Vin & Spirit Ab Business Information, Profile, and History

Company Perspectives:

There is a growing need to change the conditions for players in the Swedish market. Also, continued integration of markets in Europe demands innovative thinking and development, for the businesses and within them. V & S is working to adapt to this scenario, where growth, flexibility, focus and control of key stages in processes acquire great importance.

History of Vin & Spirit Ab

Government-owned Vin & Spirit AB (V & S) lost its monopoly on the production, wholesale, export, and import of alcoholic beverages in Sweden in 1995. Yet V & S, which is grouped under the country's Ministry of Finance, remains Sweden's largest producer, exporter, and importer of alcoholic beverages and has achieved worldwide recognition with the success of its Absolut vodka brand, the world's number six biggest-selling alcoholic beverage brand. After the end of the liquor monopoly, which was taken down upon Sweden's entry into the European Union, V & S was forced to restructure its operations, cutting staff and streamlining its product positioning. As such, the company now operates in two primary divisions, as its name implies: Wine and Spirits. The company's wine division handles the company's own wine brands, ranging from 'bag-in-a-box' wines to high-quality imports, including imported wine from V & S-owned Domaine Rabiega vineyards in Provence, in the south of France. A total of 75 percent of the company's wine sales are provided by its own brands. V & S's brands account for more than 25 percent of all wine sold by the Swedish retail alcohol monopoly, Systembolaget. At sales of 32.4 million liters per year, wine remains the smaller part of V & S's total annual sales volume of 98.1 million liters. The largest part goes to the company's Spirits division, which itself is divided into two subsidiary operations: The Absolut Company, responsible for the company's world-renowned vodka product--and its single largest-selling brand--and Reimersholms, which produces and markets spirits chiefly for the Swedish market. In all, spirits sales reached 64.4 million liters. Absolut vodka alone represented 53 million liters of this total, with sales in 125 countries. The United States, however, with more than 32 million liters of Absolut sold in 1998, remains the brand's single biggest market. Other V & S spirits brands include Renat Br&auml--vin, Gr&ouml#tedts cognac, Reimersholms Aquavit, and Explorer and Kron vodkas. These other brands helped V & S win the coveted 'Distiller of the Year' award from the coveted International Wine & Spirits Competition of 1998. In that year, the company recorded sales of nearly SKr 3.48 billion, with net earnings of more than SKr 861.5 million.

Swedish-Style Prohibition in the 20th Century

Concern over the negative impact of alcoholic beverage consumption on health and society inspired a number of prohibition movements around the world. In the year surrounding the First World War, a number of countries enacted prohibition policies, beginning with Iceland, where alcohol was banned in 1912, and reaching Norway in 1916, Finland in 1919, and the United States in 1922. Sweden, too, weighed the possibility of prohibiting sales of alcohol, taking a vote in 1922. By then, however, the country had already enacted a strict rationing system, called the Bratt System, after its developer Dr. Ivar Bratt. Under that system, which was introduced in Stockholm in 1914 and expanded throughout the country in 1919, not only were restaurants and taverns placed on strict licensing procedures--with veto rights given to local governments--but individuals, too, were granted the right to purchase only as much alcohol as they were deemed able to afford to buy. The immediate effect of the Bratt system was to limit alcohol sales among the country's female and poor populations. The Bratt system introduced a sort of 'bank book' for alcohol purchases, which each citizen was required to present before being allowed to purchase any alcoholic beverage. At the same time, retail sales were placed under the Systembolaget monopoly, which continued to control all retail alcoholic beverage sales through the end of the century.

The referendum vote on prohibition was taken in 1922. The prohibitionists lost that battle by a slim margin--with 50.7 percent of the population voting against--the Bratt system, however, remained in effect and was not abolished until 1955. The failure of the prohibition referendum had saved the existence of a relatively young organization. Vin & Spirit had been set up in 1917 as the government-run monopoly on the production and importation of all beverages with alcoholic content greater than 2.8 percent. V & S's monopoly extended over the entire spectrum of alcohol production, exportation, and importation, as well as wholesale distribution and distribution to the Systembolaget retail monopoly. As such V & S took over production of many of Sweden's most popular and revered names in spirits, such as Reimersholms' Renat Brandvin, introduced in 1877; OP Anderson, introduced in 1891; the world-famous Gr&ouml#tedt line of cognacs, established in 1846; and Absolut Rent Br&auml--vin, introduced in 1879.

V & S's monopoly gave it little need or incentive to engage in marketing campaigns to its captive audience. Attached to the Ministry of Finance, the liquor monopoly functioned not only as a tax collector, but also as a source of revenues for the Swedish government. V & S nonetheless had to take into account the tastes of the Swedish consumer, adapting its products accordingly. As such, the company introduced a new vodka brand in 1959, Explorer, which was highly popular among drinkers in a country where vodka was the number one preferred spirits type.

