The Sobieski Vodka Story

FILED FEBRUARY 23, 2012

Dear Client:

Sobieski Vodka has become one of the fastest growing vodka brands in the U.S. in just a short time. After entering the market in January 2007, Sobieski hit the one million case mark during fiscal 2011, which Imperial Brands ceo Chester Brandes told WSD was their goal from the beginning. Its success was largely built on its "Truth in Vodka" campaign, which pokes fun at its vodka competitors and claims that vodka doesn't need to be expensive to taste good. Bruce Willis, who is part owner of Sobieski, has since joined the campaign in a series of webisodes alongside Krzysztof Trylinski, chief executive officer of parent company Belvedere S.A.

Chester has worked in the wine and spirits industry for more than 34 years in both the U.S. and international markets. Before joining Imperial Brands in January 2007, Chester was vp, international markets, at Cruzan. From 1988 to 2000, he worked for the Altia Group, and was appointed president and ceo of Finlandia Vodka Americas (Altia's U.S. subsidiary) in 1989. His long history includes stints as managing director of Sempe USA and western division vp for Glenmore Distilleries Co.

So here's a closer look at Sobieski and Chester's thoughts on the vodka industry at large as you, dear reader, are a fly on the wall:

WINE & SPIRITS DAILY: First off, congratulations on hitting the one million case mark.

CHESTER BRANDES: Well thank you, we worked very hard to get there. One could argue our vision was rather bold from day one. We've been pretty consistent since 2007 when we opened this company here. We really wanted to be the vodka brand to hit 1 million cases faster than any other vodka brand had ever done it. Considering we hadn't even sold one bottle that's fairly ambitious. One could almost argue obnoxious in a way, but we were convinced we had the right game plan and that's the key to the whole thing. It's not just about the right product, the right quality, or the right package. It is also about the right positioning, the right marketing and taking the time to put together the perfect game plan so that we don't get resistance from any level of the trade. We had our advertising positioning down before we sold a single bottle. One of the mistakes that a lot of new brands make is that when they enter the market they're in a hurry to sell cases. We didn't sell our first bottle for seven months. We purposefully waited until we had all our ducks in a row, and then we started selling and it just kind of mushroomed. We launched before the economic meltdown in 2008, but certainly one could argue that didn't hurt us, but played into our positioning that you don't have to pay a king's ransom to get a great vodka.

WSD: Would you talk more about the retailer and distributor needs you took into account?

CHESTER: We know what kind of margins distributors want to work off of. We know what kind of support that they need in terms of initial programming incentives for the sales force - especially to get distribution on a new brand in a category as crowded as imported vodka. Retailers, same thing, we know what kind of margins they want to work off of, so there was enough in it from the standpoint of our distributor selling price to make them happy. That's incredibly important.

WSD: How were you first approached by Belvedere to bring the brand to the US?

CHESTER: That's an interesting story. I was working for Cruzan International. I had set up an international division for them living in Florida. The parent company (majority shareholder) of Cruzan was a company called CL World Brands. They also had a stake in the Belvedere group in France. I got to know Belvedere through various management meetings around the world. I was basically the only person at Cruzan who didn't have a rum background. My background, as you may or may not know, is largely vodka. When we got together at these meetings, the Belvedere people were 100% vodka, so they kind of gravitated toward me and we became friendly, collegial. When Cruzan ultimately was sold to V&S, the Belvedere people approached me about setting up a company in the United States to establish Sobieski vodka. I originally said no because I had a relationship with the V&S people and wanted to see where that was going to take me. Then Belvedere came back to me again around September, October in 2006. I said, 'Ok we'll do it, but under one condition: if you want to position Sobieski vodka against Grey Goose or even Absolut, find somebody else to do it. You'll run out of patience and money before that's going to happen.'

If you look at the brand it's a very classic package. It's not glitzy, it's not fancy, it's clean and it's nice. At that particular period in time, you may recall, all the new entries were more or less chasing Grey Goose. It was very crowded up there and obviously not too many of them were successful. It was my belief that it was a lot less crowded and a lot more interesting to try and establish a new brand, especially when you take into consideration the packaging and a little bit of the story at the Svedka, Smirnoff level than at the high-end. We felt one of the things we had going for us was that we were a real brand that actually existed in our country of origin, which was Poland. Then the segue into that too was coming into a unique positioning with the "Truth in Vodka" campaign, which I think has been very successful and has helped us differentiate ourselves from other vodka brands out there.

