Absolut Success for Pernod Ricard With purchase of Vin & Sprit Group, Pernod Ricard also acquires Level vodka and Cruzan rum. Agreement calls for company to continue Future Brands distribution agreement through 2012. By Brooke Gowen Smith
ernod Ricard has recently signed a contract with the country of Sweden for the acquisition of 100% of the shares of the Vin & Sprit Group (V&S), the owner of Absolut vodka. The deal cost Pernod Ricard $8.9 billion (5.63 billion euros), and closes the gap in volume in the global wine and spirits industry, just behind Diageo. Absolut, a unique asset, complements Pernod Ricard’s premium portfolio and, is the number 1 premium vodka brand worldwide with around 11 million 9 liter cases sold in 2007. According to Alain Barbet, president & CEO of Pernod Ricard USA, “The leverage that the Absolut brand brings to our existing portfolio of brands not only at the distributor tier, but also for the licensee, is a tremendous addition and we’re going to fully put our arms around the brand.” In addition to Absolut, the acquisition includes Cruzan rum, the number 5 rum brand in the U.S., and Level vodka, the number 4 brand in the super-premium vodka category in the U.S. However, competition authorities may require the company to sell Plymouth gin and Fris vodka by the time the V&S deal closes this summer. The fate of Stolichnaya is not yet completely known, but Pernod Ricard is expected to eventually end its distribution agreement with the brand after a short transitional period during which SPI, the owner of Stoli, will find a new partner. Up until the last minute, the highest bidder and owner of Absolut was anybody’s guess, and many industry analysts attempted to do just that. As the auction field was narrowed by the Swedish government, it appeared that it came down to Pernod Ricard and Fortune Brands of the U.S., eliminating Bacardi Ltd. and a number of private equity firms, including the Swedish groups EQT and Investor. Some predictions leaned towards Fortune Brands acquiring V&S because of its existing U.S. distribution agreement with the company, but Pernod Ricard ultimately sealed the deal.
While Pernod Ricard now assumes all marketing responsibilities for Absolut and the other brands acquired from V&S, the distribution agreement with Future Brands LLC, the sales company dedicated to selling the brands of V&S in the United States, is scheduled to continue until 2012. Barbet says that Pernod Ricard is going to operate like a partner in Future Brands as V&S did before. “From an execution perspective, we know their distributor network, which is very similar to ours, and we know all the players. We’re confident that the key things that have been done in the past in support of the brands will continue and, if anything, further improve.” Barbet notes that it has been a successful arrangement so far “as all of the brands have shown growth in the U.S.” Integration of brands at this level is not a new undertaking for Pernod Ricard. The company has successfully acquired selected brands
“From an execution perspective, we know [Absolut’s] distributor network, which is very similar to ours. We’re confident that everything that has been done in the past in support of the brands will continue and, if anything, improve.” – Alain Barbet, president & CEO of Pernod Ricard USA
from Seagram and later Allied Domecq over the past several years. Says Barbet, “We know the bases that we need to cover to ensure a smooth transition. One is that our people continue to work as they have before, but the most important part is the culture, especially our values – conviviality, an entrepreneurial spirit, integrity, and commitment.” He continues, “We’re a company that seeks to keep talented people once they’re on board; not one that turns a lot of people over.” The Absolut brand, as well as Cruzan rum and Level vodka, reinforce a unique and consistent portfolio of premium brands for Pernod Ricard. “We have a strong track record of innovation and premiumization with all of our brands. We’ve added 1 million cases on our premium side,” says Barbet. The company will be able to accelerate Absolut’s growth in emerging markets as “the iconic status of Absolut is incomparable,” he shares. “There are also a lot of opportunities to continue to innovate with the Absolut line with flavors and line extensions. From a marketing perspective, we’ll continue with the way Absolut connects with consumers at both a social and an emotional level.” Regarding the reality of a slowing economy in the U.S., Barbet is optimistic about the future and says that there has been a noticeable pickup in off-premise sales: “We are conscious of the slowdown in the economy, but what we’re seeing in our portfolio is that premium brands in vibrant categories continue to do well. Consumers are continuing to look at strong brands with strong equity and really going after them.” He adds, “We haven’t seen the doom and gloom that other industries have. At the end of the day, it’s all about how we’re going to be a bigger and better company in the U.S. and a more important partner to the other two tiers in the industry.” n
Beam Global Takes Absolut Decision in Stride
ortune Brands, parent company of Beam Global Spirits & Wine, was one of the last bidders standing in the auction for the Vin & Sprit Group. Some industry analysts predicted that the company would be a natural winner because of Fortune’s current U.S. distribution arrangement with V&S. Tom Flocco, CEO of Beam Global Spirits & Wine, said after the announcement, “We’re disappointed that we didn’t end up with the business, but we understand the Swedish government’s decision given the premium that was paid by Pernod Ricard.” Flocco emphasizes the fact that Fortune Brands was very interested in acquiring the Absolut brand, but the company also has a responsibility to its shareholders: “We have to make sure we’re doing the right thing for them as well, and for us to have pursued it at that level wouldn’t have been the right thing to do.” In light of the current distribution agreement through 2012 with V&S, and also reiterated by Pernod Ricard, “It’s business as usual; we don’t anticipate any change in that agreement,” says Flocco. He explains that those distribution arrangements were designed so that there would not be any sort of sudden, jarring end to them if ownership ever changed. “It ensures an orderly transition. We have a three-plus year window on Future Brands to be able to make the transition,” he states. Despite the disappointment over the Absolut outcome, Flocco was quite upbeat about the current performance and future prospects of the Beam portfolio. Beam Global experienced double digit growth last year on the Jim Beam brand, Maker’s Mark and Sauza; and Canadian Club (up 4.5%) grew faster than Crown Royal (up 3.4%), according to Flocco. “The Beam portfolio is very healthy and the distribution vehicles are sound. We are very confident about our ability to deliver going forward,” he explains. In other developments for Beam Global, he says that the company plans to create future value by taking advantage of the fact that they now have greater financial flexibility. “We’ll keep the powder dry for future opportunities to fill existing holes in our portfolio for premium brands that might become available.” What Beam Global is focusing on now is “the breadth and strength of its portfolio, how consumers are responding to initiatives, and building brands that people want to talk about,” Flocco shares. “Given the strength of our brands, the trade – that is, distributors, retailers, and on-premise establishments – will continue to view our portfolio as very strong and viable.” “We believe that everything has a value, but it doesn’t mean that we’re disregarding the importance of a strong and broad portfolio, or that our customers don’t come first, because they do,” Flocco says. “We also have shareholders that we’re responsible to, however, that’s the balance we needed to strike. We feel very good about where we are and what’s next on the horizon for Beam Global – and for our customers whose interests are aligned with our own.”