A Talk with White Rock's Paul Coulombe

FILED MARCH 25, 2010

Dear Client:

We had a chance to chat with White Rock Distilleries chief Paul Coulombe a few weeks ago on the seemingly overnight success of Pinnacle Vodka, the importance of flavors, his experience in brand building and unhindered optimism for the future of the industry. Sit back as you, dear reader, are a fly on the wall.

WINE & SPIRITS DAILY: So how are you guys doing right now in the recession?

PAUL COULOMBE: We're doing very well. We grew at about a 25% last year, so that's not too horrible. We have brands that have been more attractive during the recession, so we've had the right portfolio for the right time.

WSD: What are some of those brands that have done particularly well in the recession?

PAUL: Well, our number one brand is Pinnacle Vodka and that is priced between $19.99 and $22.99 for a 1.75 liter bottle. There's been a lot of trading down from some of the super-premium vodkas, like Ketel One, Belvedere and so forth, so we've been a benefactor in that respect. Our second largest brand is called Jack Flavored Rums, which includes Coconut Jack, a coconut flavored rum. It has a very upscale premium image as far as packaging goes.

WSD: What are some other growth drivers for Pinnacle that got you to this point?

PAUL: I think it has everything to do with the three P's: price, product and promotion. I also think it's the combination of packaging and the name. Pinnacle is a name people can say readily and it's easy to remember. The blue bottle catches your eye on the retail shelf, and I think the shape of the package is very consumer friendly. And, of course, the quality of the vodka is excellent, being French imported vodka. I think even the plastic bottles on the 1.75 liter side have been helpful and consumer friendly as well.

WSD: How much do the flavors contribute to Pinnacle's growth?

PAUL: Initially, flavors didn't play a very big role in the beginnings of Pinnacle. By 2009 about 18% of the brand was flavored, so the percentage of flavors actually grew in the last couple years. Flavors are becoming a bigger part of the overall brand, and we expect that percentage to continue to grow, probably ending up in the 25 percentile. The reason flavors are not 50% of the total brand is because Pinnacle is skewed primarily towards retail and not on-premise.

WSD: And how is the Pinnacle gin?

PAUL: Pinnacle gin has not been as fast growing as the vodka. As you know, last year vodka grew at about 6.5% on a large mass volume, which is upwards of 60 million cases. Gin is a much smaller category with no growth, so I think it's more difficult with new entries. Our numbers are still quite small but we see them growing. As a percentage they're growing quite well, but still on a very small base.

WSD: In your opinion, what are the ingredients to developing successful brands like Pinnacle and Three Olives before it was sold to Proximo?

PAUL: I don't think there's a direct formula that I could disclose that everyone could copy and be successful with, but I think its different formulas for different brands and for different times. Three Olives was not a success over night. Initially it was very much a struggle, and we spent a lot of money and energy and marketing. Until we really connected with a couple of flavors, the brand was not that successful. The brand reached a new level when we started advertising in the media, and added the grape and cherry flavors, which were new, original flavors, that really caught on with the younger generation. All the flavors started to sell, and then the classic 80 proof started to have a lot more success. The brand in its entirety got a lot more recognition.

I think with Pinnacle, it's really a different story. Pinnacle is skewed primarily to retail, where Three Olives is on-premise. We were the right price and the right kind of packaging. The two brands are completely different looking. Pinnacle is primarily 80 proof plastic. Three Olives was primarily flavors, and on-premise.

WSD: What are Pinnacle's most popular flavors?

PAUL: The most popular flavors are strawberry kiwi, grape, cherry and citrus. But the kiwi strawberry is probably our number one flavor at this time.

WSD: As a smaller player in the industry, what is it like competing with large competitors? Is it difficult getting attention from wholesalers and retailers?

PAUL: It's difficult. It's all about what you bring to the distributor's top line and bottom line. If you contribute 25% or 50% of their total business, you should get probably a little more time and attention. When you do less than 5% or 3%, obviously it's a little more difficult to grab their focus and attention. But I think because of our success, even as a small player, being over a million cases for Three Olives, and over a million cases on Pinnacle, and now, the great success we've have with Jack Flavored Rums and Sweet Carolina Sweet Tea, I think they've given us maybe a little bit more benefit of the doubt that we may just have another success on our hands. So I think most distributors believe in White Rock and believe in our ability to have success.