WSD: At first did you have a hard time convincing distributors that Sobieski's strategy would work?

CHESTER: Yeah sure, probably the best thing we had going for is that we started this company with 3 people and none of who were sales people unless you want to count me - certainly I came up through sales and later marketing. But we had good contacts, good relations, and we knew the U.S. market. We took more of a mercenary approach when it came to hiring. We hired people who had great contacts in the trade, with distributors and key retailers who could jumpstart the business with a certain amount of credibility. That helped us tremendously - at least get the door open. We never thought we would get tier-one distributors, meaning the Southern's, The Charmers, the Republic Nationals and the Glazer's. We thought that would be rather difficult and that's why if you look at our alignment, although Southern jumped on board close to the beginning, we made commitments in markets like New York and Chicago to independent distributors, and funnily enough our two biggest markets in the country are New York and Chicago.

WSD: Are you with Southern in other markets then?

CHESTER: We're with Southern in a number of other markets, I think 22 including control space, where they have brokerage operations. We're with Glazer's in a bunch of markets including Texas and Louisiana. We're with Charmer in some markets in Maryland and D.C. We're even with Republic National in a couple of control states down south like Mississippi and Alabama. So we're with a hodgepodge of distributors.

WSD: Do you think the notion of paying for super premium vodka is dead at this point?

CHESTER: No, I don't think its dead. You're always going to find people who want the most expensive, who are impressed by glitz and really not into substance as much as badge wearing. You find it in every industry, not just ours. I think you're always going to find that consumer and it's a good thing. I'm certainly not against it. All I'm saying is that if you care about substance and you care about what's inside the bottle, then there's no need to pay astronomical prices for vodka when you can get phenomenal quality for a very reasonable price. I'm not against super- premium, ultra-premium or whatever, certainly not. We may even go that way with another entry, but we'll leave that for another entry.

WSD: Can you talk about some of the trends you're seeing in the vodka category?

CHESTER: Obviously the one that stands out the most is this explosion of flavors, not only flavors, but lets say for lack of a better word, lets say exotic flavors - candy, cake kind of flavors. Hats off to the Pinnacles of the world and some of the others who have done a phenomenal job marketing these brands, but at the same time there's a risk in cotton candy, bubble gum, whipped, etc., because we as an industry have to be very careful that we know what market we're appealing to. One could easily argue with cotton candy, bubble gum and some of these kiddie type flavors we're targeting underage drinkers. The worst thing we could have happen to us is to have some 16 year old girl overdose on a bottle of one of those flavors, and then Congress and everyone else comes down on us like hell hath no fury.

We're not going to get into those flavors, the temptation is certainly there, but we're not going to do it. We will do Karamel and may do a couple of other flavors like coconut cream or toasted coconut, but there's a border and a certain level of sophistication that we want to maintain with our product line. The last thing we want is to become a flavor of the month brand and then they stop drinking your core brand. We built our business on Sobieski regular and that's what we continue to focus our advertising and promotion on. You have to have flavors this day and age if you want the extra distribution and the facing on the shelf. It's almost a defensive tactic. It is important and it's become what, 18% of the overall volume in the category and still growing? So yeah, for those people out there that like flavors, we've got flavors. Some flavors are unique like Cynamon, which we launched and some of which I consider core flavors like Cytron, Raspberry, Orange. These are flavors that have appeal across the country.

WSD: What are your best selling flavors?

CHESTER: Cytron by far is number one for us. Followed by Raspberry, Karamel and for Cynamon it's a bit early because we launched it in December.

WSD: What are some of the biggest challenges for you concerning your brand?

CHESTER: I think its maintaining the momentum and staying focused on what we're doing. Also, getting pricing up, which we're doing across the country, spending more money above the line, and getting the advertising message out there. We're focused on increasing brand awareness and brand loyalty rather than falling into the pitfall of the pricing game-if that's the game you're going to play all the time someone is always going to be less expensive than you. If you can't sustain a $1, $2, $3 price increase over time, then you've got a problem and that's the true test of a strong brand. Part of the key there is as you increase in price, you have to increase in your over-the-line spending and that's exactly what our plan is.

WSD: You must have experienced a lot of competition with brands discounting to better match Sobieski?

