Absolut case study. Retaining growth in the competitive US vodka market CASE STUDIES DATAMONITOR VIEW CATALYST SUMMARY

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1 CASE STUDIES Absolut case study Retaining growth in the competitive US vodka market Reference Code: CSCM0211 Publication Date: October 2008 DATAMONITOR VIEW CATALYST Absolut Vodka is one of the leading spirit brands in the US, buoyed by its creative marketing techniques and innovative product launches. This case study looks at how the brand has retained its leading position despite an influx of new premium vodkas onto the market. SUMMARY Absolut was the first premium vodka to be launched in the US and now enjoys a leading share of the spirits market. The brand has recently been bought by Pernod Ricard, following a bidding war by global players attracted to this well-regarded brand. Aiding Absolut's growth over the years has been its memorable adverts. For over two decades, these centered on bottle-focused print campaigns that made a pun out of an Absolut bottle shown in various forms. However, a new campaign began running in 2007 that replaced this style with the In an Absolut World campaign. Sales of the vodka have risen since this aired, highlighting its success. Absolut's novel product introductions have also aided growth, being focused on new flavors and limited edition packaging. These create heightened sensory appeal around the product, and offer a key differentiator with other brands. Datamonitor. This brief is a licensed product and is not to be photocopied Page 1

2 ANALYSIS Vodka growth has been aided by an influx of premium and flavored variants Vodka is one of the largest alcoholic drinks sectors in the US; it was worth a substantial $9.7 billion in 2007, benefiting from its inoffensive, mild flavor and easy mixing capabilities. The market has achieved solid growth over the past few years, growing with a compound annual growth rate (CAGR) of 5.5% between 2002 and This was the second largest spirits category, in terms of CAGR, for this period. Aiding growth has been the strong innovation activity within the market, with a high number of new products being introduced that have premium qualities, or that come in unique flavors that help them stand out from competitor brands. Datamonitor's Product Launch Analytics tool records that 45 new vodka products were launched in the US in the 12 months to September 2008, 22% of which are touted as being innovative in some way, either due to their formula or packaging. Figure 1 summarizes some of the more unique entrants to the market. The influx of new entrants on the US vodka market has created challenges for the leading vodka brands on to how to maintain consumer interest in their brands. This case study focuses on Absolut and how the premium vodka brand has boosted growth in its strongest market (the US) through novel product introductions and memorable marketing campaigns. Table 1: Vodka had the second strongest growth in the US spirits category, Categories CAGR Tequila & mezcal 1,980 3, % Vodka 7,474 9, % Brandy 4,570 5, % Rum 4,051 4, % Specialty spirits 1,905 2, % Liqueurs 3,668 4, % Gin & genever 2,939 3, % Whiskey 13,378 14, % Source: Datamonitor analysis D A T A M O N I T O R Datamonitor. This brief is a licensed product and is not to be photocopied Page 2

3 Figure 1: The US witnessed a high number of innovative vodka launches in Source: Datamonitor analysis D A T A M O N I T O R Absolut's memorable adverts have contributed to its position as a world-leading vodka The brand was the first premium vodka to launch in the US, becoming a leading vodka brand The Swedish vodka Absolut, owned by Vin & Sprit (V&S), is the second largest vodka brand in the US after Smirnoff. It had 11.7% of the vodka market by volume in 2006, compared to Smirnoff's 14.6%. The brand was introduced to the US market in 1979, becoming the first country the brand was exported to (it is now exported to over 120 countries) and the first premium vodka launch in the US. It was created a hundred years previous to that date by Lars Olsson Smith (whose face adorns Absolut bottles) at a distillery in Åhus in southern Sweden, which is still the only place that it is produced today. By 1985, Absolut was the leading exported vodka in the US, gaining ground from its unique makeup as a Swedish vodka; the majority of vodkas at the time were from Russia. Being non-russian helped the brand grow through the 1980s, as US consumers often boycotted Russian goods during the Cold War. Datamonitor. This brief is a licensed product and is not to be photocopied Page 3

