(Duane Stanford, Business Week) The fact that it's colorless, odorless, and flavorless has kept vodka the liquor of choice among U.S. consumers. Store sales of vodka—which can be made from nearly anything but is most often distilled from grain—topped $1 billion in the past year, beating whiskey, rum, and tequila. "Vodka is perceived as low-cholesterol, has no breath effects, is mixable, and is part of that whole Sex and the City, women-with-fancy-drinks phenomenon," says Thomas Russo, portfolio manager at investment firm Gardner Russo & Gardner in Lancaster, Pa.
The top brand in the category is the bottom-bar-shelf staple Smirnoff, which is produced by London's Diageo (WMT) or sales at restaurants and bars). Smirnoff sales jumped 5 percent in the year ended June 13, helped by a 2.5 percent price cut per case. The closest challenger, Pernod Ricard's Absolut, sells less than half as much.
Diageo revamped the Smirnoff brand in 2003 with a more shapely bottle, a stylish label, and marketing designed to tell young people this is no longer their father's vodka. Then, in 2005, The New York Times threw Smirnoff into a taste test of higher-priced vodkas—and it won, giving the brand bragging rights as a quality, yet affordable spirit. "It caused people to look down two or three shelves," says David Tapscott, Smirnoff's brand director. Smirnoff also benefits from its introduction around a decade ago of Smirnoff Ice, a flavored malt liquor that's like a wine cooler. Although not made with vodka, the citrusy drink ingratiated the brand with new consumers, including beer drinkers. Smirnoff shouldn't get too comfortable, however. According to David Ozgo, chief economist for the U.S. Distilled Spirits Council, "There's been a resurgence in general interest in whiskey."