Absolut Success for Pernod Ricard

INDUSTRY NEWS 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 While Pernod Ricard now assumes all marketing responsibilities of Sweden for the acquisition of 100% of the shares of the for Absolut and the other brands acquired from V&S, the distribu- Vin & Sprit Group (V&S), the owner of Absolut vodka. tion agreement with Future Brands LLC, the sales company dedi- P The deal cost Pernod Ricard $8.9 billion (5.63 billion eu- cated to selling the brands of V&S in the United States, is scheduled ros), and closes the gap in volume in the global wine and spirits indus- to continue until 2012. Barbet says that Pernod Ricard is going to try, just behind Diageo. Absolut, a unique asset, complements Pernod operate like a partner in Future Brands as V&S did before. “From Ricard’s premium portfolio and, is the number 1 premium vodka brand an execution perspective, we know their distributor network, which worldwide with around 11 million 9 liter cases sold in 2007. is very similar to ours, and we know all the players. We’re confident According to Alain Barbet, president & CEO of Pernod Ricard that the key things that have been done in the past in support of the USA, “The leverage that the Absolut brand brings to our existing brands will continue and, if anything, further improve.” Barbet notes portfolio of brands not only at the distributor tier, but also for the li- that it has been a successful arrangement so far “as all of the brands censee, is a tremendous addition and we’re going to fully put our arms have shown growth in the U.S.” around the brand.” In addition to Absolut, the acquisition includes Integration of brands at this level is not a new undertaking for Cruzan rum, the number 5 rum brand in the U.S., and Level vodka, Pernod Ricard. The company has successfully acquired selected brands 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 Abso- lut was anybody’s guess, and many industry analysts attempted to do just that. As the auction field was narrowed by the Swedish govern- ment, 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. Beam Global Takes Absolut “From an execution perspective, Decision in we know [Absolut’s] distributor Stride network, which is very similar ortune Brands, parent company of Beam Global Spirits & Wine, to ours. We’re confident that was one of the last bidders standing in the auction for the Vin & everything that has been done F Sprit Group. Some industry analysts predicted that the company in the past in support of the would be a natural winner because of Fortune’s current U.S. distribution arrangement with V&S. Tom Flocco, CEO of Beam Global Spirits brands will continue and, & Wine, said after the announcement, “We’re disappointed that we if anything, improve.” didn’t end up with the business, but we understand the Swedish govern- – Alain Barbet, ment’s decision given the premium that was paid by Pernod Ricard.” Flocco emphasizes the fact that Fortune Brands was very inter- president & CEO of Pernod Ricard USA ested 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 from Seagram and later Allied Domecq over the past V&S, and also reiterated by Pernod Ricard, “It’s business as usual; several years. Says Barbet, “We know the bases that we we don’t anticipate any change in that agreement,” says Flocco. He need to cover to ensure a smooth transition. One is that explains that those distribution arrangements were designed so that our people continue to work as they have before, but the there would not be any sort of sudden, jarring end to them if own- most important part is the culture, especially our values – ership ever changed. “It ensures an orderly transition. We have a conviviality, an entrepreneurial spirit, integrity, and com- three-plus year window on Future Brands to be able to make the mitment.” He continues, “We’re a company that seeks to transition,” he states. keep talented people once they’re on board; not one that Despite the disappointment over the Absolut outcome, Flocco was turns a lot of people over.” quite upbeat about the current performance and future prospects of The Absolut brand, as well as Cruzan rum and Level the Beam portfolio. Beam Global experienced double digit growth last vodka, reinforce a unique and consistent portfolio of pre- year on the Jim Beam brand, Maker’s Mark and Sauza; and Canadian mium brands for Pernod Ricard. “We have a strong track Club (up 4.5%) grew faster than Crown Royal (up 3.4%), according record of innovation and premiumization with all of our to Flocco. “The Beam portfolio is very healthy and the distribution brands. We’ve added 1 million cases on our premium vehicles are sound. We are very confident about our ability to deliver side,” says Barbet. The company will be able to acceler- going forward,” he explains. ate Absolut’s growth in emerging markets as “the iconic In other developments for Beam Global, he says that the company status of Absolut is incomparable,” he shares. “There are plans to create future value by taking advantage of the fact that they also a lot of opportunities to continue to innovate with now have greater financial flexibility. “We’ll keep the powder dry for the Absolut line with flavors and line extensions. From a future opportunities to fill existing holes in our portfolio for premium marketing perspective, we’ll continue with the way Ab- brands that might become available.” solut connects with consumers at both a social and an What Beam Global is focusing on now is “the breadth and emotional level.” strength of its portfolio, how consumers are responding to initiatives, Regarding the reality of a slowing economy in the and building brands that people want to talk about,” Flocco shares. U.S., Barbet is optimistic about the future and says that “Given the strength of our brands, the trade – that is, distributors, there has been a noticeable pickup in off-premise sales: retailers, and on-premise establishments – will continue to view our “We are conscious of the slowdown in the economy, but portfolio as very strong and viable.” what we’re seeing in our portfolio is that premium brands “We believe that everything has a value, but it doesn’t mean that in vibrant categories continue to do well. Consumers are we’re disregarding the importance of a strong and broad portfolio, or continuing to look at strong brands with strong equity that our customers don’t come first, because they do,” Flocco says. and really going after them.” He adds, “We haven’t seen “We also have shareholders that we’re responsible to, however, that’s the doom and gloom that other industries have. At the the balance we needed to strike. We feel very good about where we end of the day, it’s all about how we’re going to be a big- are and what’s next on the horizon for Beam Global – and for our ger and better company in the U.S. and a more impor- customers whose interests are aligned with our own.” tant partner to the other two tiers in the industry.” n.

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