WSD: Do you have any predictions for the industry? For example, what's going to happen to certain brands if and when consumers start trading up?

PAUL: I think that we're not going to come out of this economy or this recession as quickly as we have in the past recession. I think that's obvious to almost everyone. I think that the restaurant, hotel, and air travel will probably come back a little bit this year, and probably a little more in 2011. I also think we'll see people going back to restaurants, particularly when unemployment starts to get around 7% or 8%. But even the most optimistic forecasters are saying that we're really going to stay around the 10% mark through all of 2010, so I don't see us really bouncing back till 2011 and 2012. I think people will have a little bit better memory this time because it was a little more of painful recession, and I think people that found great values, like Pinnacle Vodka, realize they're still buying a great vodka at a reasonable price. I think they may be more hesitant to double up their spending, just because they got their job back.

WSD: What will happen to a brand like Pinnacle that is geared more towards retail if the on-premise starts to improve?

PAUL: Well, vodka is a huge category and one million cases is a very small percentage of the total vodka volume, so we see an opportunity for Pinnacle to still grow. It grew at a dramatic rate last year around 90%, and we still anticipate pretty significant growth. As it turns out, we're getting more and more success on-premise with independent establishments because it's a good value.

WSD: Are there any emerging trends you're seeing in the industry?

PAUL: I'm pleased to announce that I think the spirits industry is here to stay, and I think we're going to see continued growth in that category. I've been around for 35 years, and we were around in a couple decades in the late '70s through '80s and early '90s where we had a 2-3% annual volume decline. Now, we're seeing 2-3%, 4% in our best years of growth, and it's certainly a lot better to have growth versus decline.

Vodka is here to stay. I see flavored vodkas being very much a part of the American consumers' palate for many years to come, at least 20 or 30 years. It's hard to forecast beyond that. I also think tequila is here to stay. I think the brown spirits have a little bit of an uphill battle. I think the American consumer now wants to drink things that taste good, like mango and raspberry and cherry and grape and kiwi strawberry.

I don't think the wine industry is going to disappear either. I don't think the beer industry is going to disappear. Instead, I think all three categories are going to show some type of growth, at least in the next decade or two.

WSD: Do you expect heavy discounting to continue in the spirits industry?

PAUL: I'm very optimistic that discounting is just for the short term. In 2009 we saw pricing we hadn't seen in many years. Diageo was discounting Smirnoff and Pernod was discounting Absolut. Bacardi started discounting Grey Goose for the very first time in history. So I think large public companies who are concerned about market share and total revenues were probably more aggressive in discounting than they had ever been historically. I think they were under severe pressure to protect their market shares and overall revenue growth.

I'm very committed to the industry personally. White Rock is here for the long term. We're a very innovative, creative company, and we will continue to come up with very distinctive creative concepts. We're going to release a couple new concepts this calendar year that we think will lend a lot of excitement to the industry, something very unique and proprietary. I'm personally very optimistic that the industry will be healthy long term.

WSD: Thank you for your time.

WSD BRIEFS:

PALM BAY INTERNATIONAL HAS APPOINTED ALAIN BARBET to the newly created position of president for the company's spirits unit. In his new role, Alain will bring greater focus to the company's current spirits portfolio and oversee the launch of several new projects. Until early 2009 Alain was chairman and ceo of Pernod Ricard Americas. He then took on the role of managing director of Hugo Ventures, LLC, a strategic advisory firm with clients in the wine and spirits industry, including Philadelphia Distilling.

AUSTRALIAN VINTAGE CHIEF Dan Hudson will leave the company in May to pursue other interests. Recall that Australian Vintage is in the process of finalizing a potential merger with Constellation Brands' Australian and UK operations. Over the next two months Dan will "transition his responsibilities to Mr Neil McGuigan, AVL's general manager of production and supply, who will be appointed interim ceo on Mr Hudson's departure," according to a statement from the company.

CLARIFICATION. We want to clarify that Sherry-Lehmann did not come out in support of the wine-in-grocery bill in New York. Chief Chris Adams tells WSD that he joined the discussion by sending letters to Albany that said they would be willing to back the bill if it was amended to allow greater flexibility to retailers regarding what they can sell, among other things.


Until tomorrow, Megan

"Facing it, always facing it, that's the way to get through. Face it."
Joseph Conrad

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