CHESTER: Oh, tons. When we started it was basically Svedka, ourselves and on the domestic side Smirnoff, the 800-pound gorilla in the category, but more or less at similar price points. Now what's happened since we've been so successful is that Svedka has continued their stellar journey, and more and more entries are coming in at the lower level. Just being another vodka brand at a low price, and your only story or message is price - I think it's going to take a lot more than that to gain consumer loyalty and distributor involvement. How do you differentiate yourself from all the other labels that are out there? You're just another label at a low price. I think that's the challenge there is to stay the course and not be intimidated and not fall victim to the temptation of having to chase pricing of every tom dick and harry brand that comes along.

WSD: Are you stronger at the on-premise or off-premise?

CHESTER: Certainly, off-premise. On-premise is growing for sure, especially those restaurants and bars that want to pour great quality but don't want to spend Absolut prices to do it. Also regarding flavors, our flavors are all natural. Why pay more when you've got a great quality alternative to choose from on our side? So we're making inroads on the back bars with the flavors and certainly our on-premise well programs around the country.

Another trend, which I failed to mention but is getting some traction, is organic and certainly gluten-free is becoming a buzzword. We are gluten free by the way. You may ask how is that possible if the product is made from grain? We take the gluten out of the product.

WSD: Would you talk about how Bruce Willis is involved with Sobieski? He is an actual investor, correct?

CHESTER: He is. At a sales meeting in November 2008 our ceo Krzysztof Trylinski said we needed a celebrity spokesperson for our vodka, although I was initially opposed because we make fun of celebrity spokespersons in our advertising campaign. So we came up with a list: Mel Gibson, Al Pacino, Jack Nicholson, Robert DiNero and Bruce Willis. This was before Mel Gibson imploded. Our ceo said straight-faced, 'You have to get me one of these guys.' I said, 'Well, do the best we can.' Within a week we had contacted all their agents and four out of five said no. Bruce Willis' agent said, 'I don't think Bruce would do it, but even if he would it would cost you an arm and a leg to get him in the states.' I said, 'Who said we'd want to start him in the states?'

So we put together a custom presentation as to why Bruce Willis and Sobieski vodka should get together. Two months later we signed an agreement with Bruce, a multi-year deal where he was spokesperson for the brand almost every place in the world except for North America. Our thinking could be selfish, this was just gut, but we thought (not knowing Bruce) that once Bruce got to know us and we got to know Bruce, he would want to expand the cooperation to include the U.S. where we really wanted him. Believe it or not, that came to pass. We had a dinner shortly after we signed the agreement with he and his new wife and Krzysztof in New York. The chemistry was unbelievable. Within three months later he was in Paris and he wanted to increase his involvement in the company, so we worked out a deal where Bruce became 3% shareholder in the company.

WSD: So in the next year or two will we be seeing a commercial campaign with Bruce?

CHESTER: No we can't use Bruce for TV. Its not part of our agreement - PR, internet, etc, yes, but not on television. That would be another negotiation, Megan. We're not ready to go there yet. Have you seen the online vignettes he did? That's how we used him too. We launched a new round of those in August and September. Again, it's reinforcing the Truth in Vodka campaign. Of course, as you see from the video him trying to sell ideas to my boss, and one idea is dumber than the next. The funny part is when we showed that idea to Bruce he loved it, but he said, 'You know, the more self-effacing you make it the more people are going to like it and believe it because nobody is every going to buy into the fact that I'm a vodka expert.'

WSD: Changing topics, what is your focus now moving forward?

CHESTER: Now it's the blocking and tackling. Now it's the refining. So we're closing the distribution gaps that we have nationally - and that means a select number of chains we're not in and making more inroads with the major box stores around the country. Then it becomes improving shelf positioning, number of facings, number of size distribution in stores. These are the areas we're really focusing on that will take us to the next level.

I think it's important to note we've got a great sales and marketing team out there. I'm really proud of what these guys have done. I also think we're getting a lot more cooperation from our distributors. They've got lots of loyalties and its very hard for them to give a new brand like Sobieski time and attention. One of the things we've managed to do is convince the distributors based on our success, and we've worked very closely with our distributors and their people.

WSD: How do you feel about distributor consolidation?

