March 14, 2007 / 3:50 PM / 13 years ago

Absolut Vodka gaining U.S. market share-CEO

STOCKHOLM, March 14 (Reuters) - Sweden’s Absolut vodka is gaining ground in the U.S. vodka market and should stay strong even in if the world’s biggest economy stumbles, the chief executive of Absolut’s producer Vin & Sprit said on Wednesday.

Buyers are circling 90-year-old Vin & Sprit and its crown jewel, the world’s second-best selling international vodka, as the Swedish government prepares to sell it off as part of the country’s largest-ever privatisation programme.

“I think Absolut is doing fantastically well. We grew by 7 percent last year and people forget how much volume that is — that’s almost 700,000 cases of growth,” Vin & Sprit head Bengt Baron told Reuters.

“Here’s a brand with almost full distribution and 98 percent brand awareness in the (U.S.) consumer (market), and we’re still growing faster than the market in general,” he said. Swedish Financial Markets Minister Mats Odell has said all options are open for Vin & Sprit, including hiving off Absolut.

Vin & Sprit — which analysts value at $5-$6 billion — has already drawn interest from France’s Pernod Ricard (PERP.PA), Bacardi and U.S. Fortune Brands FO.N.

Paul Walsh, chief executive of Diageo (DGE.L), the world’s top spirits producer and maker of top-selling vodka Smirnoff, said on Wednesday his company would be interested when Absolut comes up for sale.

A source familiar with the situation said private equity was also in the mix of interested parties.

Baron was unworried about a U.S. economic slowdown since spirits tend to be immune to the business cycle.

“It seems like the consumer continues to reward herself or himself even in less good times,” he said.

In the United States, where Baron said Absolut has about 10-1/2 to 11 percent of the total vodka market, sales rose to 4.9 million nine-litre cases in 2006, up from 4.7 million in 2005.

“If there is a slowdown or a recession, it will be interesting to see if we have a bigger shift from premium and super premium, but so far there are no signs of that,” he said.

Even if the Swedish government does divide it from Absolut, Vin & Sprit is strong enough to survive, Baron said. The unit that houses Absolut — V&S Absolut Spirits — accounted for 84 percent of the company’s operating profit last year.

“Our Nordic operation is rock-solid,” he said.

He cited market leadership in Sweden and Denmark, along with a 2006 deal to become Nordic distributor for Foster’s FGL.AX wines, which include Lindemans and Penfolds.

Baron would not be drawn on whether selling Absolut separately would raise more for the government and said this was just one idea in a process still at a very early stage.

LUXURY TO BE LONG-TERM

And Baron said state ownership had had its benefits.

“We’ve had the luxury of being allowed to be long-term, far more than I think many companies that are set up on a quarterly (results) driven stock exchange are allowed to be,” he said.

“I am not sure that Absolut vodka would have happened in a traded company. I think it might have peaked far earlier and I think people might have become greedy far earlier and not really seen the potential of the brand.”

Baron has not been approached by any of the potential buyers and would not say which he thought made the most sense.

Analysts have suggested that Fortune Brands might have an edge since an existing U.S. distribution deal between it and Vin & Sprit might be costly to break.

But Baron said he could not disclose the penalties Vin & Sprit would face for leaving the Maxxium distribution joint venture.

France’s Remy Cointreau (RCOP.PA) said last year it would pay a 240 million-euro penalty to Vin & Sprit, Britain’s Edrington Group and Fortune’s Beam Global for leaving Maxxium.

Baron said the distribution deals could continue if Fortune were not the buyer, depending on the circumstances.

“It would be possible to maintain the relationship if it’s a trade buyer (or a private equity buyer),” he said.

“It all depends on whether it’s competitive or not”.

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