A Talk with Gerry Ruvo

FILED OCTOBER 1, 2009

Dear Client:

It’s been a busy year for Gerry Ruvo, chief of Skyy Spirits in the US, who let us pick his brain last week, and detailed some of Skyy Spirits’ latest developments and also gave his perspective on wider industry issues. Public relations director Dave Karraker also contributed to the interview. Recall that parent company Gruppo Campari most recently acquired Wild Turkey, which helped better position the company in the US along with some other recent acquisitions including Sammy Hagar’s Cabo Wabo. Gerry sees a lot of potential in Wild Turkey and hopes to ride the “brown spirits craze” we’re currently seeing with consumers. Its flagship brand Skyy Vodka continues to grow leaps and bounds, benefiting from the current economy, and Skyy Infusions has also met with great success. Infusions has managed to draw in new consumers and even captured some of that sought after on-premise share, particularly with its new Pineapple flavor. So sit back and relax as you, dear reader, are a fly on the wall:

WINE & SPIRITS DAILY: Gerry, thanks for speaking with us and congratulations on your success this year.

GERRY RUVO: Yeah, we're having a terrific year, and we're excited about it, on a number of different fronts. From Skyy, right through our Infusions line, it’s been a terrific success. I don't know if you heard, but Skyy Infusions was named the best new product of the year for 2008 by Market Watch. We worked real hard on it. On top of that, we introduced Skyy Infusions Pineapple this year, which has been an incredible success. It's already our number two flavor. So, we're really excited about everything that's happened with the Skyy franchise this year.

WSD: Why do you guys think you're performing better than most of the other major vodka brands right now?

GERRY: Well, I think it has a lot to do with the brand first, and the economy, as well. Consumers today desire quality, value and style and Skyy Vodka has always had that. And I think that because of the recession, there's been a shift in consumer habits that is probably true across all spirit categories, not just the vodka category.

WSD: Right.

GERRY: Consumers, as I see it, are looking for more value within their purchases but they're not willing to sacrifice quality. There's a certain style to vodka. So I think in Skyy Vodka, they get all of that.

The upper end of the category is hurting. They have terrific style but the value proposition isn't there. And the lower end of the vodka category is somewhat flat because there certainly is value but consumers, I don't think, are willing to forego quality and style when they make that vodka choice. So, I think Skyy is a brand that is particularly right for the environment right now, where consumers are spending more time at home entertaining and a little less time out. We're experiencing double digit growth on the brand.

I think another reason why Skyy is growing so rapidly is innovation, and part of that includes some small things that we do. Everybody knows our blue bottle, but we've actually evolved it a little bit. It's a little taller and a little sleeker, so I think it's a little bit more appealing to consumers.

There’s also been all of these new Infusions. And I think these infused vodkas that we have add a halo effect for the Skyy franchise. So I think we're hitting a lot of different areas, and that's what's contributing to our double-digit growth.

WSD: How long do you think that will last? What do you think consumers are going to do once the recession ends? That's kind of the million-dollar question right now.

GERRY: It's very obvious that people are more interested in value because of this recession. They're buying more in the off-premise; they're entertaining more at home with their friends. The economy is going to rebound, but I don't think people are going to return to the lavish spending habits we saw in the late '90s and in the early part of this decade. I don't know if it's very similar to what happened to people coming out of the Great Depression, but I think that there are some parallels there and I think consumer habits will be altered. I think that it's going to be a while before we come out of this. We're certainly not out of it yet, and I do think consumer habits are different. As you know, consumers know a lot about vodka; it's the biggest selling category in distilled spirits. I also think they're going to place an emphasis on these four things: quality, innovation, style, and value. I'm not so sure the value component was big in a lot people's minds in their vodka choices in the earlier part of this decade. I do think there are some changes to consumer habits but how deep they're going to be, I don't know.

WSD: Right. I was reading a Wall Street Journal article this morning on cocktail sales at restaurants, and I saw your quote that $15 cocktails are a thing of the past. Can you expand on that?

GERRY: Well, I think what we're seeing in the on-premise is operators are reacting to the fact that consumers are staying home more, so they've been changing their menus and changing their prices dramatically. There are a lot more happy hour specials and little bites at the bar with cocktails. In San Francisco we’re we're seeing a lot of cocktails in the $5-8 range instead of the $10-15 range. Certainly there are some places that are still serving $15 cocktails but I think the consumer is going to look for value even when they're out. And I think that's why, again, brands like Skyy Vodka are going to do well in the off-premise and on-premise scene.

DAVE KARRAKER: And interestingly, Gerry was talking to me this morning about the fact that, in response to that article, although operators are changing their menus to be more value oriented, we're not seeing a lot of people going in and all of a sudden calling for well drinks. They're still calling for brands that have a little more value in their offering.

