The spirit of choice for James Bond to characters on “Mad Men” and “Sex and the City,” vodka has long held the dominant position in the U.S. liquor market.
The top-selling spirit in the U.S. since the 1970s, vodka generated more than $7.3 billion in revenue in 2021, $2 billion more than the second-highest selling spirit, tequila and mezcal, according to the Distilled Spirits Council of the United States. More than 78.1 million 9-liter cases of vodka were sold in the U.S. in 2021, roughly the same number of 9-liter cases of American whiskey, tequila and mezcal, and rum combined.
Initially gaining a footing in the U.S. in the 1940s when World War II-era mandates made whiskey distilleries shift to producing alcohol for products like ammunition and rubber and then later taking off in the 1950s before climbing to the top spot in the 1970s, spirits and cocktail historian David Wondrich said there was a roughly 40-year period where “everything went vodka’s way.”
“What you got was a spirits market where people were either vodka drinkers or they drank all the other things,” Wondrich said.
Tito’s, produced by Austin-based Fifth Generation, is the top-selling brand across all spirits in the U.S., selling more than 11 million cases in 2021 with 6.3% growth year-over-year, according to data from Impact Databank.
But over the last several years, vodka’s popularity began to wane due to a variety of factors, whether that was the further introduction of spirits like tequila and mezcal to the market, the growth of the handcrafted cocktail movement that put more focus on spirits like whiskey and bourbon, or a desire from consumers to move towards other spirits that simply provided more flavor.
“There was a point where vodka was on a trajectory to outsell everything else combined, and that’s definitely reversed and a lot of the other stuff is growing at the expense of vodka,” Wondrich said. “It’s this dynamic where they figured out how to market the least offensive product that the most people would tolerate, and then people got bored.”
The growth of whiskey and tequila
In 2010, vodka made up 33% of the volume of the entire spirits market in the U.S., according to data from IWSR Drinks Market Analysis, while the broader whisky category (which includes U.S. whiskey, scotch, and Irish whisky) made up 24.6% and agave-based spirits like tequila and mezcal made up 6.1%.
In comparison, vodka was 32.1% of the market in 2020 while the whisky category was 30.5% and agave-based spirits were 9.4%, according to IWSR Drinks Market Analysis.
Brandy Rand, COO of the Americas at IWSR Drinks Market Analysis, said that between 2000 and 2020, vodka had a compound annual growth rate of 4.2% compared to whisky’s 3%. However, in the last five years, whisky has significantly outgrown vodka, 5.1% to 1.7%, respectively.
“We expect the whisky category to overtake vodka by volume by the end of 2022,” Rand said, adding that when considering the revenue generated by the overall category, “whisky is significantly higher than vodka currently (and has been for years) as most whiskies tend to be premium-priced while standard-priced vodka makes up the bulk of the vodka category value.”
The explosion in the popularity of tequila and mezcal has also come somewhat at the expense of vodka. The U.S. spirits industry grew 12% in 2021 to $35.8 billion, with tequila and mezcal responsible for more than 31% of the total increase in spirits revenue.
“Tequila has a very good possibility of eventually outpacing vodka because it’s not something that’s just for margaritas anymore,” said John Coyle, director of sales and engagement at T Edward Wines & Spirits, a New York-based wine and spirit importer and distributor. “For someone interested in drinking a cocktail or who is running a cocktail program, tequila gives you a lot of stuff to play with, there’s a palate of flavors that you can use with all different beverages – vodka, it’s just one.”
Part of the growth is likely due to celebrity investment and elevation of tequila and mezcal, most notably with Diageo’s $1 billion acquisition of Casamigos in 2017, which was founded by George Clooney. Celebrities from model Kendall Jenner to actor Dwayne ‘The Rock’ Johnson launched tequilas in 2021, while Constellation Brands made an investment in the mezcal started by “Breaking Bad” co-stars Bryan Cranston and Aaron Paul.
Diageo, which also owns higher-end tequila brand Don Julio , reported that tequila sales grew 56% in the first half of its fiscal 2022 compared to the previous year, and forecasted that sales of tequila will grow faster than the rest of the spirits industry for the next five to 10 years.
