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Home , Allied Domecq, Diageo

A TRANSFORMATION OF THE INDUSTRY

Recapping ten extraordinary years by Alia Akkam & Kristen wolfe bieler

n 2000, when Edgar Bronfman Jr. size. For Pernod , this was there are the grocery, big-box and decided to sell in order just the beginning: The company chain retailers who got into the to fund his media conglomerate, doubled again four years later with booze business. And in the midst Vivendi Universal, in partnership the acquisition of and of this vastly changed landscape, with French business tycoon ballooned once more last year with is the evolving American consumer Jean-Marie Messier, he set into motion the Absolut purchase. didn’t who has embraced as a daily a series of events that would literally fare so badly in the bidding war either, beverage—which has the U.S. poised transform the beverage alcohol acquiring enough brands to maintain to become the leading consumer business. In retrospect, the Seagram its position as the world’s largest of wine worldwide this year—and sale was the catalyst for every major supplier. developed a taste for higher-quality industry change that occurred in the Consolidation didn’t stop at the spirits, a behavior which has led subsequent decade. After battling it supplier tier, as the decade also saw to the dramatic premiumization of out with Diageo and Allied Domecq the creation of multi-state, national the spirits business, as well as the among others in the brand sell-off, wholesalers who set about perfecting cocktail revolution. went overnight from the science of route-to-market, and We find it hard to imagine a more a small French player to a global now represent the lion’s share of dynamic, eventful decade in our drinks behemoth twice its former distribution across the country. Then industry—but ask us again in 2019. EVENTS OF THE DECADE

DIAGEO, PERNOD RICARD ACQUIRE Constellation 2001 2003 brands Grows its SEAGRAM’S AND WINE EMPIRE universe

In 2003, Constellation Brands acquired Aus- tralia’s BRL Hardy and New Zealand’s Nobilo, After the announcement of , Brown-Forman For UK-based Diageo, setting the stage for other major takeovers Vivendi’s $41 billion deal and Vin & Sprit (owners the Seagram brand acquisi- later in the decade including: Canada’s Vin- to acquire the Seagram of Absolut), after Allied tions reinforced its dominant cor International, Spirits Marque One—owner Company in June 2000, Domecq had already position in many of the drinks of Svedka —and Beam Estates, the big question remained: dropped out of the running. categories, and deprived the wine operation of Fortune Brands. The What would happen to For Diageo’s purchase, its rival Allied Domecq of a most newsworthy of the bunch, however, was Seagram’s thriving drinks they acquired Crown chance to collect some ex- the $1 billion purchase of the entire Mondavi business? The answer Royal and VO Canadian tremely coveted brands. The Corporation, from luxury brands like Opus didn’t take long to find out. , timing was also especially One to high-volume Woodbridge. With those By the end of 2000, Diageo Original Spiced Rum and poignant for Pernod Ricard, prime Napa vineyards under its domain, (recognized then in the U.S. Captain Morgan’s Parrot as the transaction immediate- Constellation sealed its fate by becoming as UDV) would Bay Rum and 7 Crown ly transformed the company the world’s leading wine company. In 2008, pay approximately $5 billion American whiskey. They at the turn of the century into Robert Mondavi, perhaps the country’s for its share of the Seagram also acquired a number of one of the industry’s major foremost wine icon assets and Pernod Ricard wine businesses, includ- suppliers. In 2002, they and the leader of (recognized then as Austin, ing Sterling Vineyards. changed their name in the the California wine Nichols & Company) would Brands acquired by Pernod U.S. to Pernod Ricard USA, movement, passed pay $3.15 billion. The included , The garnering the same cachet away. Constella- Diageo-Pernod Ricard bid Glenlivet, and brand identity as its tion continues to beat out a consortium of and Seagram’s . French parent company. run the portfolio.

