Part II: A Talk with Gerry Ruvo

FILED OCTOBER 1, 2009

Dear Client:

Skyy Spirits chief Gerry Ruvo expects heavy discounting this holiday season (although not from him) and perhaps some more destocking. He also outlined other trends and future projections for his company in Part II of our interview, noting that they have no immediate plans for another acquisition. Here’s what he had to say:

WINE & SPIRITS DAILY: I want to switch gears and talk about some of the larger trends in the industry. For starters, what are your thoughts on all the consolidation we're seeing with distributors, suppliers and retailers?

GERRY RUVO: Well, consolidation is inevitable, even more so in tough economic times. Everybody needs to build scale so you have more influence over distributors. And distributors are looking for scale to build efficiencies across the board as they deal with retailers, including large independent retailers, chains and clubs. But you've got to have the right product mix and you've got to have the right portfolio. It's not just brands that appeal to the mixology set. It's brands that appeal to the off-premise environment. As you said before, a lot of consumers don't know what to do with a lot of these brands, and they're looking for ways on how to use them. So we pride ourselves on a very heavy focus on the consumer: what they want and their needs. We try to put ourselves in their shoes, and innovation has a lot to do with that. But to answer the question, consolidation is going to continue to happen. Most markets on the distributor side are down to two in most markets.

WSD: Are there any big deals on the horizon for you guys?

GERRY: Well, we're digesting this turkey. And, so, we are constantly looking. On the immediate horizon I'd have to say no, but if something comes our way we would consider it. As you know, we've been very aggressive. I give Campari a lot of credit. They bought the Skyy platform; they bought X-Rated; they bought Cabo Wabo; and then Wild Turkey. I think we're taking a bit of a breather because around the world we've got to integrate a lot of these great products into our portfolio, which is what we're doing now. But we're looking constantly. That's one of my main jobs.

WSD. Right, well the general feeling is that we’re headed towards a hard holiday season with lots of discounting and perhaps more de-stocking. What are your thoughts on the upcoming holidays?

GERRY: Well, I think you’ve seen most of the de-stocking unless the trends change dramatically at the retail end. What's most? I don't know, 75%, 90%, 60%? I'm not quite sure there but we took that into consideration when we developed our 2009 plan. I do think you'll see a little bit more de-stocking but most of it has already happened. I do think you're going to see a lot of discounting because a lot of brands haven't done that well. So, I think that you're going to see people try to make up some volume and you'll see some prices change. Where our price is, is where we're going to be.

WSD: What is your next strategy for Skyy Spirits?

GERRY: People ask me this question a lot. We're sticking to our knitting, is a quote I like to use from a manager that I used to work for in another company. Skyy Vodka has always been about quality, innovation and style. We've always promoted that, those aspects of the brand. The brand always had great value.

WSD: Speaking again about Skyy Infusions, how are your competitors reacting to your success in that flavor category?

GERRY: They're very mad (laughs). I was at the Market Watch award ceremony the other night where we received the award for the best new spirit product in 2008. And of course, I was sitting there with some of my closest friends and competitors, and they obviously would have loved to have gotten the award. They're all in the flavor business, and they knew we had done something very, very different here.

Because most companies have a flavor line, we basically decided our old flavor line wasn’t innovative enough. And we actually just threw them out, and started a new product. And I think they look at us and say, ‘well, those guys made a great decision, and a great move.’

DAVE KARRAKER: (Public relations director). And just to give you some perspective, Megan, Skyy Infusions sold 170,000 cases here in the U.S. in 2008. That’s roughly 40,000 cases more than the second place brand on the Hot Prospects list.

WSD: What are some of the major trends creeping on the horizon?

GERRY: Trading down seems to be a mega trend in the short to medium term. However, consumers are not willing to compromise completely. There’s also a lot of interest in innovation, and a big bounce back in brown spirits. That's why we were so interested in getting into the bourbon category, and so fortunate to be able to buy the Wild Turkey franchise.

Going back to the trading down situation, even a brand that we've had for a dozen years, like Cutty Sark, which is a blended, very good premium scotch, but priced right, we're seeing a tremendous lift. Price is about the same as it was two years ago, and what we do from a promotional standpoint is about the same as what we did two years ago.

On the retail front, I see on-premise operators, particularly chains, who are reevaluating their customer offerings. In the off-premise area, I think the off-premise retailers want to offer people products again that have quality, but value.

DAVE: But not so innovative that consumers have no idea what to do with them.

GERRY: I think that's why we hit a big, big hit, with this new Skyy Infusions Pineapple flavor. You just take it, put it on the rocks, or with a little bit of soda, and it's a very enjoyable drink. It's not a foo-foo drink. It's not too sweet, yet it spans the taste buds. It also fits right into the whole Tiki-craze which has made a comeback.

WSD: Thanks for your time.

IF YOU MISSED THE FIRST PART of our interview on Friday, click here.

YOUNG’S PICKS UP STZ BRANDS IN AK, WA AND OR

Constellation announced further changes in round two of its distributor consolidation this morning. Young’s Market will distribute its brands in Alaska, Washington and Oregon. This is good news for Young’s who lost Constellation to Southern Wine & Spirits (SWS) in California earlier this summer. Constellation is currently Young’s largest supplier in volume in the Pacific Northwest representing more than an estimated one million cases annually. Constellation’s new distributor strategy now spans 22 states with 8 potential markets remaining.

“Young’s has been an important part of Constellation’s success. We are excited to enter this new phase of our relationship and grow the business together,” said Constellation chief Rob Sands.

“Young’s and its affiliated companies in the Pacific Northwest are delighted and honored to have been selected as Constellation Wines U.S. exclusive distribution partner in Oregon, Washington, and Alaska,” said Young’s chief Chris Underwood. “We believe that the expansion of our relationship in these markets is a reflection of the mutual respect that Young’s and Constellation have for one another and we look forward to maintaining that relationship well into the future.”

BACARDI LAUNCHES NEW “ISLAND” COMMERCIAL

Bacardi is launching a new global multi-media advertising campaign titled “Spirit of Bacardi” with the first execution called "Island." The campaign will feature a TV platform, out-of-home advertising, digital, cinema and print and strong promotional support. The “Island” commercial features a group of young adults who build their own island and create “a unique adventure.” It was developed by Young & Rubicam Advertising and will first break in the US in October. The US portion of the global campaign includes a multi-million dollar spend from October 2009 to December 2009.

WSD BRIEFS:

FLORIDA DISTILLERS COMPANY (owned by Imperial Brands) is launching 4 Orange Premium Vodka, which is distilled exclusively from Florida oranges. One 750 ml bottle of 4 Orange contains approximately twenty Florida oranges and will have a suggested retail price of $24.99 for a 750 ml bottle.

QUINTESSENTIAL WELCOMES MORSE CODE WINES. Kim Longbottom, owner of Henry’s Drive Winery, is introducing a new line of value priced wines named “Morse Code” in the US this fall. The first two Morse Code varietals are a 100% Chardonnay and 100% Shiraz, with grapes sourced from the Henry’s Drive vineyards in Padthaway, South Australia. They both have a suggested retail price of $8.99, and are imported and sold exclusively by Napa-based Quintessential.


Until tomorrow, Megan

“There's no point in being grown up if you can't be childish sometimes.”
Doctor Who

--------- Sell Day Calendar ----------
Today's Sell Day: 8
Sell days this month: 22
Sell days this month last year: 23
This month ends on a: Fri.
This month last year ended on a: Fri.
YTD sell days Over/Under: 0


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