“The category’s appeal across demographics is significant. It has crossed over, the multicultural growth is very strong,” Diageo CEO Ivan Menezes said about tequila on the company’s most recent earnings conference call in January. “It cuts across age segments, it cuts across gender, it cuts across dayparts, the occasions, and the nature of drinks. It’s not just shots and margaritas as it used to be many years ago.”
Connection to Russia
Vodka is now also facing another challenge — its historical ties to Russia.
In the wake of Russia’s invasion of Ukraine, lawmakers, bar owners, retailers, and consumers looking to show support for Ukraine have called for boycotts of brands with links back to Russia, or in the case of some vodka brands, perceived links to Russia.
U.S President Joe Biden issued an executive order on Friday that blocked U.S. imports of several Russian products, including vodka and other alcoholic beverages.
“The totality of our sanctions and export controls is crushing the Russian economy,” Biden said.
Several states, including North Carolina and West Virginia, separately banned the sale of Russian-made alcohol. The Pennsylvania Liquor Control Board had all its licensed stores remove Russian-made products, with Board Chairman Tim Holden saying, “Given the evolving political-economic climate, it’s just the right thing to do.”
However, while several vodka brands play up a tie to Russian heritage through marketing or branding, most vodka consumed in the U.S. is not Russian in origin.
Imported Russian vodka makes up less than 1% of the total vodka volume in the U.S. according to Rand, which she says is “not material to the category growth.” Roughly half of the vodka consumed in the U.S. is made in the U.S., according to IWSR Drinks Market Analysis.
While Russia is the world’s largest vodka producer, accounting for more than 30% of global production, more than 90% of it is consumed domestically.
Vodka brand Stolichnaya, which roughly translates to ‘capital city’ in Russian, took the step of officially rebranding to Stoli last week to further distance itself from Russia. Luxembourg-based Stoli Group, who produces the vodka in Latvia, said its rebrand was driven by “the founder’s vehement position on the Putin regime; the Stoli employees determination to take action; and the desire to accurately represent Stoli’s roots in Latvia.”
“While I have been exiled from Russia since 2002 due to my opposition to Putin, I have remained proud of the Stolichnaya brand,” Yuri Shefler, the founder of Stoli Group said in a statement. “Today, we have made the decision to rebrand entirely as the name no longer represents our organization. More than anything, I wish for ‘Stoli’ to represent peace in Europe and solidarity with Ukraine.”
Shefler has battled the Russian government in recent years regarding the global trademarks for the vodka as Russia claims the trademarks were incorrectly sold by a company amid Russia’s privatization following the dissolution of the Soviet Union.
The vodka industry has been shaken by its connections to Russia before. In the 1980s, when Stolichnaya was still under Russian control, it had grown to be the most imported vodka in the U.S. by a “huge amount,” according to Wondrich. However, amid the Cold War and the backlash following the Soviet Union shooting down Korean Air Lines Flight 007 in 1983, the brand’s popularity in the U.S. drastically diminished. In the same time frame, Swedish vodka brand Absolut launched in America, boosted by an ad campaign with Andy Warhol.
“The Russian tie has always been a little bit of a vulnerability for vodka even though hardly any of it in America is Russian,” Wondrich said. “But people work in broad symbolism and it’s not going to help.”
Smirnoff, for example, was founded by a Russian emigre who fled the country during the October Revolution, ultimately opening a distillery in Connecticut after the end of prohibition in 1933 and later being sold to Diageo. Still, the perception of Russian ties exists – Smirnoff’s website currently features a large image noting the company’s history and that it is “proudly made in America.”
Wondrich said that while vodka will likely remain the top-selling spirit category in the U.S. for the next several years, it will likely not reclaim the position as the bulk of the market as it once had.
Coyle agreed, noting that vodka has been “pushed out of the center stage.”
“If you go to a cocktail bar, there will always be a vodka cocktail,” Coyle said. “But the days of James Bond, calling for a specific vodka brand, that’s waning, that’s not going to be the next wave of growth in the spirits industry.”