another liquor phenomenon Allied Domecq Divests was born. Frank gave sophis- 2004 2005 ticated twenty and thirtysome- Portfolio to Pernod and Beam things a reason to drop $30 Bacardi Fills the on a bottle of vodka. The sexy Over the years, Allied Domecq spirits company in the world, Vodka Gap with smoked glass bottle became had strategically curated a adding brands like Perrier Jouët, Grey Goose an icon, popularizing wine and spirits portfolio of Beefeater, Kahlúa, and Bal- bottle service at powerhouse brands. So it was lantine’s to their portfolio. When Sidney Frank nightclubs, making no surprise in early 2005 that Pernod also picked up the U.S. began importing appearances on Sex a number of industry players distribution rights for Jägermeister in the and the City, giving came forward to express interest in vodka. For its part, Jim Beam Brands 1980s and transformed flavored allure and acquiring their company. Ultimately (now Beam Global Spirits & Wine) the German spearheading a wide- though, it was Pernod Ricard’s $14 more than doubled its spirits and popular with a blue- spread trend of trading billion bid—in combination with wine revenues, making them one collar crowd into a up that would come to Fortune Brands (parent company of of the top four spirits companies in college marvel, it dominate the 2000s. Jim Beam Brands)—that prevailed. the world. Among the brands they became pretty clear the When Bacardi bought For Pernod Ricard, the deal elevated added were: , Cour- guy was a marketing Grey Goose for a whop- them to the number two wine and voisier, Sauza and Maker’s Mark. genius. Similarly, in ping $2 billion cash, the 1997, when he unveiled supplier, known for its super-premium Grey hold on the rum market, Goose, the vodka distilled and secured one of the world’s bottled in Cognac, France, most popular brands. EVENTS OF THE DECADE

case Granholm v. Heald, the U.S 2005 Supreme Court struck down the 2008 laws in both states that prevented out-of-state wineries to sell Direct Wine and ship directly to consumers, Foreign Investors acquire Shipping Becomes declaring it was unconstitutional Anheuser-Busch Controversial under the 21st Amendment for these regulatory schemes to The complexity of individual state remain in effect. Given the liquor laws reached a head in vast, growing amount of small, New York and Michigan, states independent wineries across the that banned direct shipment country who rely on advertising of out-of-state wine to in-state and the Internet to build their trend of Internet wine purchases in consumers. In the landmark businesses—and the overall general, which also developed this It doesn’t get more American than Anheuser- decade—direct-to-consumer ship- Busch, the St. Louis-based company known ping is growing. Today, 37 states for legendary brews like Budweiser and Mi- have opened up their borders. chelob. So, the industry was shocked when Despite the loosening of Anheuser-Busch Companies announced the these rules, 2009 was key for creation of a new company, Anheuser-Busch another reason: After rumors that InBev. InBev, the Brazilian-Belgian brewing Amazon was planning to sell wine, company behind popular such as Stella it fizzled, revealing that the three- Artois and Hoegaarden, purchased the Ameri- tier system remains the backbone can brewer for nearly $52 billion in equity, of our industry. creating the world’s largest company.

2008 The Quest for Absolut

The heat was on when Sweden’s Spirits Company, which was Vin & Sprits Group put its top- established in 2001 (following selling premium spirits brand, the sale of Seagram) for the , on the auction distribution of these two com- block. For a while, the general panies’ respective brands. consensus was that Fortune So strangely enough, this Brands, parent company of decade saw the beginning Beam Global Spirits & Wine, and end of Future Brands, a would emerge the victor, but in formidable competitor to the the end, it was Pernod Ricard other industry giants while it who triumphed, shelling remained in existence. out a whopping $8.9 bil- Pernod’s purchase of lion for the United States’ Absolut also meant the leading imported vodka. eventual end of its U.S. What did this mean for distribution agreement early termination agreement of with the acquisition of Absolut the industry? Well for with SPI Group, own- Future Brands, Pernod Ricard in 2008, the purchase of Al- one thing, it meant the ers of Stolichnaya. (The paid Fortune Brands $230 lied Domecq in 2005 and the eventual end of Future rights to Stolichnaya were million in compensation, and purchase of Seagram in 2001, Brands LLC, the joint picked up at the end of sent over Cruzan rum to Beam they were an industry power- venture between Beam 2008 by William Grant & Global. But the results for Per- house, built over the course of Global and The Absolut Sons). Also, as part of the nod Ricard were indisputable: this decade. key developments

