Wednesday, November 4, 2009
Ciroc To Add new Flavors...
Diageo Turns to Dutch, Diddy Partnerships for Vodka Expansion
By Andrew Cleary
Oct. 30 (Bloomberg) -- Diageo Plc, the world’s largest liquor maker, is turning to partnerships with rapper Sean “Diddy” Combs and Dutch distiller Ketel One to release new vodka varieties and push further into emerging markets.
Diageo’s Ciroc vodka, an equal-share venture with Combs, is set to release coconut and red-berry varieties in the U.S. , Marc Strachan, the brand’s marketing director, said at an Oct. 28 presentation in Schiedam , Netherlands . Ketel One, the local vodka maker in which Diageo bought a 50 percent stake for $900 million last year, plans to enter 15 new markets including Brazil and Australia by the end of June, said Bob Nolet, vice president of the Nolet Distillery, where it’s made.
Vodka accounted for 11 percent of Diageo’s 12.3 billion- pounds ($20.4 billion) revenue last year. Organic sales -- which exclude acquisitions and currency movements -- of Diageo’s Johnnie Walker and Tanqueray gin fell in the year through June, while sales of Smirnoff, which leads the $36 billion premium- vodka market, rose 2 percent.
“People have tried to call the downturn of vodka since its success in the 90s, but it continues to outperform in most markets and especially in the U.S.,” Ian Shackleton, an analyst at Nomura International Plc in London with a “buy” rating on the stock, said in a telephone interview. “It’s the most flexible and mixable of spirits, and Diageo have coverage across the whole space.”
‘A True Partner’
Ciroc and Ketel One are pricier alternatives to Diageo’s Smirnoff. Ciroc volume sales climbed to 400,000 cases in the year ended June 30 from 60,000 cases in first half of 2007, the year that Diageo teamed up with Sean Combs. Diddy’s fellow rappers Snoop Dogg, Dr. Dre and Jay-Z all have endorsement deals with liquor brands in the U.S. , while Combs is “a true partner” and receives half the brand’s profits, Strachan said.
The recent success of the Ciroc venture still pales in comparison to Smirnoff, which was the first premium-spirit to surpass 25 million cases of sales in 2008. Diageo also plans to release a new Ketel One flavor to add to its citrus variety in 2010, Nolet said.
The premium-vodka market is made up of about 100 million cases of bottles that sell for more than $8. That doesn’t include the estimated 400 million cases of lower-priced local brands sold each year, predominantly in Russia and eastern Europe, said Philip Gladman, Smirnoff’s global brand director.
The U.S. currently accounts for more than 90 percent of Ketel One’s vodka sales, which will reach 2 million 9-liter cases this year, said Nolet, an 11th-generation descendant of the distillery’s founding family.
“The partnership with Diageo is about global scale and our inspiration to make Ketel One a true global brand,” said Nolet. “We’re in this forever.”
The distillery, which has a football-field-sized storage facility and a tunnel under a neighboring canal to ferry materials to the bottling line, also has the capacity to double production to 4 million cases a year when demand from new markets warrants it, Nolet said.
“Ketel One have done pretty well in the U.S. on their own but were hardly heard of outside -- that’s what Diageo brings to the party,” said Nomura’s Shackleton. “There’s no reason why they can’t reach 4 million cases globally fairly quickly.”
Ciroc and Ketel One retail for $54 and $38 per 1.75 liter bottle, compared with about $20 for Smirnoff. The two labels fill a hole in Diageo’s portfolio and will enable the company to react to changing trends if consumers trade up or down in their purchases, said Gladman.
New products include apple, lime, and blueberry-flavored Smirnoff in the U.K. Diageo also wants to replicate the success of the wine and whisky industries in educating consumers about the origins, tastes and production techniques of its vodkas, said Jason Bowden, Ketel One’s in-house spirits expert. The company worked with bartenders and retailers for 12 months to develop an in-store marketing campaign along those lines, he said.
Diageo is also targeting vodka growth in Asian markets including Japan , Korea , and China , selling to consumers of traditional spirits such as China ’s baijiu, a rice liquor. Early sales of Shanghai White, a vodka-baijiu mix released in Hong Kong in recent months, are “promising,” Gladman said.