4 Also aiding its sales growth in the US was Absolut's premium positioning. The brand was sold at a higher price point than other vodkas on the market, setting it apart from the competition by implying that it was of higher quality. Other brands, such as Grey Goose, have since copied this format with their own versions of premium, high-cost vodkas. Absolut justified this markup by marketing the product's premium ingredients and production process. The company sources all of the vodka's raw materials (well water and winter wheat) from around Åhus, claiming these are of high quality; it also maintains a thorough distillation process, with the drink distilled hundred of times to aid its purity. The fact that it only has one production site, in Åhus, aids its authenticity claims and its ability to maintain consistent quality worldwide. In addition, the higher price point was justified by presenting the vodka in an unusual-looking, stylish bottle, said to be inspired by old Swedish medicine bottles. The bottle was the main feature of Absolut advertising for many years; Absolut's website acknowledges the major part the bottle plays in the brand's success: "The bottle has been the center piece in more than 1,000 advertisements and is very well known. Both the advertising and the packaging is, we believe, as outstanding and unique as the product itself." Absolut has recently been the target of a bidding war, and is now owned by Pernod Ricard Absolut's owner, V&S, was until recently owned by the Swedish government. In 2007, however, the government decided to sell the company off. Swedish financial markets minister Mats Odell said that this was because "we don't think that the state should run businesses on a competitive market. The state shouldn't make, sell or distribute vodka" (USA Today, 2007). This was a radical step by the government, since it had held a retail monopoly on alcohol sales in Sweden since the 1850s (citing reasons of public health). The sale, however, shows the government is changing its stance on alcohol ownership. Various global beverage leaders were reportedly interested in purchasing the brand, including Diageo, Pernod Ricard and Fortune Brands. Pernod Ricard was the winner, paying $8.89 billion for V&S in April Pernod is believed to want to enhance the brand's performance in the global markets outside of the US by utilizing its strong global distribution capabilities. Absolut changed its advertising style in 2007 to much applause The company's iconic Absolut series of adverts ran for over two decades Absolut's success in the US can partly be credited to its memorable adverts. The company ran campaigns based around its iconic bottle for more than two decades, following a simple format; the bottle would be shown in various guises with a twoor three-word statement underneath. This statement always began with the word Absolut and made an amusing comment about the bottle or the consumer. Datamonitor. This brief is a licensed product and is not to be photocopied Page 4

5 According to Absolutad.com, V&S's brief for the 1981 campaign was given very specific guidelines: "All advertising should center around the bottle, the product should not be identified with any particular lifestyle and the approach should have a timeless yet contemporary feel to it." With Swedish vodka virtually unheard of in the US in the early 1980s, Absolut needed a campaign that would help it stand out from Russian brands such as Stolichnaya, presenting the brand as having a unique style of its own. The first advert, "Absolut Perfection", appeared in 1981, featuring a halo around an Absolut bottle under a spotlight. The adverts have since played with the brand's distinctive bottle shape, while pairing its name with numerous concepts such as "Absolut Texas" and "Absolut Impossibility". Some of these adverts, such as the Texas one, only have relevance to the local consumer. The bottle shown in the Texas advert is fatter than normal; however, not many people outside the US may know that the state is known for serving everything larger than standard. People could therefore be attracted to a product that acknowledges their local makeup. Various famous artists, designers and photographers have been employed to help create these adverts over the years, including Andy Warhol, Gianni Versace and Herb Ritts, helping enhance the profile of the brand. Figure 2: Absolut adverts centered on the bottle imagery for over two decades Source: Absolutad.com D A T A M O N I T O R Until the marketing campaign was changed in 2007, the company ran over 1,500 of the bottle-centered adverts around the world, creating what became an instantly recognizable style of branding. TBWA, the advertising agency that created the long-running Absolut campaign, is modest about its role in establishing an iconic brand. Richard Lewis, worldwide account representative for the agency, stated: "We understand that we're selling vodka; we're not selling ads. The hero is the bottle. The bottle is the star," (Knowledge@Wharton, 2002). In 1993, however, Absolut became one of the three original brands inducted into the American Advertising Hall of Fame (along with Coca- Cola and Nike) highlighting how successful the adverts have been in creating iconic imagery. Datamonitor. This brief is a licensed product and is not to be photocopied Page 5

