Baron’s court

Bengt Baron, CEO of Vin & Spirit Group AB talks to Chris Orr about his stable of vodkas, brand building and why tighter regulation of advertising isn’t necessarily a bad thing

BENGT BARON’S FACE hardly changes as he muses over the first question.  "Well, I guess it is a lot of money," he suggests, "but it’s all relative really."  The question was simple: was US$2bn too much to pay for Grey Goose in the US and will a return on that sort of investment ever be realised by the purchaser?

"I mean, when Bacardi bought Bombay Sapphire a lot of people said that the price they paid was far too much, but I think Bacardi proved the market wrong.  We’re seeing high prices being paid for the likes of Grey Goose and Glenmorangie and only time will tell whether those prices are reasonable or not. But it does show that the market is prepared to pay for brand value."

And if the market is prepared to pay US$2bn for Grey Goose, what would it pay for Baron’s going concern – namely Absolut.  Surely that would really be megabucks.  "I doubt we’ll ever find out," says Baron very diplomatically. It would, however, be quite a sizeable amount no doubt.

In the US alone Absolut sells 4.8m cases a year, making Vin & Spirit AB very happy – which in turn makes Baron, it’s newly appointed CEO and leading man, very happy too.  Baron has a long history of working with big brands.

Formerly an employee of the Coca-Cola company, he also worked for several years with Kodak, before joining V&S three years ago.  The two former brands, he claims, are not so different from his new main concern, the vodka industry.  "There are real similarities between them. 

I think when it comes to brand building a lot of the methods and practices are pretty common, whether its a can of Coke or a glass of Absolut."  But there are clear differences as well.  "I think the level of product innovation – in terms of offering ‘new and improved’ versions of your brand – are naturally much more limited compared to the sectors that companies like Proctor & Gamble or Kodak work in.

But on the other hand the longevity of brands is far more extensive.  It takes longer to build up a brand in the drinks industry but once you have built are very robust and have far more extensive durability in the marketplace."

Absolut is clearly at that stage now.  Launched in the US 25 years ago, it is one of the most recognised spirits globally and the big daddy of the premium vodka world.  The question is, with the onslaught of so many other premium vodkas – all wanting a piece of the action – is Absolut as "premium" as it once used to be.

 "Are we priced out of the market, do you mean?" Well, in a way yes.  There was a time when Absolut was one of the most expensive vodkas around.  Now it seems positively reasonable in price terms compared to some of its competitors.

"Well, you know I guess we’re kind of in the middle from the pricing point of view.  But if you take the US vodka market as a whole – and I say the US because that is really the most sophisticated part of the vodka market – then I can find you a price point from about US$5 upwards.

And depending on which end of the spectrum you look at you can either classify Absolut as overpriced or underpriced.  Personally we feel it’s priced more or less right.  "The question I have is whether there is enough of a market to support the number of new brands that are coming into the vodka market all the time.

I mean we have seen strong growth in the US over the past decade, but when you look at the demographics of the population, current spending habits and trends, there’s a lot of growth left in the market.

But can it support the sheer volume of brands being launched? "I think we are seeing a lot of brands coming to the market, but how long they’ll be around for will be interesting.  But that’s healthy.

You need that. We’re very lucky because we have 25 years worth of experience and exposure in the States.  It means we have a terrific foundation.  Absolut is a high quality product that people know and have a lot of brand affinity with.

"But the brand world is evolutionary.  Indeed I think you can say that great brands – truly great brands – tend to evolve and develop in conjunction with what goes on around them.  I think that has been one of the secrets to the success of Absolut.

Yes it’s had the same basic brand image over 25 years, but it’s constantly evolved in order to stay contemporary and relevant in people’s minds.  "The fact that we’ve been around for so long, however, allows us to take more of a long term view on brand building and ride the ups and downs of the markets.

I think it becomes much more difficult to manage a brand if it is simply a part of a phenomenon.  I think the challenge for many products is to create a brand and then bring in new and interesting products under that brand – to constantly revitalise and reenergise its appeal."

One way he and V&S have chosen to "re-vitalise" the Absolut brand was to launch Level in the US in April this year.  "It’s had a terrific reception, and a great response from consumers. It’s a terrifically smooth and balanced vodka and whilst it’s tied into Absolut in some ways, it is very much a brand in its own right."

Is it not, however, slightly cynical to launch Level as a stand alone brand.  In other words, is the faith of V&S in the super premium vodka market somewhat less than rock solid? By marketing Level as a separate brand, are they ensuring that if, for whatever reason, it should bomb, Absolut’s brand image wouldn’t suffer?

"Well it probably does look a little bit cynical, but we are very specific about what Absolut is and is not.  Level is a wonderful brand and a wonderful vodka and we didn’t see any point in coming out with a base-brand plus or base-brand gold concept.

That seemed pointless to us.  We felt we wanted to bring something new, something real and something very fresh to the market. It shares some of the heritage of Absolut, and definitely has the same dedication to quality, and there are some cues in terms of labelling and packaging as to its links with Absolut, but it is very much its own brand and product.

