US ‘almost impossible’ for indy spirits to crack

For any self-respecting spirits brand, America is the promised land, but it’s also one of the toughest markets to crack, as Tom Bruce-Gardyne discovers.

Spirits brands continue to covet the US market, but it is one of the world’s most difficult markets to crack

To make it in America is not just the dream of every British rock band since the Beatles’ invasion of 1964. Every non-US brand of vodka, gin, whisky, or whatever, also wants to crack the most lucrative and dynamic international spirits market on the planet. Thousands try, but few succeed.

“The structure of the US market makes it theoretically almost impossible to break into,” says Jacob Ehrenkrona, CEO of Reformed Spirits, owner of Martin Miller’s gin. “Basically there hasn’t been a single European brand owned by an independent company that has really conquered America.” When pressed, he makes a possible exception for the Dutch vodka Ketel One, before Diageo bought a 50% stake and took over distribution in 2008.

“Martin Miller’s has just about managed to get a foothold in America that no one can take away from us,” Ehrenkrona says. “We’ve made every mistake, but we’re still there and we’re growing.” The biggest mistake he sees time and again is “to be mesmerised by the opportunity the US represents. Most brands start in New York, California or Florida, and then other states start demanding the product. It becomes exciting and, all of a sudden, you get swept away by your own success and start spending money. You spend a fortune and spread yourself too thin. That’s the main reason people fail.”

Mistake number two is to misunderstand how distributors work. “They’re there to help you, but don’t forget you mean nothing to them,” says Ehrenkrona. “You need distributors’ support if you are to achieve any kind of scale, but they will do the absolute minimum.” In other words, unless you have the means and the motivation to spend time, sweat, shoe leather and money, your initial investment will be wasted. He reckons many brand owners assume that being listed by a big distributor is like winning a major supermarket listing in Europe where they can sit back and wait for the next order.

Importers ‘difficult to capture’

According to Ricky Christie of Valt vodka and Gilt gin, there’s no shortage of small importers willing to represent new spirits in the States. “However, capturing and landing the bigger players such as Southern Wine, Constellation or Sazerac is very difficult, if not impossible,” he says. “They need a strong USP, a distinct market need and an investment of support behind the brand, which is normally beyond small, innovative craft distillers.” Then, having spent months acquiring ATF (Bureau of Alcohol, Tobacco and Firearms) approval, you have the joy of finding wholesalers to take the product on.

Christie explains how the wholesalers identify the price band for the spirit and then work backwards: “Once you’ve agreed a workable formula, they hit you with the double whammy – free product! In our initial discussions we were told it was normal to give two bottles out of every six for sampling and promotional activities.” He concluded the only option was to take the slow road of organic growth and hope the end consumer would eventually get the message. He views the alternative, big-spending approach as too high-risk. “It’s littered with casualties where ‘made’ in America generally only applies to American wholesalers who will never get burned.”

According to Hine’s MD Francois Le Grelle, if the Cognac does not carve a substantial presence in the US, it will be “weakened in other markets”

Independent frustrations

George Grant, sales director at Glenfarclas, accepts the family-owned Speyside malt was lucky to land Sazerac 20 years ago, yet there has been plenty of frustration along the way. “The sales guys have telephone directory-sized books they sell from, and if you’re at the bottom of page 940, there’ll be three lines on your brand. So unless you are one of the big boys spending an awful lot of money on marketing, advertising and incentivising the sales team, it’s very difficult,” says Grant.

Things improved when Glenfarclas joined Gemini Spirits & Wine, a Sazerac subsidiary set up five years ago to focus on craft spirits. “The places we’re seeing growth in are more ‘anti-chain’, with a lot of small liquor stores supporting us because they view us as being a small, independent company,” Grant continues. As for bartenders, he says “they like craft spirits as much as the next person but, at the end of the day, if they want to win a trip to London they’re going to have to do a cocktail with Beefeater. Or if they’re keen to visit Scotland, it’ll have to be with The Glenlivet or Glenfiddich.”

