Wodka Brand Vodka: Reinventing a Cheap High

The margins in so-called super-premium brands are driven more by vanity than raw material and production cost. The marketing challenge is convincing opinion-leaders that price does not equal quality. It's a new goal for the post-crisis consumer age. David Sax reports in Business Week:

"Standing amid pleather ottomans in a dimly lit Manhattan lounge, New York Giants defensive lineman Jason Pierre-Paul was mystified by the vodka bottle before him. It had a screw top; conspicuously absent from its label were a flock of gray geese, a mogul's chateau, or any symbol of gratuitous wealth. Concerned, Pierre-Paul looked up Wódka Vodka on his smartphone and discovered that it retailed for $12. "What the f—k are you serving this for!" he barked at Matt Shendell, proprietor of The Hill bar and restaurant. In response, Shendell persuaded Pierre-Paul to taste the one-time Soviet favorite before passing judgment. He did. At the end of the night, he took a bottle home with him.

Wódka's journey from Polish tractor factories to American nightclubs is the result of vodka's latest reinvention. After a decades-long march of absurdly expensive "ultra-premium" and "super-premium" vodkas (Belvedere, Grey Goose, Chopin), the industry has come up with a new recession-proof formula—absurdly cheap "premium" vodkas. Along with Wódka, more than 50 vodkas with sub-$20 price tags and ridiculous names—KU:L, Blue Feather, and L'Chaim, to name a few—have recently created a vodka niche in the affordable luxury category. "If you can put 'ultra-premium' on your label and sell it at a low price point," says Agata Kaczanowska, a beverage analyst with researcher IBIS World, "you're going to be well off." According to Garima Goel Lal, a senior analyst at market research firm Mintel International Group, "Over one-quarter of all spirits drinkers reported moving to cheaper brands in 2010." And many cheap premium vodkas are now taking aim at vestiges of pre-Lehman excess. "Smirnoff?" says James Dale, Wódka's co-owner. "They can go f—k themselves, mate. You can print that!"

Dale, a 40-year-old New Zealander, is at the center of the cheap premium vodka universe. In 2004 he helped introduce 42 Below to the U.S., where it rode the frosted-bottle bull market until Bacardi acquired it, three years later, for $91 million. That same year, one of Dale's associates came across a bottle in a Bialystok, Poland, distillery with a hammer and sickle on its label. Wódka, the Communist Party-approved spirit during the 1950s, also happened to taste very good, and Dale believed it was ripe for an austerity-chic comeback. "We saw psychology change in the U.S. There's a whole generation that's now averse to spending more money than they have to," Dale says. "The whole concept of 'premium' would have to be redefined." In 2010, Wódka—"vodka" in Polish—entered the American market.

Wódka is hoping to reach the heights of Sobieski, which was introduced to the U.S. in 2007. At about $11 per bottle, Sobieski expects to sell a million cases this year, which would make it the fastest-growing vodka in the country. And Sobieski is hoping to reach the heights of Svedka, the godfather of the cheap premium vodka movement. Svedka—a mash-up of the Swedish words for "Sweden" and "vodka"—says it sells around 3.5 million cases annually, with growth averaging 30 percent per year. "Our advantage over the others in what we call the $19.99 club was that we never positioned ourselves strictly as a price-based brand," says Marina Hahn, chief marketing officer of Spirits Marque One, which owns Svedka. "Vodka is odorless, colorless, tasteless, and highly mixable. You need a strong image because it's fairly commoditized."

Therein lies Big Vodka's dirty little secret: There isn't much difference between the absurdly expensive and the absurdly cheap. According to the U.S. government's Code of Federal Regulations, all vodka—no matter how many times it's distilled, whether it comes in a bottle shaped like a human skull, or even if P. Diddy endorses it—is defined as "without distinctive character, aroma, taste, or color." Yet for years the industry has circumvented this snag through marketing gimmicks that make getting drunk seem like a gateway to fame and fortune.

Cheaper offerings, however, have been able to exploit this illusion. Sobieski has based its marketing campaign around the slogan "Truth in Vodka," with Bruce Willis, a shareholder, as its spokesperson. "We have so much fun busting the myths of competitors that say, 'Our vodka is distilled from the water of pure icebergs,'" says Chester Brandes, chief executive officer and president of Sobieski's parent company, Imperial Brands. "Instead we're over-delivering on quality at an affordable price, which, by the way, is something Wódka has copied." In blind tastings by Chicago's Beverage Testing Institute (BTI), Sobieski scored a 95 out of 100. Svedka (91) and Wódka (90) outranked Double Cross Vodka (87, $49.99) and Shanghai White (83, $65).

Marketing remains crucial since cheap premium vodka is an economy of scale business. "The model is based on volume sales at a lower profit," explains Dale, who says Wódka's profit margin runs about 15 percent and the company nets $1 to $2 for every bottle sold. Dale keeps his team lean (Wódka has just eight employees), his costs down (it remains distilled in Poland), and depends on word of mouth. When, say, a professional football player more accustomed to pricier bottle-service fare likes his vodka, he makes sure people know about it.

The bulk of Wódka's business, though, comes from its bar and restaurant clients, since its low costs can double their profit margins. "It's the cheapest vodka I can find that's not in a plastic bottle," says Keith Nelson, beverage manager of the upscale Manhattan restaurant Lavo. "I go through 5 to 10 cases a week." According to Dale, Wódka sales should top 100,000 cases by the end of this year.

Where vodka goes, others follow. In 2007, E&J Gallo Winery released New Amsterdam Gin, which sells for $13.99 and boasts an 89-point BTI rating. Tromba Tequila, a boutique spirit made by a former Don Julio distiller, will soon launch at a price 25 percent cheaper than Patron. It may be the perfect marriage of bottle-service quality and body-shot prices.