6 Absolut only began advertising on US television in 2004 Until 2004, Absolut only advertised in the US in print, via billboards, magazines and newspapers, believing that its simple photos of vodka bottles were best shown in this medium. In 2004, however, the company marketed its sixth vodka flavor raspberry on various cable networks for the first time. Four TV adverts were created to promote the new flavor, which intended to compliment the prints adverts by following the same theme. The adverts show various artists giving a giant Absolut bottle a makeover, the results of which were shown on print adverts. The company said the TV campaign would enable it to show the creative process of the poster creation. The TV adverts can be seen as a response to the emergence of more premium vodkas on the market, such as Grey Goose, which put pressure on Absolut to enhance its profile in the face of increasing competition. Television allowed the brand to do this, giving it a large viewing audience. In addition, the new TV spots were partly down to the fact that more US TV stations were accepting liquor adverts, following a 2001 withdrawal by the industry of a voluntary code to ban liquor adverts. Reportedly, more than two dozen cable networks accepted these types of adverts by 2004, as well as around 150 local cable systems and more than 420 local stations affiliated with the broadcast networks (although the large US broadcast networks still do not run liquor adverts). ''TV is a viable alternative for us, now that more and more cable networks are available for liquor advertising.'' Matthias Aeppli, vice president for marketing at Absolut Spirits (New York Times, 2004). A new themed campaign called In an Absolut World has prompted a sales surge Absolut ended its two decade run of the bottle-centered campaign in 2007 with the launch of a new set of adverts called In an Absolut World. These featured, according to the press release, "an inspiring, humorous, thought-provoking integrated campaign about what an Absolut world might look like". Examples in Figure 3 show a politician with a nose that grows when he's lying; a baggage carousel with different colored, easy to identify bags; and an ideal man than can be put together from a box. The new adverts feature on TV and the internet as well as in print, showing the company is utilizing a wide range of media to target consumers (contrasting with the print-heavy focus of the bottle-centered adverts). The company also encourages people to submit their own ideas for an ideal world via the Absolut website, thereby capitalizing on the growing consumer interest in developing user-generated content. Viewers to the site can look at a selection of Absolut World submissions, some of which the company has created into adverts which are shown on-site. These include the Everything is Absolut idea by Owen Benjamin, where a man gets a lollipop instead of a parking ticket, and sees other unusual things during his day. "We want to inspire people to discuss and to discover the visionary within them." Ketil Eriksen, president of V&S Absolut Spirits, V&S press release, 2007 Sales of Absolut have grown strongly since the new adverts aired, showing that they have had a positive impact on the brand's performance. The company reported sales of Absolut in the US broke the five million nine-liter case mark for the Datamonitor. This brief is a licensed product and is not to be photocopied Page 6

7 first time in 2007, with sales to the on-trade up 4% on the year before. On a global scale, the company said Absolut had its best year to date, with total sales increasing by 9% to 96 million liters. Ending the long-running bottle-focused campaign was therefore a well-judged move by the company. Figure 3: Examples of Absolut's latest campaigns Source: zero-zed.blogspot.com D A T A M O N I T O R A Mexican advert caused controversy, showing the importance of ensuring that local marketing does not offend on a global level Not all of the Absolut World adverts have been welcomed, however. A local advert that was shown in Mexico caused controversy over in the US by its depiction of Mexican territory extending into the American south west. After a US blogger commented about it on his site, the company was bombarded with complaints, prompting Absolut to issue a statement in explanation: "This particular ad, which ran in Mexico, was based upon historical perspectives and was created with a Mexican sensibility. In no way was this meant to offend or disparage, nor does it advocate an altering of borders, nor does it lend support to any anti-american sentiment, nor does it reflect immigration issues. Instead, it hearkens to a time which the population of Mexico may feel was more ideal." Paula Eriksson, VP Corporate Communications, V&S Absolut Spirits The reaction to this advert shows how difficult it is to keep adverts local in a global society, and therefore how difficult it is to avoid different countries interpreting adverts differently. Datamonitor. This brief is a licensed product and is not to be photocopied Page 7

8 Figure 4: A Mexican Absolut advert caused offence in the US Source: Adage.com D A T A M O N I T O R Absolut's new products compete with niche brands by focusing on natural ingredients and sensory appeal Along with creating memorable adverts, Absolut aims to retain the brand's popularity by constantly introducing novel and interesting products. These include flavored vodkas and limited edition merchandise. Absolut has introduced flavored vodkas that confirm to the 'natural' trend to compete better against rivals Absolut launched its first flavored vodka in 1986 called Absolut Peppar, featuring roasted jalapenos, green tomato and dried herbs flavoring. Since then there have been regular new flavor launches, as show in Table 2. Recent launches have been promoted on the basis of their natural ingredients, therefore conforming to increasing consumer desires for natural food and drink. Absolut Mango, for example, was released in early 2008 and promoted as being made from all-natural ingredients with no added sugar or sweetener. Absolut is not the only vodka producer to latch on to the 'natural' trend, as there are various niche producers launching naturally flavored vodkas, many of which are raising the level of quality and freshness. For example: Vodka Infusion, part of Boz Spirits' 267 Infusions range, infuses a premium spirit with pieces of real fruit in each bottle in a variety of flavors. The 267 infusions range also includes rum and tequila variants. Nevertheless, Absolut has larger marketing budgets than these niche brands and so can concentrate on raising the profile of its flavored vodkas, despite more 'natural' competition. Datamonitor. This brief is a licensed product and is not to be photocopied Page 8

