Patrick MacElroy, spokesman for the Distilled Spirits Council of America, overall whiskey sales have been sluggish for the last few years, outpaced by growing demand for vodka and tequila.
"Whiskey and beer both are seeing some impact from this trend," MacElroy said. "It has to do with the variety on offer. Ten years ago, you would go to a bar and ask for a vodka tonic. Now there are a hundred different flavors. The same thing with tequila. Flavored spirits are more popular with women, too."
Even though vodka has a slight lead in market share, 26 percent compared with 25 percent for whiskey, overall volume sales -- or total number of cases sold -- grew 4.3 percent for vodka, 9.1 percent for tequila and just 2 percent for whiskey in the year to Aug. 10, according to MacElroy.
|Whiskey connoisseurs enjoy a tasting at the Johnnie Walker table at WhiskyFest, 2003.
Separately, total beer volume sales are down 0.1 percent year-to-date, according to market research firm IRI InfoScan.
A malt halt?
Industry insiders admit that leading distillers haven't been quick enough to identify shifting consumption trends, and are now speeding to tailor their brand and advertising strategy to attract younger adults in a bid to expand the market for whiskey.
"Events like this week's WhiskyFest are great marketing opportunities to do just that," said Gary Galanis, spokesman for Diageo (DEO: Research, Estimates), the world's largest producer of alcoholic drinks and the maker of Johnnie Walker Scotch whiskey, Smirnoff vodka, Guinness beer and Captain Morgan rum, among other brands.
"Across the United States, legislative changes now allow spirits to be tasted in off-premise locations like liquor stores, instead of only at bars and restaurants," Galantis added. "So if consumers are ready to make an investment in a premium brand of whisky for example, this way they can try it first."
Billed as the premier event for connoisseurs, New York's 6th annual WhiskyFest featured over 200 of the world's whiskeys and master distillers from around the world.
But several exhibitors at the fest, sponsored by industry publication Malt Advocate, said they're keeping a close watch on the competitive threat from flavored drinks, particularly when softness in the economy has already dented sales of premium whiskey, cognac and brandy.
"Six out of the hottest 10 brands in the market right now are vodka," said Kevin Martin, brand manager with Johnnie Walker. "Our market has been struggling for the last three to four years, but it's beginning to flatten out.
"When you look at the economics of it, vodka is cheaper than the premium whiskeys and the single malts," Martin added. "Top brands like our Blue Label whisky and other high-end cognacs see a lot of volume sales from corporate entertaining, the hotel business and duty-free sales, all of which have been down. But business seems to be picking up, so we're happy about that."
Martin said Blue Label sales are up 13 percent year-to-date after a three-year decline.
And there are a few other standouts.
Diageo's rival, Allied Domecq (AED: Research, Estimates), the No. 2 distiller, is banking on its Maker's Mark bourbon whisky to be the revenue generator.
"While the bourbon category has been sluggish overall, premium whiskeys such as Maker's Mark have enjoyed double-digit sales increases. Maker's Mark is enjoying popularity particularly with the urban sophisticates, " said Jack Shea, spokesman for Allied Domecq.
Shea said Maker's Mark's popularity is spreading with young men with disposable income who want a more upscale alternative to vodka.
Another brand that appears to be bucking the trend is Remy Cointreau's Remy Martin cognac, with volume sales up 10 percent on average in the last two years.
The company also decided to go the flavor route and alter its pricing strategy for a new line of lower-priced fruity cognac called Remy Red. The average retail price of Remy Red is $18.99 compared with $28 for the low-end Remy Martin cognac. The high-end Remy Martin can cost as much as $1,200 a bottle.
"We are well aware of the flavor trend in alcoholic drinks, and we believe it will continue to expand," said Nelson Hsu, brand manager for Remy Martin. "That is why we have just launched Remy Red infusions, which is a cognac-based liqueur with three new flavors -- grape, strawberry kiwi, and red berry."