Distributor Consolidation joint venture with The Odom Corporation to Since each state abides by its own wine distribute product in and spirits rules, the distribution side of the Northwestern U.S. the liquor business was always quite frag- Other major wholesaler mented—until consolidation—a hallmark transactions included of the decade—helped to unify operations. the 2007 merger of Southern Wine & Spirits of America, the Republic Beverage Company and National nation’s largest dis- Distributing Company to form Republic tributor, primarily in National Distributing Company, LLC, now eight states at start the country’s 2nd largest distributor; and of the decade, is in 2008, Glazer’s sold its Illinois business now operating in 29 to Wirtz Beverage Group, subsequent to states, and continues the announcement of a Southern-Glazer’s to grow. According to Impact, Southern’s merger, which ultimately never panned out. top line grew from $3.4 billion in 2000 to What these consolidations have meant is ● emphasis on an estimated $8.5 billion in 2009 (exclud- that nearly half of the total wholesale busi- social responsibility ing Control State operations). Highlights ness is being done by the top five whole- included their purchases of Pacific Wine salers: Southern Wine & Spirits, RNDC, & Spirits and Romano Bros. Beverage The Charmer Sunbelt Group, Glazer’s Social responsibility Company in 2002, giving them entrance and Young’s Market Co. Comparatively in has always been the into the Illinois marketplace; Premier Wine 2000, according to Impact, the top five industry’s priority, but & Spirits in 2004, which launched them in wholesalers represented a little more than this decade it was taken New York; and then in 2008, they formed a one-third of the business. to new heights with in- novative programming. Among the highlights: Liquor Commercials buted a TV ad in Texas, paving the way for The Charmer Sunbelt on Television more. In 2001, NBC attempted to slowly Group was one of the feature ads for , but so many view- first distributors Advertising of alcohol in the U.S. has ers complained, the practice was stopped to dedicate a a social respon- always been unique, controlled by the next year. formal role sibility web- self-regulatory bodies that have created This, of course, all changed dramati- to spreading site; Brown- standards for ethical advertising. From cally by the late 2000’s: the industry deter- the industry’s Forman’s City 1948 to 1996, based on a voluntary ban mined that liquor ads could be shown after message of Scoot program, implemented by DISCUS, no TV station or 10pm, and placed in media where 70% of fighting underage offering rides home network even accepted liquor ads. That the audience is over the legal drinking age. drinking and driv- with designated drivers; changed in 1996 when DISCUS dropped its Flip on a cable station today and it’s hard to ing. Other impressive ABL’s “Effective Traffic ban and de- miss one of the clever TV commercials for examples included: Safety Solutions to Stop liquor brands—all with the “ Respon- Pernod Ricard’s “Accept Drunk Driving” toolbox; sibly” slogan woven in. A few highlights Responsibility” cam- and Beam Global Spir- include the first-ever for Jameson. The paign; WSWA’s TIPS; its & Wine’s support for has experienced double-digit Diageo’s DRINKiQ.com, the National Association growth over the past decade, and its new of Drug Court Profes- commercial revolves around a lost barrel of sionals. Of course, whiskey during a bitter storm in 1781 Ire- The Century Council, land. Another standout is ’s which debuted in “Keep Walking” commercial, a black and 1991, continued white journey through historic milestones. to invest millions And at the Grammy Awards last year, of dollars toward Johnnie Walker’s Absolut made inroads in the broadcast tier responsible drinking “Keep Walking” when CBS showed its TV spot. commercial campaigns. trends