9 However, Pernod has decided to cut back on new Absolut flavored vodka launches, fearing they dilute the brand By the time Pernod Ricard purchased Absolut, the brand had begun launching a new flavor variant as often as every six months, perhaps to keep interest in the brand high against the competition. However, Pernod Ricard has decided to slow the rate of introductions down to one every year or even two years, believing they dilute the brand and cannibalize from its existing range. Pernod Ricard managing director Pierre Pringuet said that from now on, "everything will be focused on the mother product" (Brand Republic, 2008). This is perhaps a wise move, given the limited shelf space in bars and grocery stores for new vodka products and the fact that more choice is not always what consumers demand. Table 2: Absolut flavors include the following: Name Date of launch Absolut Peppar 1986 Absolut Citron 1988 Absolut Kurant 1992 Absolut Mandrin 1999 Absolut Valilia 2003 Absolut Raspberri 2004 Absolut Apeach 2005 Absolut Ruby Red 2006 Absolut Pears 2007 Absolut New Orleans 2007 Absolut Mango 2008 Source: Datamonitor analysis D A T A M O N I T O R Absolut frequently introduces limited editions that have appealing, stand-out bottles Another way in which Absolut attempts to engage consumer interest in its products is by introducing limited editions on a regular basis, that focus in particular on eye-catching packaging. In 2007, for example, Absolut launched Absolut Disco, which was designed to look like a glitter ball with small glass mirror-like squares attached to an outer container. Datamonitor's report, 'On-Trend' Innovation & Marketing Concepts: The Sensory Mega-Trend, noted that packaging is often referred to as the silent salesman : quietly and subtly communicating the differences between one brand and its rivals and cajoling consumers into purchase. Any packaging concept that enhances the sensory properties of products has the potential to be a key differentiator and is thus highly valued by shoppers. Absolut therefore aims to enhance its brand experience via its limited editions. Datamonitor. This brief is a licensed product and is not to be photocopied Page 9

10 Developing markets present a growing opportunity for the company While the US remains a strong market for Absolut, its new owner Pernod Ricard is wisely concentrating on marketing the vodka brand more in emerging markets, in an attempt to replicate the success of premium vodka in the US. This is especially important given the mature status of the US vodka market, with growth forecast to fall slightly by a CAGR of 4.0% between 2007 and Absolut sales are already increasing outside of the US, showing that this was something its previous owner also aimed to enhance. A company press release in early 2008 stated that since 2006 more than one in two Absolut bottles were sold outside the US and that, during 2007, the volume sold in markets outside the US increased by 15%. The brand grew particularly well in Brazil in 2007, increasing its volumes by 49%, while in Mexico it grew by 10%. However, Absolut may find it hard to grow vodka sales outside the US to levels it has enjoyed in that country, given the fact that premium vodka remains a niche market in many countries and could be hard to grow. The company must therefore not expect a big return straight away on its non-us markets, but aim to gradually build momentum, utilizing Pernod's strong distribution capabilities. Datamonitor. This brief is a licensed product and is not to be photocopied Page 10

11 APPENDIX Case study series This report forms part of Datamonitor's case studies series, which explores business practices across a variety of disciplines and business sectors. The series covers a range of markets including food and drink, retail, banking and insurance, pharmaceuticals and software. Each case study provides a concise evaluation of a company that stands out in some area of its strategic operations, highlighting the ways in which the company has become one of the best in its field or how it deals with different problems encountered within that sector. Methodology A variety of secondary research was carried out for this case study. This included researching the vodka market on Datamonitor's Interactive Consumer Database and the Productscan Online Database of new products, alongside an extensive review of secondary literature and other in-house sources of information. Secondary sources Branding: Absolut scales back flavoured roll-outs; Brand Republic (August 2008) Absolut Sale: Sweden selling popular vodka brand; USA Today (January 2007) Absolut TV: A brand known for its print campaign turns to cable; New York Times (September 2004) Absolutely No Change in 22 Years; Knowledge@Wharton (September 2002) Further reading Datamonitor, Understanding Alcoholic Drinking Occasions: The On-Trade, July 2008, DMCM4636 Datamonitor, On-Trend Innovation & Marketing Concepts: The Sensory Mega-Trend, May 2008, DMCM4626 Datamonitor, Moderation of Alcoholic Drinks: Exploring The Impact of Health and Responsible Drinking, May 2007, BFCM0188 Ask the analyst The Consumer Knowledge Center Writing team askcm@datamonitor.com Datamonitor consulting We hope that the data and analysis in this brief will help you make informed and imaginative business decisions. If you have further requirements, Datamonitor s consulting team may be able to help you. For more information about Datamonitor s consulting capabilities, please contact us directly at consulting@datamonitor.com. Datamonitor. This brief is a licensed product and is not to be photocopied Page 11

12 Disclaimer All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher, Datamonitor plc. The facts of this report are believed to be correct at the time of publication but cannot be guaranteed. Please note that the findings, conclusions and recommendations that Datamonitor delivers will be based on information gathered in good faith from both primary and secondary sources, whose accuracy we are not always in a position to guarantee. As such Datamonitor can accept no liability whatever for actions taken based on any information that may subsequently prove to be incorrect. Datamonitor. This brief is a licensed product and is not to be photocopied Page 12