That vodka was also the biggest-selling category of spirits worldwide had not escaped the attention of V & S's president, Lars Lindmark, in the 1970s. Sweden was hardly recognized by the world's vodka lovers as a producer of vodka. Yet the country had been producing its own 'bränvin' (literally, 'burnt wine') since the 15th century. Attributed various medicinal properties, this spirits type was generally sold by pharmacies, in the typical pharmaceutical bottles of the day; it also found other uses, however, specifically in the making of gunpowder. Even as the Swedish consumer was discovering other, more recreational properties of spirits, the first alcohol restrictions were enacted to ensure the supply of distilled alcohol for the Swedish military. Nonetheless, by the 17th century, the Swedish vodka had become the country's most popular type of alcoholic beverage.

Production centered around the country's southern regions, particularly the Skane region, which accounted for half of the country's production. Regional clashes tended to restrict distribution, however, as cities sought to control the production and sale of vodka in the areas under their control. As such, the city of Stockholm, for example, enacted its own vodka monopoly that barred distribution of vodkas produced outside of the city. Despite these restrictions, in the 19th century, the Swedish kingdom saw the rise of a new kind of nobility: the 'King of Vodka,' Lars Olsson Smith.

Smith had started his career as a child--by the age of ten, he had already achieved success as a businessman, and by the age of 15 he had already amassed a personal fortune. Smith had developed a new type of vodka, produced using a distillation method dubbed 'rectification,' which permitted the production of a purer vodka. Smith's grain-based vodka, which was introduced in 1879, was not only smoother, it tasted better, according to many. Called 'Absolut Rent Bränvin' ('absolutely pure vodka'), this new brand enabled Smith to gain control of more than one-third of the country's total vodka production.

While Smith's Absolut production was located on the island of Reimersholme, outside of Stockholm, Smith quickly began buying out other distillers in the southern Skane region. At the same time Smith went to battle with the Stockholm liquor monopoly, refusing to apply for a permit to sell his vodka within the city, but instead setting up a retail store next to his Reimersholme distillery. Meanwhile, Smith declared war on the many inferior-quality vodkas then available, even stirring up labor union boycotts against the inferior vodkas and their distributors.

By the turn of the century, Absolut Rent Bränvin had helped Smith become one of the country's wealthiest citizens. Smith also began exporting his vodka, achieving still greater success. Nonetheless, a born entrepreneur, Smith was also prone to losing his fortune, only to rebuild it and lose it again. Finally, by the time of his death in 1913, Smith was bankrupt. When the Swedish Wine and Spirits Monopoly was formed, Absolut Rent Bränvin came under its aegis. The brand remained popular in its homeland, but was quickly forgotten overseas.

A Worldwide Marketing Success Story by the 1990s

By the 1990s, Smith's Absolut brand was once again at the top of its field--Absolut had become the world's sixth largest-selling spirits brand. When Lars Lindmark took over the presidency of the V & S monopoly in the 1970s, he began looking for ways to improve sales, specifically through exports. With the approach of the 100th anniversary of the vodka created by Lars Olsson Smith, Lindmark saw an opportunity not only to mark that occasion, but also to re-introduce to the world a fine vodka. Lindmark chose the United States as his first export market, given that the United States was one of the world's largest single consumers of vodka.

Lindmark recognized that, as president of a monopoly, he had little experience in the marketing methods needed to create an international brand. Lindmark began assembling a marketing team, hiring not only a Swedish design team, but also advertising experts in the United States. Before the vodka had even been given a name, the team went to work on its packaging, eventually settling on the now famous bottle, inspired by the original pharmaceutical bottles in which Swedish vodka had long ago been sold. Other aspects of the bottle came into shape, such as the use of low-lead-content sand to increase the bottle's clarity--the better to show off the purity of the vodka itself. Instead of attaching labels to the bottle, the team decided to engrave the lettering directly onto the bottle. By the time it came to give the vodka a name, the team--inspired by the bottle's vintage design--decided to go back to the vodka's origins as Absolut Rent Bränvin, translated into English for the international export market. Trademark restrictions in the United States, however, made it impossible to use the words 'absolute' or 'pure' in the vodka's name. Instead, the marketing team dropped the 'e' from absolute, which had the effect of enhancing the vodka's Swedish origins. To reinforce this connection still further, the team added the words 'Country of Sweden.'