optimistic about forging Wines for Everyday combined, [yellow tail] is the their niche. During this Drinking fastest growing brand in the decade, consumers didn’t history of the industry, and simply ask for a generic When wine be- represents a big chunk of vodka to mix with their comes a grocery all those extra gallons we tonic, but sought out popu- staple rather are drinking. Self-described lar brands like Grey Goose, than a special as “easy-going and non- Belvedere, Stolichnaya, occasion pour, consumers threatening” [yellow tail] Smirnoff, Absolut and Ketel require ultra-affordable debuted at far less than $10 One, all of which have created powerful options. Inexpensive, acces- a bottle and inspired an brand identities. The decade also saw sible brands like Australia’s explosion of copycat critter the explosive growth of Svedka vodka, [yellow tail] and California’s labels (another decade Vodka is Still King purchased by Constellation Brands in Charles Shaw (aka: Two Buck trend worth mention). 2007, and now a 2 million case brand. Chuck) have immensely Taking advantage of Mixologists may sneer when custom- helped increase our national the California wine glut in ers saddle up to the bar and ask for A Flavor Revolution In particular, the consumption by making 2000, Bronco Wine Estates’ a vodka-based libation, but the truth popularity of flavored vodka soared. wine an everyday beverage. Fred Franzia—who fervently is, the white spirit, often ridiculed by They represented just a 6.9% share In 2000, the year W.J. Deutsch believes that all wine should the cocktail elite for lacking aromatics of the vodka category in 2000, but & Sons brought [yellow tail] to cost less than $10—created the and taste, remains the most consumed that number rose to 12.4% by 2005. the U.S., the average per capita Charles Shaw brand for sale at in America, with 28 % of total spirits Whether by adding flavors to or infusing consumption was 2.01 gallons; by Trader Joe’s for $1.99 a bottle—a sales by volume in 2008 according to vodka, producers have benefited by 2008 it was 2.48 gallons which price many in the industry the DISCUS. Vodka, quick and easy to consumer cravings (especially those of amounts to a national increase thought impossible and certainly produce since it doesn’t require aging, ladies looking for a fun, light alterna- of 151 million more gallons per unsustainable. Considering he just is undoubtedly the most cluttered tive to the standard vodka martini) for year. As the number one imported celebrated the sale of Two Buck spirits category. Yet demand is so high the spirit in the likes of lemon, orange, wine in America selling more in Chuck’s 400 millionth bottle, it among consumers, suppliers remain raspberry and blueberry versions. the U.S. than all French producers appears he has the last laugh.

Trading Up... And Up Spirits Go Green ● Goes Premium While the last year has been dominated by talk For years, organic and biodynamic of value-hunting and trading down, the over- Perhaps the most dramatic commodity status and trad- wines have held their own on retail riding trend of the decade has been the trade category makeover of the ing up will continue, believes shelves. Now that U.S. consum- up. “Drinking less and drinking better” was decade was Tequila. Once John McDonnell, chief ers have an insatiable thirst for the consumer behavior credo which suppli- the stuff of frat house shots operating officer at Patrón all things green, environmentally- ers, distributors and retailers lived by, as value and spring break hangovers, Spirits International. “Even in friendly wines are even more in soared up much faster than volume in the spirits Tequila is now understood challenging economic times, the spotlight, from the lightweight, category. Countless categories rode the wave: as a sipping spirit, and the consumers still seek spirits post-consumer recycled glass had their renaissance, led by high-end transformation is due primar- that are better, different and bottles used by Fetzer, to the Tet- brands like Navan and St-Germain, and even ily to the powerhouse brand, special. It may not be so ra-Paks rolled out by Trinchero’s light rum took a big step up—with brands like Patrón. Patrón has grown easy to trade up your car or Three Thieves. Capitalizing upon 10 Cane and Tommy Bahama. Rums were now at 35% per year for the past your home, but for an extra this trend, many spirits producers meant for sipping rather than daiquiri-chugging. 10 years and was the first dollar or two, trading up have now followed suit. Perhaps Patrón almost single-handedly upgraded the Te- brand above $40 to hit the your cocktail is much the most prominent launch was quila category and bourbon shed its moonshine million case mark (none more achievable.” Hot 360 Vodka, with its 85% recycled image with super-premium offerings like Knob other even comes close). on Tequila’s tail is mez- glass bottles, water-based inks Creek becoming back-bar staples. While not Patrón continues to cal, the other Mexican and recyclable shipping boxes. recession-proof, the trading up trend remained grow at nearly 10% spirit just beginning Parent company McCormick stronger in the spirits category than the vast even during the to undergo a super- Distilling also purchases green majority of other consumer goods categories, recession. Tequila premium, artisanal supplies and buys renewable which bodes well for the future. won’t go back to its renaissance. energy certificates. trends

