Vin & Sprit

The development of the Swedish state-owned drinks monopoly Vin & Sprit (V&S) is a fascinating conflict between the responsibilities of a state organisation and the dynamics of a global drinks organisation, driven by the need to produce a profit.

But while there is still plenty of debate about the ethics of running a profitable, state drinks business from within a country so committed to restricting the role of alcohol within society (Sweden has some of the highest alcohol taxes and harshest restrictions on beverage sales in the Western world), there is no doubt about the aggressive direction V&S is now taking to establish itself as a world player.

V&S's vision is to become a profitable, world-class company within the next five years and ultimately sit among the industry's top organisations. And this year has seen it take significant steps to achieving that ambition.

Central to all V&S's goals and plans is of course its flagship brand Absolut, which itself has undergone a significant upheaval in the past 12 months with the sale of its global distributor Seagram. V&S took the opportunity of a get out clause in its contract with Seagram to move its distribution to Jim Beam Brands in the US and Maxxium worldwide and at the same time become the fourth equal partner in Maxxium.

The company can expect some disruption to sales in the short-term, but as international drinks analyst Canadean says in its Strategic Review of the company: "Its decision to join Jim Beam in the US and the Maxxium distribution alliance worldwide was smart, giving benefits to all parties, and enabling it to have greater control over the marketing of its most famous brand at a reduced cost."

The report goes on: "Its distribution move, forced by the sale of Seagram's drinks unit may turn out to be greatly to its advantage, at least in terms of profitable returns."

V&S Sales value by
business sector 2000

Spirits ........ 81%
Wines .......... 13%
Other .......... 6%

But V&S has also become increasingly aware that its strategy is overly dependent on one brand and the company has begun to address this problem to create a better balance. Canadean identifies four basic objectives within the V&S strategy that are driving the business forward.

The first is the continued development of Absolut. Growth is already quite extraordinary. It is now the fourth largest international brand in the world with 7.3m cases and is gaining on its competitors at a remarkable rate. Growth in the US was 10.6% last year, while Europe saw a 30% hike. As it enters into the Maxxium and Jim Beam networks the future looks bright for continued growth.

The second objective is to continue to establish itself as a giant within the Nordic region. "The group's strong financial position and local knowledge allows it to participate in add-on acquisitions of other Nordic countries domestic spirits operations," explains Canadean. Indeed V&S now has good coverage in the four Nordic markets having completed the acquisition of Danish Distillers while being in the process of buying the Marli Group in Finland.

V&S is also looking to strengthen it local distribution networks, particularly in Eastern Europe, where it has acquired the Czech distiller Dynybyl and is looking to participate in the privatisation of Poland's vodka industry.

Finally there's V&S's ambition to own further international brands, which Canadean describes as "set a little further in the future." While it has bought into Plymouth Gin this is really still a niche brand and the company must keep its eyes open for further opportunities.

The continued consolidation in the global market should present the group with these opportunities, where it recognises it has the greatest potential for growth. Combined with the cost and management benefits of its Maxxium partnership and the possibility of further liberalisation in the drinks market at home, V&S looks well set to continue what it has achieved this year.

(a full Strategic Review for V&S is available in the Research Store here)

Allied Domecq

According to some analysts Allied Domecq was the big loser of the Seagram wine and spirits sale when it pulled out of the race and left Diageo and Pernod Ricard to clinch the deal. But while the US's FTC continues to keep Diageo and its French partner on tender hooks over when, and if, the deal will finally be allowed to go through, Allied has spent £1bn on acquisitions and quietly transformed its business in the meantime.

Fourteen million cases of wine, the rights to Stolichnaya vodka and distribution assets in Germany have been added to the portfolio alone. Alongside this, Allied continues to recreate itself internally. Philip Bowman, the company's CEO said this year, that the group was "focused on the profitable growth of (its) brand assets rather than simply chasing volume at any price." Canadean comments: "Not before time!"

Canadean puts great emphasis on the importance of the appointment of Kim Manley as chief marketing officer, who has helped establish a new operating framework and one global marketing team. There has also been a major review of the company's brands, markets and new product development. Allied's portfolio now resembles Diageo's in its focus - with eight core brands on top of the structure; a set of local market leading brands underneath; and finally the more niche products at the bottom. Investment behind its brands is up 7% and will reflect the new portfolio structure in the division of funds.

Importantly the company's new product development is now also far more focused. Some 130-product projects have been cancelled leaving four on the table. "The new, more concentrated policy with regard to innovation will take a little while to assemble and get to market, but the determination to accelerate new product launches should now prevail and the budget is there to support commercialisation," says Canadean.

Brand Share of Trading Profit
under new Management Structure
Four core brands .. 37%
Next 21 ........... 47%
The rest .......... 16%

While the company has undergone something of a transformation this year - the new acquisitions are expected to contribute some 20% in profits in the current year - don't expect Allied to stop acquiring.

"The highly selective acquisition strategy is likely to continue with further purchases in Australasian wine businesses to help build up the new premium wine group. Other add-on acquisitions, which might improve distribution volumes in local markets, will also be pursued. Opportunities to gain global or regional brands to complement the portfolio are being sought and the group is said to be interested in acquiring a Polish vodka," Canadean says.

Already the benefits are being seen and the spirits and wine division registered increases in trading profits of 8% on turnover up 8% this year. But some concerns still remain over Allied, in particular with its acquisitions in the last year. "On the surface it appears to have acquired a mixed bunch of companies," says Canadean, "but those chosen have been selected for a number of different strategic reasons. Whether or not they fulfil these aims remains to be seen."

Primarily there are fears that some of the wine acquisitions have been done to provide critical mass rather than for their brand strengths. "Some of these selections would appear to be driven by the old production-led Allied Domecq strategy, rather than seeking the best wines the consumer wants," says Canadean.

But it has to be said most concerns are a result of Allied's past rather than its present. "Whilst our hope and expectation is that this time it (Allied) really does mean what it says  - experience has taught us that it may be some time yet before sustainable quality earnings are assured," warns Canadean. Allied's plans are ambitious and no-doubt on the right path. With the correct management and marketing it can succeed. 

We have a brand new report entitled "Strategic Review 2001 - V&S Vin & Sprit AB" which provides a fully updated picture on the company.