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Published:  23 July, 2008

Vin & Sprit produces what it claims is the world's third-bestselling premium spirit and the number-one premium vodka. Harpers City columnist Ron Emler talks to V&S chairman and IWSC president Claes Dahlbck

Search for Absolut' on the Internet and you enter an anorak's paradise. There are myriad sites created by fans extolling the virtues of the Swedish vodka's advertising and its association with couturiers from Jean-Paul Gaultier to Stella McCartney. You also hit several less salubrious sites, moving from pop art to porn with alarming ease, none of which have anything to do with Vin & Sprit. You have to search a little harder to find the company's home page, which is surprising, because V&S has come a very long way from being the monopoly producer and distributor set up by the Swedish state in 1917. Indeed, Absolut was not launched in the United States until 1979, a market that now accounts for half the company's total sales, and V&S is one of the 10 biggest companies in the international alcohol industry. Its home-market distribution monopoly was broken in 1993 when Sweden joined the European Union, but the state still owns 100% of Vin & Sprit, and the pace of change has accelerated since then, a record of which Claes Dahlbck, the chairman, is proud. We have come a long way in the past 10 years,' he says. Until 1995, V&S focused on the Swedish market despite Absolut's international success over the previous decade. But such has been the transformation of the company over the past eight years that only one sixth of net sales are now generated by the Swedish market. And to gear itself up further for international business, earlier this year V&S split itself into three operating divisions: one that imports wines and spirits to Sweden and other Nordic/Baltic states; a second that concentrates on producing spirits brands for consumption in national markets including Denmark, Finland, the Czech Republic and Germany; and a third, International Brands, includes Absolut and Plymouth Gin and is by far the biggest This third and key arm is playing an increasingly important part on the world stage. Indeed, many groups would like Absolut in their portfolio. But, equally, V&S has the aim of acquiring and developing brands with high international potential. There will be further consolidation,' says Dahlbck. There will be three or four strong survivors at the most, plus small regional producers. We want to be part of one of the big groups and in some sort of driver's seat - not to be swallowed.'

Same bed, different dreams V&S has a 49% stake in Future Brands, a distribution company set up in the US with Jim Beam (in which it also holds 10%) and a quarter stake in Maxxium Worldwide, which covers the rest of the world. The other Maxxium stakeholders are Jim Beam, Rmy Cointreau and Highland Distillers. Size matters in terms of clout with the customer and the ability to cut overheads. Dahlbck points to the example of Diageo: They have been extremely successful. They can take advantage of their size,' he says. We have a good group together right now with Jim Beam and Maxxium. We are already a force, but it is a loose federation. Are we tight enough together? That's one of the concerns we are facing.' But why have both Maxxium and Future? It's a valid question,' Dahlbck agrees. Hopefully one day we will get there. But this is a pretty new set-up and we are working our way through. We are getting to know each other more - our strengths, our weaknesses. Obviously, sometimes there are also diverse opinions. Hopefully there will be one entity, one distributor. It is logical for there to be one. That would be positive but we are not there yet. There is a Japanese saying about joint ventures - same bed, different dreams. Hopefully it will come. We appreciate our partners I think we complement each other well, both product-wise and culture-wise.' In the past few years V&S has taken over Danish Distillers and holds a controlling 85% stake in Polmos Zielona Gora, Poland's fourth-largest alcoholic beverage company. But did it consider a big leap forward through an offer for some of the Seagram brands? Yes, we did look at some of the Seagram brands. But they were expensive. We also looked at Bombay Sapphire [which Diageo was forced to divest]. We are constantly looking at brands, and it happens once in a while. We have acquired Polish brands and Danish Distillers. But we don't want our balance sheet to be stretched.' Does being wholly owned by the Swedish state restrict V&S's room for manoeuvre over big buys and further alliances? There is a limitation because we can't use our stock [to finance a purchase] as currency. But our owners [the Swedish state] say we want V&S to develop into one of the strong global players. So if the need arises, we will say to [the government], "Would you rather own 100% of a small company or less of a bigger one?" But so far we have not been restricted. They have been very generous, positive and constructive in our expansion to date. If a significant brand became available, we would go to our owners and discuss it. We also talk to our friendly bankers, but there is always a limit to how far you can stretch your balance sheet. If the right opportunity came along, we would certainly discuss it. If an acquisition were immediately cash-flow positive, that would be fine, but usually these brands require longer-term development but come at high prices, so it is difficult to self-finance them. But we are a good risk for the banks because we have a strong cash flow. The reason we haven't acquired most brands we have looked at thus far is not because we could not afford them but because we did not think it made sense to pay the prices that were eventually paid. For instance, we thought Bombay Sapphire was too expensive.'

