V&S - the Absolut balance of power

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Home and abroad Vin & Sprit faces a period of reinvention. While it could be a key influence in the race for Seagram's drinks business its impact on the international drinks world may be far greater in years to come. Chris Brook-Carter profiles the owner of Absolut.

Vin & Sprit (V&S), the Swedish state-owned, drinks business, is something of a contradiction. At home it is part of an alcohol weary state machine that imposes Europe's highest domestic drink taxes and import curbs. But abroad it is increasingly an aggressive beverage player and is becoming an unlikely drinks multinational.

Nothing has done more to thrust V&S into the international spotlight than the sale of Seagram's drinks arm. Seagram's jewel in the crown is the distribution rights to V&S brand Absolut, the world's second bestselling premium vodka with annual sales of around 6.5m nine-litre cases a year. (It is estimated to contribute 7%-10% of Seagram's operating profits for distribution alone.)

V&S, analysts believe, could hold the trump card in the race for Seagram's brands in the form of a get out clause which allows the Swedes to renegotiate or revoke any distribution deal in the event of a Seagram drinks sale.

Whatever happens, V&S is unlikely to want Absolut to return to Diageo should it grab hold of Seagram. The brand was part of the IDV stable until 1994, and, despite being credited with much of the brand's iconic status, the rights were receded by V&S because of the clash of interests with Smirnoff.

Diageo's other half in the fight for Seagram, Pernod Ricard is also likely to hold little interest for V&S. The French group's interests in Polish vodkas, Wyborowa and Zubrowka, impact directly with Absolut's targets.

If the latest noises to come from the Seagram negotiating table are to be believed then V&S is supporting the Allied Domecq bid. In its latest company report, leading UK drinks analyst Canadean says: "Allied Domecq may be able to make this purchase outright. This solution may appear to suit V&S better, and it may even be interested in buying brands which Allied Domecq does not want."

Earlier this month reports in the UK press suggested that V&S was removing the Absolut factor out of the deal altogether. Instead it would renegotiate a deal after the sale of Seagram and was even considering selling off distribution rights in a piece meal, geographic fashion.

But the Allied scenario makes more sense to industry watchers. To negotiate different distribution deals on a geographic basis would take valuable time and money. As Canadean says: "The Seagram deal is critical for V&S. It has invested a considerable number of years in widening the distribution of its main brand hand in hand with Seagram. Should it be able to transfer this know-how to a single partner, Allied Domecq, it would be of enormous benefit. Otherwise it faces a long period of disruption while it seeks to move market by market."

However as one industry insider said: "Goran Sundqvist (CEO of Absolut) is a difficult person to predict. He will do whatever he thinks best in the long term for the brand. If this means different local distributors he will do it despite the added logistical and financial concerns."

More than a one brand show

The glare of the Seagram spotlight, however, should not blind anyone to V&S's gradual expansion as a world player outside the Absolut portfolio. This may be the drinks arm of a country that narrowly voted against complete alcohol prohibition in 1923, but it is aggressively pursuing its interests abroad.

It is on a shorlist of three bids (with a German partner Eckes, up against Dutch spirits group Bols and Pernod Ricard) to buy Polish distiller Polmos Poznan, the maker of Wyborowa, the world's twentieth largest spirit brand, with 5m nine litre case sales a year.

Pernod Ricard executives were surprised by the sudden interest in Wyborowa. One source told "Why would they want it and what would they do with it? It only gives them access to the Polish market and it would only complicate, not complement, Absolut."

It has also made acquisitions in the UK, a 50% stake in Plymouth Gin, and in Denmark, where it has acquired Danish Distillers (Danzka vodka and Aalborg aquavit). And it has made moves into the Czech Republic by buying Dynbyl, the leading Czech vodka producer with a 20% market share.

Ironically V&S's strategy is not miles apart from one of its possible bidders in the Seagram race and one of its competitors for Poznan, Pernod Ricard. It is buying up brands and companies with local distribution strengths and moving its other products through these.

Although its revenues still rely almost solely on Absolut, according to Canadean the company expects to be a "profitable, world class company within the next five years".

But despite these aspirations, the international acquisitions are probably still a medium rather than short-term goal, unless Seagram brands come up for grabs after the sale. In this case as Canadean says, "it may fulfil all its strategic aims in one go".

Domestic bliss?

But while V&S may appear ruler of its own destiny abroad, at home the future is in the hands of forces beyond its control. The company no longer has a monopoly on the production of alcohol and the impact of the introduction of brands such as seriously… vodka and Svensk vodkas onto the market will be interesting to see.

V&S still controls all the country's off-trade business but even this is braced for change. Sweden's minority Social Democratic government is treading what analysts have called a "thin political line" while they are pulled between alcohol-weary traditionalists and a new liberal generation.

But there will be change thanks to European law. The maximum import levels are set to quadruple for beer and triple for wine and spirits by 2003. So unless taxes are cut more Swedes will either buy abroad or go to the already flourishing black market.

For more details on the full Canadean company report on Vin & Sprit, including in depth analysis and a financial and statistical breakdown click here: /store/products_detail.asp?art=10440

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