CHESTER: It's a fact of life. It's not only distributor consolidation, its consolidation on the retail level and the supplier level. It's consolidation on an industry-wide basis. It's a fact of life and we do the best we can. We try to put together a distributor network that makes sense for us, but who can control who's going to buy who next week, next month or next year? I think it makes it that much more important to establish ourselves with the trade and with consumers because they're not consolidating and they're not going away. Consumers might have fewer points to shop in, but still we need the retailer on our side and we need the consumer on our side because when the consumer wants our product the retailer has to stock it and the distributor is going to have it.

WSD: Thank you for your time.

GRUPPO CAMPARI ANNOUNCES $40+ MILLION ADDITION TO WILD TURKEY DISTILLERY

Gruppo Campari is building a new packaging facility for $44 million at the Wild Turkey distillery in Lawrenceburg, Kentucky. In exchange, the state preliminarily approved up to $2.35 million in economic incentives to help create jobs through the construction project, which provides full bottling and packaging capabilities for all of the company's US distilled brands - including Wild Turkey, Russell's Reserve, Rare Breed Bourbon and Skyy Vodka.

This gives Campari "the ownership of the full production process for our Wild Turkey brands - from distilling to aging to bottling - all in one location, while housing the packaging of" Skyy Vodka, said Bob Kunze-Concewitz, ceo of Gruppo Campari.

The new facility is slated to open in fall of 2013 and designed to initially handle up to four million nine-liter cases of product annually. Note that the Wild Turkey Distillery previously housed its own packaging capabilities, but those were discontinued by the previous owner (Pernod Ricard). Also recall that this latest construction project follows a $50 million expansion at the distillery in 2011, which more than doubled its production capabilities. The $44 million investment will be spread out over three years.

Wild Turkey currently sells more than one million nine liter cases worldwide, with strong growth in the US, Australia, Canada, and Japan. It is the sixth largest global bourbon brand excluding sales of American Honey.

WSD BRIEFS:

GREY GOOSE IS THE MOST POPULAR vodka brand among men and women when drinking at the on-premise, according to new research from The NPD Group. The second most popular brand is Absolut, which is also equally preferred by both genders. The sample of almost 34,000 LDA adults found that Smirnoff, Ketel One and Stoli follow as other top brands, but are slightly more preferred by men. Consumers aged 21-49 preferred Grey Goose slightly more than the 50+ age group, while 21-34 year olds chose Smirnoff "significantly more" than the 35 to 49 year olds. Meanwhile, the 35 and older groups liked Absolut "significantly more" than the 21- to 34 age group. And Ketel One remains more popular with the 35- to 49-year-olds than with 21- to- 34 year-olds.

DISCUS ELECTS PATRON COO AS CHAIRMAN. Patron Spirits International coo John McDonnell was elected as the chairman of the board of directors at DISCUS for a two-year term. In his role, John will work closely with DISCUS ceo Peter Cressy and the Board. "Our industry is facing a number of issues, from tax threats to market access concerns to equal treatment vs. beer and wine, but none of these can be effectively addressed without the full cooperation from all of us who work in this business. One of my primary goals is to help forge closer ties between suppliers, distributors, and retailers," said John. He replaces James Bareuther, who retired from Brown-Forman as executive vice president and chief operating officer.

TWE LAUNCHES WINE AIMED AT MILLENNIAL WOMEN. Treasury Wine Estates is rolling out "Be.", a new brand aimed at millennial women. Pink Moscato, Chardonnay, Pinot Grigio and Riesling will hit stores nationwide beginning in April and retail between $9.99 and $12.99. This newest brand joins other recent innovations from the company, including Emma Pearl, Sledgehammer and Beringer Red Moscato. "Be. is about inspiring Millennial women to open up to the exciting world of wine without taking it too seriously," said Stephen Brauer, Managing Director for Beringer BBU.

7 ELEVEN EXPANDING IN MANHATTAN. Last year 7-Eleven signed 15 leases for sites in Manhattan, and it expects to open up to 14 more this year, reports Crains New York. New stores will be opened in midtown, Greenwich Village, Chelsea and the Upper East Side in the coming months. They are also looking at the Financial District. Furthermore, 7-Eleven plans to introduce another 20 locations every year until 2017. The stores will range in size from 1,500 square feet to 3,000 square feet, and are largely benefiting from fresh food sales including salads, sandwiches and hotdogs. There are about 7,200 7-Eleven locations across the US.


Until tomorrow, Megan

"What if nothing exists and we're all in somebody's dream? Or what's worse, what if only that fat guy in the third row exists?"
Woody Allen

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