Serial director A few months ago, the Swedish government appointed a panel of international bankers to advise it on the future of the extensive state holdings. Could it be that in a couple of years V&S will be privatised and Absolut could become a takeover target? Dahlbck is a serial director of most big Swedish names. He is in as good a position as anyone outside politics to know the current thinking, but he gives nothing away. We have always had very good discussions with our owner. They are open. They see the consolidation going on and ponder where we should be. They know exactly where we are. They are proud of our development,' is all he will say on the subject. But V&S holds 10% of Jim Beam already, so if Maxxium and Future came together, would V&S want to be the dominant partner in any future grouping? That's the $64,000 question. That's the kind of discussion we must have with our owner so I can't elaborate further. It's an open question.' So if merger is not an immediate prospect, could V&S diversify its own product range? Effectively it is a one-product company - Absolut. We want to broaden our product base. But it is not easy when we have such an extremely successful brand. That's why we have looked for other brands. One reason is to balance the risk but also because we want to take advantage of the leverage of our product [Absolut]. It's difficult, but we are working on it. We don't expect a new Absolut to pop up just like that.' Brand extensions such as Absolut Vanilla (which was launched successfully this year following the introduction of Citron in 1998) are much more likely. The company also has high hopes for Friis vodka in the US and Danska on the duty-free market. What about an Absolut RTD range? We monitor all interesting products and we have noted the success Diageo has had with Smirnoff Ice. But it looks like the category is topping out. We don't want to come with me too' products. We want to be innovators,' says Dahlbck. We are extremely anxious not to dilute our brand in any way There have even been suggestions that because of our promotional campaigns we should start selling cocktail clothes etc - to capitalise on the brand. But absolutely not. We are not going to follow Marlboro, for instance.' But, Dahlbck chuckles, It would be great to have a tequila. If you find one, please let us know. And obviously we will expand Plymouth Gin - it's an excellent product. It's already expanding quickly. It's a good brand and a very good product. We are building the brand by taking advantage of the knowledge we have got from Absolut.'

Blossoming Western European market V&S bought Plymouth from a consortium that took it out of Allied Domecq. Now distilling takes place twice a week rather than twice a year, and in the past six years annual sales have leapt from 5,000 cases to 120,000. The brand was launched in the US only a year ago and is being rolled out to other key international markets. That's good news for the Plymouth distillery. Like Absolut should be produced in Sweden, so Plymouth should be produced in Plymouth,' says Dahlbck. To retain the name, it has to be produced in Plymouth; there is also the particular water there. It's a Plymouth appellation contrle. We hope it will expand further, but the problem with gin compared with vodka is that it is not a worldwide market.' V&S has its own vineyard (Domaine Rabiega) in Provence, which supplies a small part of the company's Nordic market. It also has growing ties with Via San Pedro in Chile, and wine sales virtually doubled in 2002. So is a wine takeover to fuel growth a possibility? Dahlbck recoils: Our expansion will only be in spirits. That's where our expertise is. In the regional Nordic market we are also focused on wines, but for the rest of the world it's spirits.' So you won't be buying an Australian producer? Absolutely not!' Geographically, V&S is dependent on the US (51% of group sales) and the Nordic/Baltic region (36%). The Western European market is blossoming via Maxxium, but only 1% of sales go to Asia. That's very interesting for us, and we have a lot to do,' says Dahlbck. The need to redress the geographical imbalance was highlighted in last month's results for the half-year to June. While actual case sale volumes were 27% ahead compared with the same period in 2002, the slump in the value of the dollar took a painful toll. Operating income fell by 34%. Apart from the dollar, the results were very solid. The dollar declined against the krona by about 30%.' But Dahlbck is philosophical. We had the advantage of a stronger dollar for a number of years. But otherwise the results were good with good volume increases.' And Dahlbck expects the positive underlying trend to continue for V&S. In the next year or so it looks like the global economy is recovering. There are some early indications. Growth in the second part of this year will begin to pick up,' he says. But whether it will be quick enough to match his ambitions for V&S is another question.