We felt that was very important, vital in fact, to ensuring that it had a reason to be in the marketplace."  If it sounds slightly schizophrenic, managing two closely related brands of vodka in the same market, then a little look at the V&S portfolio as a whole makes Baron’s job look even more complicated.

As well as Absolut and Level, they also have Danzka vodka, Fris Vodka and Luksusowa.  Does it not all get just a little bit confusing? "Not really.  They all have their niche or their defined market.  But the marketplace is getting busier and busier – especially the US.

And if I can grab and defend more shelf space with these brands then that’s great.  Increasingly retailers are having to engage space management and so the more exposure you have the more likely you are to retain or increase shelf space.

"I think what’s key to our portfolio is that we are very single minded about what we do with each of the brands, where we want them to be and what we want to achieve with them.

And that goes just as much for great brands like Plymouth Gin that sit in our portfolio as it does for the vodkas."  It’s probably not unreasonable that vodka dominates the conversation with Baron, given that it contributes more than 50% of all turnover.

But V&S does have interests in rum, wine, whisky, liqueurs and bitters.  And through partnership and distribution deals, combined with investment in the likes of Future Brands (Jim Beam) in the States and Maxiuum in Europe, it also has exposure to a much wider portfolio.

"But it’s not so difficult to manage multiple brands when you have a focus," says Baron.  "What was a great challenge was the company’s transformation from a monopoly to a free and open business dealing with customers on a global basis."

Baron is referring to the major change that was brought about by Sweden’s entry into the European Union in the late nineties – an event that meant V&S could no longer act as a stateowned monopoly.

It is still owned by the Kingdom of Sweden (as it is so grandly called), but it’s no longer a monopoly.  "That was an immense cultural and practical change for the business and company," says Baron.

 " I mean, until 1995 we were a monopoly that sold Absolut through third parties.  We only really operated in Sweden, and very few people actually worked on the Absolut brand.  The corporate culture was mainly Swedish focused and Swedish oriented.

Today, five or seven or eight years later, we are a Pan-Nordic and global operator.  We have operations in 12 countries and 2,400 employees.  We have more employees in Denmark than we do in Sweden.

And we’ve grown primarily through acquisition, by buying stakes in Plymouth Gin (85%), Future Brands (49%) and Maxxium, (25%).  I believe we’ve come an awful long way in a relatively short space of time.

Of course mistakes have been made along the way, but I think we have achieved an enormous amount."  Overall, vodka contributes 58% of all sales at V&S, with the second biggest turnover being accorded to wine, which generates 23% of all sales for the company.

"We have grown our wine business significantly over the past few years," explains Baron. "The aim is to build a market leading business in northern Europe (primarily the Nordic region).

We aim for a complete portfolio with a blend of own brands and agency brands.  We already have a very strong partner portfolio.  But we have no plans at this time to integrate backwards, i.e. invest in vineyards."   However, whilst wine provides 23% of turnover, it doesn’t contribute a great deal of the profit.

"The current contribution from the wine business is limited," admits Baron, "But we believe this will be improved upon in the coming years.

"What’s interesting about the wine business is that long term consistent brand building is becoming more and more essential – as it has been considered in spirits, and other consumer goods sectors for many years.

I think we are beginning to see this emerge in the wine industry.  You see it most with the New World brands, where there is a focus on solid brandbuilding.  It will be interesting to see how it turns out over the next 10 years.

Some of our colleagues in the business are investing heavily and making big bets on this, so I will be fascinated to see how it turns out."  Back to vodka though, where much of the operating profit comes from.

Which markets does Baron see emerging as key for the future? "I think places like China and India will be important emerging markets – the sheer numbers alone make them fascinating potential.

But when you compare the US and the European markets (with the exception of places like Russia and Poland), there is still enormous potential for growth within the European markets.  Few markets, as in the case of the US, have a situation where vodka represents 25% of the total spirits market.

So there is still enormous growth potential in some of the more ‘traditional’ markets.  "I think when it comes to countries likes China, India and, say, Turkey, they are going to be long haul propositions.

They are not markets that will develop over night and they will take long term brand building, as well as require a change in comsumption patterns.  Remember the Chinese or Indians are not necessarily dissatisfied with what they have on offer drinks-wise at the moment, so we need to help and encourage them to regard vodka as a desirable drink."

One thing that V&S is very committed to, as are an increasing number of drinks companies, is social responsibility.  "It is a very important part of our proposition," claims Baron.  Does he not worry, however, about the potential stranglehold that increasingly tight restrictions on advertising alcohol across the globe will have on his brand building efforts. "Not really. 

And I say that because we already operate in a multitude of countries, and each of those countries has a different set of rules and regulations.  Some are less strict than others, some more strict.

But you adapt to them, work around them and do the best you can to ensure that you can build your brands within those confines.  "Besides there’s one very positive side to increased regulation.

If you are an established brand, increased restrictions can make it much more difficult for others to enter your market successfully.  Lack of advertising or media opportunities makes brand building very hard to do if you are a new brand.

However, if you are already well established and have an emotional contact between the consumer and your brand you are already ahead of the game." A point well-made.