Retailers vs. of shampoo. Because of distinct state Handcrafted Cocktails Big Box Stores regulations, liquor licenses aren’t a and the Rise of the breeze to obtain in all cases. However, Mixologist It used to be simple: You wanted a the overall prevalence of value brands bottle of wine, you walked into a fine pushed by these types of venues, and It’s hard to believe there was a time wine shop where you were guaranteed the creation of convenient one-stop when a customer would order a basic product diversity and personal- shopping centers for customers, defi- drink and a nonchalant bartender would ized customer service. It’s not that nitely raised some challenges among quickly mix it and slide it their way. straightforward anymore. This decade independent retailers. Today, we don’t even have bartenders saw the boom of big box retailers in the anymore—we have “mixologists”, who 35 states or so that permit distribution are busy resurrecting cocktails from through warehouse club stores like yesteryear, shaking up their menus ev- Costco and Sam’s Club and mass ery few months with what’s in season, bacon. Even wholesalers have tapped chain outlets such as Target and Wal- making the likes of cranberry juice into the trend: Southern Wine & Spirits Mart, adding wine to their shelves and and ginger beer from scratch and even of America’s Francesco Lafranconi, treating it as nonchalantly as bottles experimenting with ingredients like for instance, is national director of mixology. He helped launch Southern’s Academy of Spirits and Fine Service, New World ● Bourbon’s Comeback a 12-week educational program for Overtakes Old bartenders designed to stay atuned to and Innovations mixology’s latest trends. Most wine drinkers still consider Europe the epicenter of quality and Years ago, out the likes of Brand Ambassadors prestige—after all, the French throngs of men Manhattans thanks Offer Guidance produce more fine wine than any sipped their Manhat- to a newfound love of other nation. But the weakened U.S. tans and Old Fash- classic cocktails—and Twenty years ago, unless you had the dollar combined with an American ioneds at the bar, and new creations calling good fortune of picking up a bottle preference for full-bodied, fruit- then bourbon fell out of for America’s true spirit. at a retailer big on knowledgeable forward wines, familiar brands and vogue, equated with these Beam Global Spirits & customer service, you were in the dark easy-to-read labels has resulted in a men who were consid- Wine is at the forefront about the product’s origins, flavor massive shift from Old World to New ered stuffy and unhip of this bourbon revo- profile and mixability. Enter the brand 1 when it comes to where we source to current drinking (rI) Manhattan lution, with products ambassador, whose sole job was to cocktail our wine. New World wine producing trends. This decade, like Maker’s Mark and enlighten the masses. For the first giants took the industry by storm however, Americans Knob Creek (which even time, suppliers hired individuals pas- over the last decade, and while Italy have been enjoying a renais- experienced a brief shortage sionate about their brand to educate remains the number one imported sance with brown spirits, and in 2009 because demand was the trade and consumers about the wine supplier to the U.S., France was bourbon is firmly entrenched so high). Bourbons made with unique aspects of the liquid inside kicked out of the number two spot by in today’s drinking culture, rye in particular have also the bottle. Whether they’re leading Australia (currently the sixth largest now that more and more enjoyed widespread popularity Q&A sessions or shaking up cocktails, producer in the world), and Chile and younger drinkers are seeking over the last few years. these brand ambassadors—energetic, Argentina are not far behind. These articulate folks like William Grant & countries produce massive quanti- Sons’ Charlotte Voisey and Pernod ties of wines that are full-bodied, The Dawn of Ricard’s Simon Ford—have become lush, consistent and well-priced. Social Media the faces behind brands like Hen- Of course, Australian vintners are bartender’s back bar. Especially drick’s and Plymouth , essentially struggling at the decade’s close, What’s the fastest way to build a attractive to that choice Generation Y becoming human marketing tools. burdened by massive over planting brand? Witty advertising campaigns? demographic, interactive websites, and exchange rate swings, but South Word of mouth? This decade it turns Facebook fan pages and regular Tweets William Grant & Sons’ America surges ahead rapidly eating out social media had the power to on wine and spirits tastings are now Charlotte Voisey up market share. In a nutshell: Mal- catapult a brand from relative obscu- de rigueur for any liquor brand serious bec may just be the new Shiraz. rity to finding a place on every good about attracting new customers. trends

