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Get Four
|  | JANUARY 16, 2006
By Kerry Capell Absolut MakeoverPressured by superpremium rivals, the Swedish vodka brand is rolling out its first new ad campaign in 25 years, featuring classic moments in historyThe medieval village of Ahus on the coast of southern Sweden is home to 10,000 people and one of the most successful brands on the planet. Every drop of Absolut vodka -- the best-selling imported vodka in the U.S. and the third-largest spirits brand worldwide -- is made at this one place from local winter wheat and well water. Distilled and poured into Absolut's distinctive clear bottles, the vodka travels down cobblestone streets to the harbor where it's shipped to 126 countries. "Our strategy of one source and just-in-time production gives Absolut a unique advantage in an increasingly crowded market," says Bengt Baron, CEO of Absolut parent V&S Group of Stockholm. A saturated market is more like it. Absolut pioneered the premium vodka segment in 1979, using stylish packaging and clever advertising to convince consumers to shell out an unheard-of $20 a bottle. After two decades as the undisputed king of the heap, Absolut is now feeling the pinch as a slew of new brands and flavors hit the market. In recent years, more than 100 vodkas have launched in the U.S. alone, helping knock Absolut's share down from 58% in 1999 to 36.5% in 2004. (Figures for 2005 aren't yet available.) HITTING THE TUBE. The biggest challenge: A new crop of "superpremium" brands such as Gray Goose that sell above $21 per bottle and have nibbled into Absolut's image of coolness in a bottle. To fight back, V&S rolled out a new marketing campaign on Jan. 16 to raise the brand's image with a new generation of vodka drinkers. The multimillion dollar push in the U.S. is Absolut's first all-new campaign in 25 years -- and will mark the first time it has advertised on TV. (Absolut also will continue its iconic print ads starring the Absolut bottle dressed up by fashion designers, famous photographers, and artists, with a two-word tag line.) "With the number of new vodka brands and the amount of advertising people are exposed to increasing all the time, it's important for us to stand out amidst the clutter," says Eva Kempe-Forsberg, marketing vice-president for V&S Absolut Spirits. "A CREATIVE BRAND." Though V&S is unwilling to put a precise dollar figure on the new campaign, it won't come cheap. The ads from Absolut's global agency, TBWA/Chiat/Day in New York, position the liquor as "The Absolute Vodka," while highlighting other classics that are "absolutes" in pop culture. One spot features footage from the Apollo moon landing under the banner "Absolute Road Trip." Another shows Marilyn Monroe entertaining troops with the tag line "Absolute Morale Booster." The 30-second spots will debut on cable channels such as Comedy Central, Fox Sports Net, and E! As part of the new marketing push in the U.S., Absolut also commissioned rock musician Lenny Kravitz to come up with his own interpretation of the Absolut brand. The result is a dance track (with no mention of Absolut of vodka anywhere in the lyrics) entitled Breathe, which listeners can download for free from Absolut's Web site. "It's a continuation of previous collaborations we've done with fashion designers and artists," Kempe-Forsberg explains. "It's about positioning ourselves as a creative brand, and the music brings us closer to the places where Absolut is consumed." Absolut already spends a small fortune on promoting its brand in the U.S. According to TNS Media Intelligence, a New York firm that tracks global ad spending, V&S shelled out $28.3 million for Absolut and its superpremium sibling Level in the 12 months ended October 31, 2005. That's more than twice as much as the No. 1 vodka, Diageo's (DEO ) Smirnoff, which nevertheless commands nearly 5% global market share compared to just under 2% for Absolut, says market researcher Euromonitor International. COFFEE, TEA, ABSOLUT? The new, high-profile campaign is a far cry from Absolut's early days in the U.S. when the vodka had few competitors. Soon after it debuted in 1979, Absolut quickly became the aspirational liquor of choice. The brand got a sizeable boost from Michel Roux, now chairman of U.S. distributor Crillon Importers in Paramus, N.J., but at the time the brand's sole U.S. salesperson. "Back then it was a small business, and the marketing was all word of mouth," he says, recalling how he used to offer flight attendants ties and scarves in exchange for handing out miniature bottles to first-class passengers. Absolut really took off in 1985, when Roux scored a major coup convincing pop artist Andy Warhol to paint the bottle (although a teetotaler, Warhol used Absolut as cologne). It was the start of the brand's ongoing collaboration with top artists such as Keith Haring and Damian Hirst and fashion designers including John Galliano, Gianni Versace, and Tom Ford. But the game changed in 1998 with the launch of French vodka Grey Goose, the world's first superpremium, priced at an eyebrow raising $30 a bottle. Now owned by Bacardi, Grey Goose spawned a slew of pricey copycats such as Ketel One and Belevedere. V&S got into the act with its own $30-per-bottle, Level. Even Donald Trump launched a vodka at the end of last year called, of course, Trump Super Premium Vodka. MEXICO AND CHINA. In all, superpremium sales were the fastest-growing area of the market, rising 22% last year, according to the Distilled Spirits Council of the U.S. "When you start getting into vodka bottles shaped like AK-47s [Russian import Vodka Kalashnikov] and male genitalia, you know the market has gone too far," says Ted Wright, a partner at Liquid Intelligence, an influential marketing consultancy for the beverage industry in Atlanta. Despite the intense competition, Absolut remains the top-selling imported vodka in the U.S., where 60% of the world's vodka is consumed. But with competitors nipping at its heels, V&S is looking to new places to fuel growth. "We've just started to penetrate other markets outside the U.S. where there's tremendous opportunity," says Ketil Eriksen, head of V&S Absolut Spirits. He believes Absolut still has substantial room to gain market share, especially in countries such as Mexico, Brazil, and China, where a growing middle class is emerging. The company sold 215,000 nine-liter cases of Absolut in Mexico last year, up 67%, Eriksen says. And in China, where Absolut launched three years ago, sales are expanding at nearly 80% annually, already accounting for approximately 1% of the total. If the current growth stays on track, Eriksen hopes that China will account for 5% of sales in five years. TAX TROPHY. V&S is also branching into other liquors. It recently acquired Cruzan rum and Plymouth gin, and sister company V&S Wine produces and imports wine in Northern Europe. Although V&S doesn't break down sales and profits for the individual businesses, CEO Baron says roughly half of its total $1.2 billion in 2004 sales (it posted an operating profit in 2004 of $173 million) came from Absolut. V&S will release 2005 results on Jan. 31. "Since 1996, we've doubled volumes, tripled sales, and increased profits sixfold," says Baron. V&S itself could someday face big changes. It's currently 100%-owned by the Swedish government, but rumors pop up regularly in the press of potential privatization. Baron says no plans are being made for a stock offering soon, and it's not hard to understand why. Thanks to hefty taxes on alcohol in Sweden, Absolut gets only 1% of its sales in its home country. But V&S is a major cash cow for the Swedish government. With a new campaign to boost its appeal to younger drinkers in the U.S., Absolut aims to keep that way. As long as growth stays on track, V&S is likely to remain absolutely Swedish.  Capell is a correspondent in BusinessWeek's London bureau Edited by Andy Reinhardt
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