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Is Pernod Ricard's Absolut dying in the US? - Comment

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This month, white spirits commentator Richard Woodard considers the present health - or lack thereof - of Pernod Ricard's flagship vodka brand, Absolut.

Is Absolut the wrong brand in the wrong place at the wrong time and the wrong price?

Is Absolut the wrong brand in the wrong place at the wrong time and the wrong price?

Amid all the hoo-ha about the American whiskey renaissance, plus the rise and rise of Scotch single malt, you might well think that vodka is the forgotten man of the US spirits market. Not true. After all, this is a nation that manages to consume roughly 72.5m cases of vodka every year, and that figure is still rising, albeit much more slowly than before. Next biggest spirits category? Liqueurs. How far behind vodka? Just under 50m cases.

Oh.

According to Impact Databank's recently-released list of the market's top 25 spirits brands, seven out of the ten vodkas that feature increased their sales in 2015, including a welcome return to form for Smirnoff (albeit at least partly on the back of price cuts).

Vodka isn't dead, then, but nor is it enjoying the same degree of rude health that has characterised most of its past few decades in the US market. And, that's particularly true of imported vodka.

Even the imported segment's flatlining in 2014 disguised more concerning underlying trends, skewed as it was by Svedka's runaway success - and, bear in mind that that stagnation came only three years after imported vodka enjoyed double-digit growth, adding more than 2m cases.

Going back to that Impact list, of the seven vodka brands in growth during 2015, only two were imports – Svedka and Ketel One. Svedka's 2.9% sales rise last year took it to 4.2m cases, lifting it above Absolut in the process. We'll come back to Absolut shortly.

The other growth brands were Smirnoff, New Amsterdam, Skyy, Burnett's and Tito's. The big movers – and I do mean big – were New Amsterdam and Tito's.

Gallo-owned New Amsterdam moved into the spirits top ten with a 25% sales rise last year, taking it to within sniffing distance of 4m cases and, just beyond that, to overtaking both Absolut and Svedka.

Meanwhile, Tito's astonishing rise continued with a 40% jump to not far short of 3m cases (admittedly a deceleration on 2014's 50% surge), which means that it too should soon be part of the top ten.

This represents a shifting of the rules of engagement in the US vodka market. The two pre-eminent current success stories are domestic brands that wear their local provenance on their sleeves and, in the case of Tito's, combine this with homespun, craft-friendly charm.

Suddenly, we're a world away from the calculated cool, Scandinavian chic of Absolut's heyday: the iconic bottle, the clever-clever Madison Avenue marketing, the cachet of exotic Europeanism. Rarely has such a beautifully-crafted brand looked so out of step with its market.

Pernod Ricard is, of course, painfully aware of this, taking steps in an effort to reverse a decline that has seen Absolut lose about 0.5m cases in the past five years. CEO Alex Ricard has so far remained defiant, insisting that he is happy with the progress of the road map implemented behind the brand some 18 months ago.

However, what has emerged so far looks uncomfortably like tinkering, rather than a more radical reimagining of what Absolut should be in the US.

Culling flavours? Well, so has everyone else. "Reconfiguring" prices? Not sure what that means – are they going up or down? The 'Absolut Nights' marketing campaign? Didn't Smirnoff do that about a decade ago?

NPD has so far been focused on margin enhancement and the opportunistic targeting of the success of other categories: Absolut Elyx (which arguably achieves both through its pricing and 'artisanal' character), and Oak by Absolut, a barrel-aged vodka for the whiskey lover that has been somewhat overshadowed by the failure of its predecessor, Absolut Amber.

The painful truth is that, amid current trends, Absolut is the wrong brand in the wrong place at the wrong time and the wrong price. Imported vodka has lost its kudos with the American consumer, and Pernod daren't chase Svedka and play too fast and loose with pricing for fear of sacrificing Absolut's premium positioning.

In imported vodka terms, Absolut finds itself in the 'squeezed middle' – lacking the attractive pricing of Svedka, but falling short of the luxury cues enjoyed by the likes of Grey Goose and Cîroc.

Pernod implicitly recognises this with some of its recent market activity: the 'glocal' feel of the Our/Vodka concept; the new Smithworks brand, using corn sourced from Kansas, Missouri and Oklahoma. At the moment, in vodka, this is where the fun is.

It's eight years now since Pernod paid US$8.9bn for Absolut owner Vin & Sprit. Even then, the price looked high; roll on six months to the collapse of Lehman Brothers and it looked astronomical. Bad timing and bad luck.

In 2009, Pernod sold Wild Turkey Bourbon to Campari for $575m; in 2015, Pernod took a $455m writedown on Absolut, mainly thanks to its travails in the US.

Given the transformation of the American whiskey market – and of Absolut's fortunes – that has transpired since then, those figures make very uncomfortable reading indeed.


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