From its origins as a locally owned and distributed Swedish sprit brand, Absolut has transformed itself into one of the world’s leading mass-market premium drink labels. Now, after 90 years of state ownership, parent company Vin & Sprit (V&S) is up for sale and a fierce takeover battle is brewing as drinks manufacturers fight to secure the iconic brand.
Last week, Sweden’s government sought permission to privatise V&S as part of its pre-election pledge to sell off more state-owned assets. It is among six state-owned enterprises to be sold off – others are in the banking, telecoms and airline industries. Analysts say V&S – whose Absolut brand is the largest in a portfolio that includes Cruzan rum and Plymouth gin – is worth about £2.9bn.
Despite the hefty price tag, the sale has generated interest among a host of Europe’s largest drinks manufacturers. Bacardi has contacted the Swedish government about its interest, with chief Andreas Gembler describing V&S as a “jewel”. The move follows Bacardi’s $2.29bn acquisition of “super-premium” label Grey Goose vodka in 2004, marking its entrance into the premium category. Meanwhile, analysts have named Pernod Ricard and Diageo as frontrunners to buy Absolut. While the process is expected to generate interest from private equity bidders, analysts say the Swedish government is more likely to favour a trade sale – a scenario that would provide drinks firms with significant cost-cutting opportunities given the strength of their global distribution networks.
V&S markets and distributes Absolut Spirits in the US via Fortune Brands, in which it has a 49% stake, and in most other major markets through Maxxium, in which it owns a 25% stake. Fortune, which owns Jim Beam, is also considered a leading contender, with analysts arguing it could not afford to lose the V&S portfolio from its distribution system. Jamie Lister, director of consultancy Drink Works, says that while some claim Absolut has “had its day” and it has never had the backing of a larger spirits portfolio, it has developed a strong position as a credible premium vodka.
Absolut has a strong heritage, being produced and consumed in Sweden for almost 100 years before the vodka brand’s official launch in 1979. Since then, it has enjoyed a meteoric rise driven largely by innovative advertising, which helped to establish it as one of the first aspirational lifestyle brands in the global spirits market. International ad agency TBWA developed the first series of ads focusing on the bottle shape and Absolut name in the 1970s, with that same theme carried through to today. Absolut is now the world’s third-biggest selling vodka, behind Diageo’s Smirnoff and Ukrainian standard label Nemiroff.
In recent years, its dominance has been challenged by brands in the super-premium vodka category, such as Grey Goose, SKYY and Belvedere. V&S responded with the launch of its first super-premium product, Level, which made its US debut in 2004. The launch was supported by an estimated $10m £5.4m) investment, with TV and print campaigns, event marketing and online activity.
Lister says the venture was not “fantastically successful”, with V&S “struggling to take the brand into the more upper premium market”. But the company has had greater success than other premium brands in creating spin-off products, he adds.
“Any brand that operates in the mainstream premium sector would struggle to co-exist in the super-premium segment,” he explains. Lister points to the success of innovation in flavoured variants, which has been a major driving force behind growth in the vodka sector. Peter Shaw, managing director of branding consultancy Brand Catalyst, agrees that despite increasing competition, Absolut remains a “trusted” premium mass-market consumer brand.
The company has also been accused of falling behind newer rivals in refreshing its image. Shaw argues, however, that it is through a consistent approach to advertising that Absolut continues to maintain consumer interest. Lister agrees that rather than implement any radical changes, Absolut should “continue to gently evolve to make its position in the market fresh and credible”. He adds: “It needs to be innovative, not controversial.”
In recent years, the company has shifted focus to more experimental activity, particularly in the UK and Europe, where it has embarked on experiential initiatives including the launch of an Absolut-branded Ice Bar in London. In the US, the brand, which spends 50% more on advertising in the region than any other spirits brand, last year indicated its plans to develop a TV campaign to revive consumer interest. The brand is now looking to embark on a similar strategy in the UK.
A spokesman says that in the UK, Absolut has moved away from its traditional focus on print to experiment with new media, including events and promotional initiatives. However, he says it plans to move to broader media, including a return to print after a two-year absence and a potential TV strategy as it seeks to reach a broader market. He does not rule out an extension of the Absolut brand into luxury goods as it moves to strengthen its lifestyle positioning, although there are no immediate plans on the horizon.
With the company’s imminent sale and a major advertising drive being developed alongside possible extensions, Absolut looks set to continue to thrive as a premium player in the global spirits market.
Fact and figures
1917 V&S founded as a national monopoly for the production of alcoholic beverages in Sweden.
1979 Absolut launched in the US, followed by other global markets
1995 Sweden joins EU
2001 V&S builds global distribution network for Absolut and other spirits brands in partnership with Future Brands and Maxxium
2005 Global sales of Absolut increase by 15%, with growth strongest in emerging markets
2007 Absolut has grown to become the third-largest vodka brand in the world, with sales of 4.5 million cases in the US and 9.1 million worldwide, with non-US sales volumes exceeding those of the US.