Absolut was first introduced to the Boston market in 1979; in that year, the vodka won an award for best packaging design. Yet Absolut's march to become the U.S. market's--and the world's--biggest vodka brand really began in 1981. In that year, the vodka's U.S.-based advertising team, Geoff Hayes and Graham Turner of TBWA, introduced one of the era's most successful advertising campaigns. The first Absolut ad, called 'Absolut Perfection,' established the look of what remained an Absolut standard through the 1990s. With its play on words and graphic puns (the ad featured the bottle wearing a halo) the Absolut Perfection ad sparked a series of ads, all of which featured the tagline 'Absolut Something dot,' topping 1,000 in number by the end of the 1990s.

The ads not only captured the attention of consumers, who quickly made Absolut one of the United States' biggest sellers. By 1982, it had taken over the number two spot and, by 1985, it had beat out its prime Russian competitor to lead U.S. vodka sales. That year, also, saw the first of what was to become the world renowned Absolut Art series, when Andy Warhol was commissioned to design an Absolut ad. The list of artists who contributed to the Absolut Art series soon read as a who's who of the 1980s and 1990s art world, with names like Keith Haring, Edward Ruscha, Kenny Scharf, Arman--more than 350 artists in all. In the late 1980s and especially in the 1990s, Absolut's marketing effort branched out to include designers such as Donna Karan and photographers such as Helmut Newton, and has even moved into cinema, producing preview advertisements for motion picture audiences.

With the United States and Canadian markets conquered, V & S turned its Absolut juggernaut toward the rest of the world. In the 1990s, V & S began rolling out Absolut to its European neighbors, entering the United Kingdom, Germany, France, and others, tailoring its campaign to each country's audience. New country launches typically drew on the company's stock of 'basic' ads, including the original Absolut Perfection ad, before becoming country-specific in terms of cultural icons and references.

The success of Absolut encouraged V & S as it prepared to face a new challenge. Sweden's admission to the European Community meant that it was forced to abolish its liquor and wine monopoly. The loss of V & S's monopoly occurred in 1995; a direct result was the shutting down of its Stockholm production facility and the closing of its Provinum Distribution subsidiary. The company also faced into the onslaught of direct domestic competition for the first time since its formation in 1917. Nonetheless, buoyed by the experience gained with Absolut's international success and by the success of the V & S 500-strong catalog of spirits and wine brands, V & S remained confident of retaining at least a 50 percent share of alcohol and wine production, importation, and exportation in Sweden. At the same time, the company prepared other international moves, including the creation of a new vodka brand, Kron, specifically for the Polish market. That country, the world's number two market for vodka sales, required that vodka sold in the country be produced domestically. In keeping with this restriction, V & S established a joint venture production facility in Poland. In the late 1990s, V & S sought further expansion in the North American market, introducing its aquavit--a popular Swedish spirit--brands to the U.S. market. Not all of V & S's expansion moves were successful. The company's entry into the vast Russian vodka market, the world's largest, met with relative indifference, as the Russian consumer remained committed to their domestic brands.

In the second half of the decade, V & S began restructuring its operations, grouping its operations into two major categories, Wine and Spirits, with the latter being organized into two principal subsidiaries: The Absolut Company and Reimersholms. At the same time the company centralized most administrative and financial functions. Although V & S saw the inevitable erosion of its Swedish market share, it nevertheless posted strong revenues and earnings, while retaining a 55 percent share of all Systembolaget sales. V & S also continued rolling out new products, such as the Sundsvall 'super premium' vodka, launched in 1998. In that year, the company was awarded international recognition for the high quality of its spirits range, winning the coveted 'Distiller of the Year' award at the prestigious International Wine and Spirit Competition.

Principal Subsidiaries: The Absolut Company; V & S Domaine Rabiega (France); Amfora Vinhus AB; Vin & Spiritsällskapet; Vin & Spirithistoriska Museet.

Principal Competitors: The Seagram Company Ltd.; Grand Metropolitan plc.

Chronology

• Key Dates:

• 1846: Vin & Spirit's oldest brand name, Gr&ouml#tedt cognacs, is established.
• 1877: Renat Brandvin is introduced.
• 1879: The brand Absolut Rent Br&auml--vin (absolutely pure vodka) is created.
• 1914: Creation of Bratt alcohol rationing system.
• 1917: Establishment of Vin & Spirit, the Swedish national wine and spirit monopoly.
• 1955: Abolishment of Sweden's Bratt system.
• 1959: Launch of Explorer brand vodka.
• 1979: U.S. launch of Absolut brand vodka.
• 1985: Andy Warhol designs first in Absolut Art bottle series.
• 1995: Loss of Swedish spirit and wine monopoly.
• 1998: Launch of Kron vodka brand in Poland; launch of Sundsvall super premium vodka brand in United States.
• 1998: Vin & Spirit is named Distiller of the Year at the International Wine and Spirit Competition.