The just-drinks interview - Absolut Vodka CEO
To say that Ketil Eriksen had to hit the ground running when he became CEO of Absolut six months ago would be an understatement. Overseeing a massive reorganisation and dealing with the effects of the economic downturn, notably in the all-important US market, has made for a busy time. He spoke with Michelle Russell about the challenges of his first six months, and those to come.
Earlier this month, Pernod saw its first half results boosted by last year's acquisition of Vin & Sprit from the Swedish government. But Absolut's volumes fell by 3% in its US stronghold. A setback for the brand, surely?
"Frankly not really," Absolut's CEO is quick to respond. "It is on a non-comparable basis really. We were transiting the brand from October, and the period before and around those dates were pretty difficult. So the focus on the brand was probably not that great due to the transition, and that obviously had an impact."
Eriksen believes the decline is merely a "temporary phenomenon" and that the company should be back to at least moving or growing its market share in the US very shortly.
"Into that 3% you also need to factor in the general recessionary environment in the US. We have been very resilient to those things but this is a downturn that has been bigger than we have ever seen. The vodka market in the US saw a decline in the on-premise but the vodka market is holding up pretty good. There has been a shift from on- to off-trade, and there is a slight, sort of down-trading if you like. So people are moving from super-premium to premium and down to standard.
"In light of all of these things, I think we are pretty OK with the results so far but again it was an exceptional period for the brand where it has been through a transition."
Despite Eriksen's optimism, analysts have suggested the premium vodka brand has little volume growth potential left in the US, and Absolut should be looking to other markets.
Ekrisen says this is precisely what the brand is doing. "Absolut is growing virtually everywhere," he says, "and we shall continue to see significant growth coming outside of the US for years to come."
But for Eriksen, the US premium vodka market is far from being a busted flush. "We think we can continue to grow in the US as soon as the market settles but we have to go through this recession. But there is no reason for us not growing at least with the market or better."
Absolut has enjoyed strong growth in markets such as the UK, but Pernod's results pointed to difficulties in Spain, the UK and Italy. "We are still very dynamic in the UK," Eriksen points out, "but the recessionary environment is something we are working against in the UK. However, the UK is a great opportunity for Absolut and will continue to be so. The growth is very high and the brand is very healthy. The market share is still very low and is dominated by Diageo, but we should see an improvement in the coming years."
Diageo may dominate in many markets but in others, notably China, Absolut accounts for the lion's share. But wherever that is the case, Diageo's Smirnoff is snapping at its heels.
Absolut's strengths in China represent a good fit with Pernod. "Right now we are very focused on China and Korea," he says. "If you look at Pernod Ricard's strength in China, it has a massive distribution market with tremendous success for its brands. Absolut will surely benefit from that in the form of accelerated growth going forward."
Eriksen also pinpoints Thailand as a "very prosperous" market. "There are also the obvious countries," he continues. "In the Americas it is certainly Canada, Brazil, Mexico. And then it is the key European countries like Germany, UK, France, Spain, Poland, Greece, Russia, and we are certainly keeping an eye on Turkey, Italy, India, China and Australia."
A significant element in the Absolut transition to Pernod was the French firm's decision to pull V&S out of its Maxxium global distribution venture, which Eriksen describes as "a massive move".
"We basically switched distributors in 100-plus countries and that's a pretty tough task in one country alone. We were exiting Maxxium in 40 countries or so, key countries around the world as well as a number of independent distributor agreements. The conclusion is that it has been faster, better and to a lower cost than we anticipated."
It was certainly not a task for the faint-hearted, but Erikson says it has been a good challenge, both for the brand and for him. "It has been quite a massive task for us. However it has been going very well and we are very happy about where we are. We are now 100% into Pernod Ricard in every single country in the world we work with."
Eriksen says Absolut now has two big advantages. First, it has "a first class route to market" with "enormous distribution muscle", and secondly, the brand belongs to "a superb premium portfolio which is also helping us to fulfil future visions".
Despite Eriksen's optimism, the company is currently being sued for GBP33m (US$47.8m) by an Australian business which claims the company stole his idea for a reality TV programme. That could make a big dent in finances but Eriksen says he is convinced Pernod Ricard will win the case.
Given the industry-wide struggle through the global economic downturn, it is a wonder the CEO can remain so positive.
"This industry, the category and the brand is relatively resilient to this kind of thing. However, this is more than a general downturn and we are watching that basically every day. Clearly we expect the downturn to hit the spirits industry and the category and the brand to some extent but nothing like other sectors or businesses. It is certainly something we are watching and trying to be responsive to."
As the company nears the end of the transition, Eriksen says the main focus will now be to "watch the recessionary impact on the category and the brand" and respond.
"The transition was certainly a challenge for us and so far we are very happy about it," Eriksen says. There are some more "capacity measures" to attend to but, not surprisingly given Absolut's history, there will be some innovation too. "You can expect some new stuff but we are not going to say what it is. If you have watched us over the last couple of years there has been quite an interesting stream of innovation and that needs to continue."
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