Success breeds Absolut success
LAURA CLARK reports on what the future holds for pernod ricard following its acquisition of Sweden's Vin & Sprit
After stumping up £4.4 billion to buy Sweden's Vin & Sprit, Pernod Ricard triumphed in the bidding war to become the owner of the prized Absolut vodka brand.
The French producer fought off spirits rivals Bacardi and Fortune Brands, and private equity group EQT, to gain control of one of the drinks industry's most marketable names. Now it has Absolut in its grip, will Pernod be changing the marketing strategy of a brand that boosted sales by an impressive 53% in the UK in 2007?
OLN gets the low-down on the deal and assess what impact it will have on the off-trade spirits market.
l What does the deal mean?
Managing director Pierre Pringuet hailed the take over a "transforming deal" for Pernod, making it "co-leader in the global wine and spirits industry". At a press conference in London, Pringuet said the acquisition g ave Pernod an increased competitive edge in spirits , saying: "We can really see the structure of the industry will be two clear leaders." But while the deal lifts Pernod's total annual volume to about 91 million nine-litre cases, Diageo is still number one with 110 million. And with Smirnoff, the world's biggest selling vodka brand, in Diageo's portfolio, the company believes it will remain firmly in the top spot. A Diageo spokesman said: "It is clear that Pernod has been selective in the figures it uses in describing itself as a leading spirits company. In reality, on any of several independent measures of the sector available, Diageo remains a distance ahead. That aside, we always welcome competition and will continue to focus on maintaining our leadership in total beverage alcohol."
Diageo pulled out of the V&S auction in March to concentrate on the Dutch family-owned Ketel One, of which it bought 50% for £450 million, saying it had better growth prospects.
Spirits buyers at multiple grocers predict the take overs will positively impact on vodka sales in the UK, with more money being pumped into advertising and innovation. Sainsbury's spirits buyer Michael Luck said: "Increased competition will help the category develop further ." An Asda spokesman added that intensified competition and new brands entering the market "will result in stronger consumer offers".
l Will smaller brands be sold?
The acquisition also gives Pernod control of smaller brands such as Plymouth Gin, Cruzan Rum and Grönstedts Cognac. With Beefeater Gin, Havana Club Rum and Martell Cognac already in its portfolio, it is questionable whether the company will sell any of these brands. Pringuet insists that, unless required by competition authorities, this is not on Pernod's agenda.
Pringuet described Cruzan Rum, which sells about 6,000 cases in the US, as "the cherry on the cake" of the Absolut deal. With the take over complete, Pernod has "a flagship brand in every single segment", he added. When asked if Pernod was on the acquisition trial, Pringuet said: "Yes, certainly. We are pretty opportunistic. We are very quick to react and very motivated." But the group would concentrate on paying down its debt first, Pinguet said, adding that this could happen quite quickly. "We could be back in acquisition mode very soon." Pringuet mentioned tequila and wine from outside of France as two categories the group would be interested in strengthening.
l What about Stolichnaya?
As part of the sale, Pernod has agreed to give up its distribution rights to Stolichnaya vodka. But this is not a blow for the company, according to Pringuet. "Let's be clear, we were absolutely convinced at the beginning that if we could win Absolut, that would be a far better option for Pernod Ricard." Pringuet said the size of the brand was a deciding factor - 11 million cases of Absolut sold worldwide compared with three million for Stolichnaya. Stolichnaya's Russian owner, SPI Group, could find a new distributor or sell the brand. There is speculation Fortune Brands could be a suitor because losing out in the V&S deal means Fortune will stop distributing Absolut in the US in 2012 when its agreement with V&S expires, creating a gap in its portfolio for a vodka brand.
l What are the plans for Absolut?
Pernod expects Absolut to continue growing sales in the "low-to-mid single digits" in the US and in the "high single digits" in the rest of the world, said Pringuet. In the UK, Nielsen figures for the year to Jan 26 2008 show the brand grew sales 53% thanks to grapefruit-flavoured edition Ruby Red and a global, multi-million pound ad campaign. Pringuet said the company is not planning to make big changes to its marketing strategy or range.
"There were some negative images of the brand in the late 90s and early 2000, but a new team was appointed from the private sector and made a complete revival of the brand strategy," he said.
Pringuet also showed his support for Absolut's flavoured variants, which include mandarin, vanilla and peach.
"Flavours gives us visibility and I believe that it the right direction for the brand," he said.
But he warned: "If you go too fast with flavour innovation then you dilute the image of the brand". The decision to maintain all nine flavoured variants will lie with the team in charge of marketing at V&S, Pringuet added.
l Did Pernod over pay?
Pernod has been hit by accusations that it overpaid for V&S, with its winning bid substantially higher than the $7 billion price tag anticipated. Pringuet denied that Pernod has been forced to pay a hefty price to defeat Fortune: "We have full knowledge that our financial and business transactions are extremely attractive. Do the numbers fit? The answer is yes." Fortune, which had prepared a strong bid for the government auction, said the price was too high and that an unjustified asking price made it relinquish its plans to buy V&S. "We didn't see the appropriate return for our shareholders at the announced price," said Bruce Carbonari, Fortune's chief executive, in a statement.
l Will jobs go?
Bengt Baron will remain chief executive of V&S after the takeover and the company's HQ will stay in Stockholm. But it is not yet clear whether jobs will be cut. Pringuet said: "V&S will remain the brand owner for Absolut and will benefit from the integration of Pernod Ricard's existing business. We will start a task force to address question s of the integration."
l How will distribution change?
Pernod has said it will end its involvement in Maxxium, the global distribution venture involving V&S, Fortune Brands, Edrington and Rémy Cointreau, within two years. Rémy Cointreau announced in 2006 that it intends to walk away in March next year, leaving only Fortune Brands and the Edrington Group in the Maxxium distribution venture. Pernod's announcement has increased speculation that Maxxium may be forced to break up.
