The just-drinks interview – John McDonnell, Patrón Spirits Company
Consumer markets may be bracing themselves for the impact of the economic downturn, but Patrón Spirits Company has no intention of being deflected from its marketing-led growth strategy. In this month's just-drinks interview, Olly Wehring found John McDonnell, Patrón's chief operating officer, in bullish mood, determined that his company will defend the position it has built through continued investment.
It was 16 months ago that just-drinks last caught up with John McDonnell, chief operating officer of Patrón Spirits Company. Back then, the company's namesake Tequila brand was making pretty healthy headway in the US. Today, the brand is doing so well that it's getting name-checked by the likes of Diageo's CEO, Paul Walsh.
In value terms, in the year to the end of July, sales of Patrón are up by 32.5% in the US. In the total Tequila category, the brand is the second largest, behind Diageo's Jose Cuervo. However, in the ultra-premium segment - defined as Tequilas priced US$40 and above per bottle - McDonnell happily boasts that the company has an 82% share. "We're rocking and rolling in the US," he says.
The potential bubble burster that is the economic downturn, however, could certainly hit brands like Patrón. The consumer's tendency to trade down must surely be of concern to McDonnell. In his broadest Boston (or Bar-stun) accent, McDonnell explains bullishly how the company intends to spend to defend its position.
"We continue to advertise in the US," he says. "We're firm believers in keeping supporting brand equity and awareness in tough economic times. When you come out of it, things will be all that much better for the brand. We're a privately-held company - we're not managing quarter-to-quarter to shareholders. You'll see a lot of the larger companies pulling back their marketing efforts, because they want to bring it to the bottom line. That's the worst thing, we feel, that you can do." The figures back this up, with the company's marketing budget increasing this year by between 15% and 20% from the previous year.
Prior to joining Patrón, McDonnell worked for Seagram, and feels he saw first-hand how not to deal with a downturn. "The first thing Seagram would do when they hit a bump in the road was to slash marketing," he says. "Then, they would be all about push versus pull. Then, the next year, they'd get an increase on top of the goods they just pushed in. So, now, they're going against a target that's not achievable because the numbers they reported last year were really artificial."
|John McDonnell, COO of Patron Spirits Company|
One other lesson McDonnell has learned in his former life is not to tinker with your message. "When Seagram started marketing again, they changed it," he notes. "By doing that, they lost consistency. You've got to have a consistent global message, adapted to local markets. That's what we've done with Patron."
The concept of Patron's advertising is based on disagreement over which of two options is best, but concluding that "You can't debate the quality of Patrón - it is simply perfect". "You can apply this concept to virtually anything," McDonnell says. "It can evolve, but it won't change. Consistency is the key."
Beyond the namesake Tequila brand, Patrón branched out 12 months ago, when it acquired the global distribution rights of the Ultimat vodka brand. The move was to be expected. With vodka accounting for 30% of the distilled spirits market in the US, it was a logical step for the company, McDonnell says.
"We reviewed 200 different brands, because we decided it would be better to buy an existing brand than start one from scratch," he says. "We chose Ultimat - which was owned by an independent operator out of Brooklyn [Adamba Imports International] - because the bottles are all hand-crafted and it's the only vodka that's made from wheat, rye and potato. Most vodkas use one of the three ingredients."
Since acquiring the brand, for an undisclosed sum, Patrón has launched Ultimat in six markets in the US, starting in June this year. New York is due to follow shortly. "We've decided not to rush to market," McDonnell says. "We can take our time."
In the rum category, Patrón can boast a brand - Pyrat - which is also performing strongly, up 5% year-on-year. "That's a slow-build," McDonnell says. "Everyone has projected that super-premium rum will be the next phenomenon, but the category hasn't taken off the way a lot of the industry has suggested it might. But every brand in our portfolio has grown - I challenge you to show me another supplier that can make that statement."
Looking to the future, McDonnell suggests gin is a gap in the portfolio it may seek to fill. "Gin would be a natural category for us to look at," he says. "I have the brand in mind if we decide to go in that category and it would fit exactly with our portfolio." No further details were forthcoming, however. "We have our eye on a couple of other categories, but I don't want to tip my hand," he adds. "We've identified a couple of brands, but right now we want to focus on Ultimat vodka, and making that as successful as the rest of our portfolio."
During the summer, Patrón hit the drinks headlines after Bacardi acquired what it described as "a significant" - albeit unspecified - stake in the company. The purchase ended a somewhat murky affair, after co-founder Martin Crowley died in 2003, with Bacardi claiming it had made an agreement with Crowley's executors to buy the stake in Patrón for US$175m. In January 2007, however, Crowley's executors agreed that John Paul DeJoria, who founded the company with Crowley, could acquire Crowley's 50% holding in Patrón's parent company, Caribbean Distillers Corporation, for $755m, a move which led Bacardi at the time to launch a lawsuit against Crowley's estate.
McDonnell isn't particularly keen to discuss the issue further, seemingly pleased that the matter is now settled. "We're just very happy that we can put this behind us and move forward," he says. "The one thing our team knows is to focus on the things that we can control and that is building Patrón to be a worldwide success, and that's what we're focused on."
So, with matters of ownership now settled, and a plan in place to tackle the economic downturn, McDonnell is confident that Patrón is set fair for further progress. "This calendar year," he says, "we're looking at volumes of around 1.85m cases globally. That's growth of around 15% to 20% up on last year." How many drinks companies would be more than satisfied with figures like that?
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