Interview - Absolut winners
The recent Absolut vodka deal has transformed JBB and its Maxxium partners into serious international contenders. Elliot Lane talks to Mike Donohoe, CEO of Fortune Brands LLC, which will handle Absolut and JBB's portfolio in the US, about the future of the brand and the new direction it has given the companies involved.
"A joint ownership helped both partners and has sealed our destinies. "
Absolut's popularity and iconoclastic status gave the battle for its distribution a soap opera quality. Every week, names and places were bandied around; who are Vin & Sprit (V&S) talking to now?
Allied Domecq made a bid then withdrew; Pernod Ricard was involved then written off; Diageo didn't stand a chance with its Smirnoff conflict; was it only the US rights or the worldwide rights on the table?
Finally, 10 days ago, two of the rumours rang true. The Absolut Spirits Company Inc. had been planning to create a completely new US company to take on the vodka brand's distribution. And secondly, the frontrunner mooted after the New Year, Jim Beam Brands, was in fact going to be the winner.
This is quite a coup for the US spirits and wine company, famous for its Jim Beam Bourbon brand, and has pushed its own status in the industry up a few notches. Clandestine negotiations took place over six months and Absolut kept its cards close to its chest.
"At the first meeting, the distribution issue was discussed but we had no idea who they were talking too, and it was made clear no-one was being told of our involvement," said Mike Donohoe, JBB's senior VP, sales and marketing. Though personally not at this initial meeting, he was brought into the discussions to play a key role in hammering out a workable deal.
"The second time we met, Rich Reiss (JBB Worldwide President and CEO) had invited me in to discuss how the JBB US sales personnel could be integrated. There wasn't too much difference but V&S said they were talking seriously to the other big players. Four months ago though we still weren't sure whether the Seagram sale would go ahead. However, things moved quickly and we had a business meeting of half an hour to discuss dollars and saw the opportunity to secure a joint venture," explained Donohoe.
His own involvement has now put him the driving seat of the new company. Senior VP, sales and marketing since 1997, this week however, he becomes CEO of the new joint venture Fortune Brands LLC, which will distribute Absolut and JBB's portfolio in the US and has a combined US sales volume of 20m nine-litre cases.
The agreement is structured so JBB has the controlling interest of 51%, sacrificing its network as the equity, with V&S acquiring a 49% stake for $270m. It also has an initial 10% in Jim Beam Brands which can increased at a later date. The idea of a joint venture was mutually agreed but V&S preferred this deal rather than a straight distribution deal.
"A joint ownership helped both partners and has sealed our destinies. V&S wanted it because in truth they were happy with the Seagram arrangement and did not want to lose the control they had before. They were worried more consolidation could follow or the other parties interested wouldn't allow them to be involved," Donohoe said.
"I wouldn't rule out the possibility that all four partners in the future look at forming closer ties"
Integration of the two networks in the US must be completed by 1 June 2001and some nerves are frayed in the organisation. "People seem to be worried about this but it is feasible…the actual logistics are simple. Absolut will be shipped by JBB to the distributors, many we know or deal with already, and our relationship with Seagram is amicable," he said.
Outside the US and the Nordic states, Maxxium, the giant European distribution company comprising JBB Worldwide, Remy-Cointreau, and Highland Distillers will now handle Absolut globally. V&S has strengthened its bond with the group by becoming a fourth partner. When it was first put together in 1999, the Maxxium partners had been tentative about its longevity, putting an 18-month proviso on its life span. Donohoe, however, sees the V&S partnership as the defining moment.
"As far as I'm aware the deal was commensurate. I wouldn't rule out the possibility that all four partners in the future look at forming closer ties. But there is no grand scheme and at present, the company allows all partners to become worldwide players and I wouldn't want anything to stop that," Donohoe said.
Controversy still surrounds the future of V&S as the Swedish parliament is split as to whether the state-owned monopoly should be privatised. Only last week, the proposed sell-off in the summer was postponed yet again after the Green party although still in overall favour of a sell-off, said they want more information on all state-owned companies. Per Lager, joint leader of the Green Party parliament group said: "We have been of the opinion that we could sell eventually, but not right now. But we feel that Vin & Sprit is one of the companies which could be sold."
Whatever happens, the Future Brands LLC contract (when listening to sighs of exasperation from Donohoe, it seems it must be the size of a telephone directory) has stringent clauses for any eventuality and the privatisation would not automatically sound the death-knell to the company.
"The government would be bound by some very long-term contracts which are secure for years. Anyone buying into V&S will be held for a long, long time. The contract protects both sides if either of us was sold," Donohoe said.
His first job will be to revitalise the profitability per case of Jim Beam, where growth has been flat in the US. Advertising spend has been increased by 40% for 2001 and will be increased by 35% next year. This is forecasted to push Jim Beam's case profitability up by 1%-2% with price increases. "I think the price point will be roughly $9.99 - $11.99 average across the 50 states, on wholesale of $7.99," said Donohoe.
Absolut's point-of-sale will also increase, which the out-going Seagram team has already budgeted. "What I know from reading the contracts is that for 2001 the increase will be 3%-5% and nothing has been set beyond 2002," Donohoe said.
He praises the successes achieved by the Seagram management for Absolut in recent years and does not rule out retaining some of the staff. "I got another load of resumes on my desk last week. They have done an excellent job on-premise and we would like to talk to some of the team and reach out to them. But many have bonus schemes and it would be better to hang in until the bitter end," he said.
At the moment, Future Brands LLC will retain the JBB sales staff and combine them with the Absolut team bringing the staff levels up to around 180. Donohoe wants to increase the New York presence and 60 staff will be devoted to expanding the US on-premise market, the area he sees with the most potential.
Asked whether he would make any decisive changes to Absolut and the way the brand is marketed, he said with a wry smile: "Not one change - I'm not that stupid."
You can read more about Seagram and their future strategy in Canadean's "Seagram Strategic Review". Visit:
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