WSD: Well, speaking of Skyy Vodka and your Infusions line, where are you guys seeing more strength? Is it the on-premise, off-premise or both?

GERRY: Interesting enough, although I've said that the on-premise has been somewhat soft to the off-premise, our business is almost 50/50 for Infusions. Bartenders have fallen in love with this real fruit taste that they can get. We call “it true to fruit.” So we're actually doing a larger percentage of our on-premise business with our Infusions line than even our regular core vodka.

DAVE: It demonstrates the consumer shift towards the idea of organics and all naturals. When Wal-Mart starts having an entire aisle dedicated to natural products, you know it's something that consumers are really going after.

WSD: How is the Skyy Infusions line performing off-premise? Do you think Infusions makes it easier for consumers to mix drinks at home?

GERRY: Well, you're correct that when consumers go home they're certainly drinking Skyy and tonic, or making a martini, or maybe even a margarita or something like that. But they're not doing these very, very fancy drinks that the mixologists are doing, or even certain bars are doing in different places. So I think what they opt for is a good quality product that can stand up to whatever they're mixing it with.

DAVE: I think you can point to the success of X-Rated Fusion Liqueur or American Honey where again, flavor is being introduced. X-Rated is a new product that is easy for consumers to understand, take home and pour over ice, and you're getting almost the entire flavor that you get in a normal cocktail.

GERRY: Particularly X-Rated which would almost be like a ready-to-drink product in a larger bottle.

American Honey is a terrific product and has great flavor. It can be used in many, many different ways. And we actually see it bringing bourbon, because it's a bourbon based liqueur, to a lot of females. The bourbon category has been very male driven previous to this. Innovation is one piece of it but flavor is also coming back. I mean, that's why we're seeing the revival of bourbon, that's why you're seeing this whole thing on rye that's happening across the country. We've got two terrific ryes. One is our Russell's Reserve Rye, and one is our regular Wild Turkey Rye. Wild Turkey Rye has been around for a long time, and Russell's been around for at least a half a dozen years, so I wouldn't call it new and innovative but it's a flavor that people are desiring in their drinks, there's no question about that.

WSD: Speaking of Wild Turkey, what are your plans with that brand in the U.S.?

GERRY: Well, it's an amazing asset that we think was undervalued by the previous owner. It had steady growth. We think with a little more attention, it can be the top performer in the category. The quality of the product is incredible. It's got a deep rich heritage. Flagship Wild Turkey, which is the 101 brand, has got great assets that really have been communicated to its core consumer. But we see great opportunities right across the line so we’re staying very focused on it. Russell's Rye has been really the darling of the mixology community right now and won the best in class at the San Francisco world spirit's competition recently.

American Honey's flying with 85,000 cases in 2008. And this year, we're growing at 100%, so you can see where it's going to land in terms of volume. Every month it's been doubling, on our watch, anyway. We've got a lot of things happening for American Honey in the next couple months. We're going to do close to 3,500 managed bar nights around the United States, from September through December. There's been very little activity the last couple of months as we just took on the brand, and the previous owner really didn't have a lot of stuff in place for the summer. So this year, we're going to finish off the year really strong, and our plan next year is to do somewhere between 9,000 to 10,000 bar nights across the United States.

STAY TUNED FOR PART II of the interview on Monday where Gerry discusses larger trends in the industry.

WSD BRIEFS:

BINNY’S STRIKES DEAL TO ACQUIRE SAM’S. Two longtime Chicago rivals are joining together. Binny’s Beverage Depot has agreed to purchase Sam's Wines and Spirits for an undisclosed sum. The deal is expected to close by Oct. 19, and The Chicago Tribune is reporting that the Sam’s name will be dropped. Thanks to the acquisition, Binny’s will have 24 stores. Recall that Chicago private equity firm Arbor Investments bought a controlling 80% stake in Sam’s from the Rosen family in May 2007, ending the family’s control of the business. Other reports claim that Binny’s is considering expanding outside of Illinois and not necessarily in the mid-west.

AFFLUENT AMERICANS “OPTIMISTIC” ABOUT THE FUTURE. A new survey by the American Express Publishing and Harrison Group found that a majority affluent families in the US feel “extremely optimistic” or “very optimistic” about the future and plan to spend the same or more than they did last holiday season, reports Dow Jones. The survey represents the opinions of 765 families with a minimum of $100,000 in household discretionary income and an average median income of $275,000.

DISCUS BLASTS WI PRICE HIKE PROPOSAL. Discus issued a release claiming that Wisconsin’s proposed 58% tax increase on spirits “will devastate the state's struggling hospitality industry, eliminating more than 1,250.” Proposed by state senator Jim Sullivan, the increase would raise prices from around $.86/liter to $1.36/liter.


Until Monday, Megan

“I never lie because I don't fear anyone. You only lie when you're afraid.”
John Gotti

--------- Sell Day Calendar ----------
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