● liquor gets style

Yes, Cîroc stood apart from after-dinner tipple took on a other vodkas on the shelf new identity once hip-hop when it debuted in 2003 celebs started ordering Hen- because it was distilled from nessy and Courvoisier when French grapes, but it also they were out on the town— return of Absinthe made an impact for another and appeared on reason: its association with the pages of Vibe magazine Some thought absinthe was just a a stylish urban clientele, and Courvoisier partnered with novelty when it was reintroduced to reinforced by Sean “Diddy” Russell Simmons. Liquor as a shaw and her brood slurping the U.S. in 2007 after being banned Combs as its spokesperson. style icon wasn’t just limited to them up on Sex and the City. for its supposed hallucinogenic Ultimately, a good product the urban demographic: the Also: Moët sold four-packs properties. After all, how could a drink comes down to taste, but Cosmopolitan is one of the of like a fashion traditionally prepared by pouring water in order to generate buzz, decade’s most popular cock- accessory; Bombay Sapphire over a sugar cube-topped slotted brands like Cîroc realized this tails thanks to Carrie Brad- created a unisex scent. spoon into a shot of absinthe be rec- decade that it could differenti- ognized as anything but a gimmick? ate itself from others by its Yet the “Green Fairy”, the anise- association with luxury. When flavored spirit popular with late 19th people drank Cîroc, they century French artists, is gradually weren’t just sipping vodka, finding its niche at the bar in cocktails but they were drinking in a and served via its elaborate, traditional lifestyle redolent of posh hip- fountain ritual. Lucid was the first hop nightclubs in Miami and absinthe to shatter the U.S. ban since Atlanta. Alizé and Hpnotiq 1912 with its authentic French recipe. also took this approach, as Virgin Group founder and chairman Sir Richard Branson (center) is joined by the Other popular brands include Pernod cast of HBO’s Entourage celebrating exclusively with Dom Perignon well as Cognac. The French and California-made St. George’s. legalize Cachaça Smoking Bans and Sunday Sales The Rise of the Craft Beers The big guys never Craft Distiller worried. For years, beer drinkers For years, cachaça was lumped With widespread health concerns over slugged back bottles of Budweis- in with rum. But now this liquor secondhand smoke, the government got The U.S. is currently home er, Heineken and Coors, and that made from fermented sugarcane a bit fiercer this decade: almost half the to 150 micro-distilleries— was that. But then, something is in a league of its own. To show states in the U.S. implemented smoking boutique, artisanal producers happened. The trend of drinking how far the Brazilian spirit has bans in public places, including bars and who make small amounts of craft beers, started in 1985 by come in the past decade, the cur- restaurants. Worries were high among bar owners. hand-crafted spirits. The last Sam Adams from the Boston rent “Legalize Cachaça” movement Would bars still attract droves of cigarette-smoking time we had so many was Beer Company (now America’s is going strong, hoping to distance customers if they knew they couldn’t freely light up during the bootlegging days of largest brewery after the In Bev- its name from “Brazilian Rum” and indoors with a glass of wine in hand? Prohibition. A decade ago there Anheuser Busch restructuring) recognize that cachaça is made The no-smoking concept was just as were only a few, and according took hold, adding a healthy dose from only fresh-pressed cane juice, poignant as the decision to allow spirits sales to Bill Owens at the American of competition to the mass beer not molasses. Brands like Cabana, on Sundays. Outdated Blue Laws typically Distilling Institute, the reason market. Microbreweries abound Leblon and Agua Luca have been prevented retailers from selling spirits on Sunday, for the boom is partly an exten- throughout the country today, educating American consum- but now 36 have modernized their law, with 14 sion of the artisanal food move- attesting to consumer demand ers and the trade by tapping into states coming on board since 2002. According ment which places value on for craft brews. Brazil’s rich (and sexy) culture in to DISCUS, Sunday sales not only translate to handmade products produced media campaigns, and by promot- convenience for customers, but also significantly in small batches. Also fueling ing the caipirinha, Brazil’s national increase state revenues. Many associations have their growth are changing state cocktail, as well as the versatility of argued the other way, saying Sunday sales have laws, which aim to keep farms other cachaça-made libations. only cannibalized sales during the week. viable and raise tax revenue.