Life is equally challenging for Cognac producers that are not one of the big four. The biggest independent player, Camus, could hardly ignore what is the spirit’s biggest market by volume. “We’ve been in the US for years and experienced a lack of focus for being a single challenger brand,” explains Jean-Denis Voin, Camus’ marketing director. The solution was to revitalise the company’s own distribution company in Florida in 2010. “Our aim is to act as an importer/distributor in the States for premium third-party brands in addition to Camus,” he adds. So far there’s a Canadian gin, a single malt and a Tequila, and the company is in talks with others to expand its portfolio.

Step-by-step

With its team of 15 in the US, Camus is taking a step-by-step approach. “We don’t have to cover the whole country,” Voin explains. “So we’ve put our key guys in New York, Georgia, Florida, California and New Jersey.” In all, the brand is in some 34 states, and benefitting from the same trend as Glenfarclas. “We never claim we’re a craft Cognac, but craftsmanship’s in our DNA,” Voin says. “That appeals to consumers who are fed up with big brands and big marketing stories.”

Another Cognac not blessed with a Diageo-sized marketing spend is Hine, which slipped back into French hands when sold by CL World Brands last September. “In my experience, being small gives us more flexibility,” says Hine’s MD Francois Le Grelle, who switched importer to Anchor Distillers in California two years ago. “Their distribution was mainly on-premise, which is exactly where we want to be.” Six years ago, Hine was fairly dormant in the States, but since being repackaged and given renewed focus, Le Grelle is confident about future growth. “If we don’t succeed in the US, we’ll be weakened in other markets,” he adds.

America is also one of the most important strategic markets for the Spanish wine and brandy producer, Torres. General manager Miguel Torres Maczassek points out that the US market for imported brandy – 4.2 million cases in 2013 (IWSR) – is the world’s biggest. “Geographically we focus especially on the larger cities, where we also see an increasing trend in the high-end cocktail segment, in which we are experiencing interesting growth,” he says. He accepts that competing with the multinationals “does make it quite challenging to penetrate this market for a family-owned brand like us”. On the flip side, there’s less pressure to make short-term profits and, according to Torres, the company re-invests 95% of its profits every year.

Jacob Ehrenkrona, CEO of Reformed Spirits, owners of Martin Miller’s gin, said spirits should avoid changing their brand for the US

Complicated market

Down in Mexico, Raffaele Berardi, head of Fraternity Spirits, which owns Corralejo Tequila, describes America as “the most complicated and time-consuming market there is. There are only a few really good distributors who are controlled 80% by the big brands, leaving very little space for others.” But, again, he feels the consumer trend towards individuality in spirits should help those without the financial firepower of the megabrands.

Reformed Spirits’ Ehrenkrona feels “things are changing a little in the distribution chain, where a fresh, new brand has an advantage with a small distributor who values its presence.”

Besides dominating Tequila exports, the US is “by far the biggest market for super-premium vodka with 80% of the category”, says Alexander Mechetin, CEO of Russian spirits group Synergy, which sells some 15m cases domestically. Its most premium vodka, Beluga, was seeded into the States just over three years ago, starting with the key markets of California, Florida and New York. “It’s quite a challenge to manage the logistics, but nevertheless we think Beluga has made a good start,” Mechetin says. From a low base, the brand is forecast to grow 50% this year.

As “the motherland of vodka, Russia should have at least one superstar [in the States], and we believe Beluga is the rising superstar within the super-premium category,” says Mechetin. He accepts that provenance alone is not enough to sway US consumers but, within the on-premise, he feels “there’s a big advantage for new brands. Bartenders usually perceive spirits like Bacardi and Absolut as commodity brands which they don’t really love.”

Bartender endorsement

The category Beluga plays in was pioneered by brands such as Belvedere – the Polish vodka first imported by Eddie Phillips and launched nationally in 1995. “Most importantly, we did outreach work with bartenders before and during our early launch years,” says Cathy Steen of LVMH, which now owns the brand. “Their initial endorsement was critical and, before we launched, we had advocates in the hottest spots in the US. Bartenders are gods, and the key to success for brands.” As for Belvedere’s Polish heritage and whether American vodka drinkers care about it, she says: “I think more than ever, today’s consumers want brands with heritage, roots and authenticity.” Of course, Belvedere now enjoys serious distribution muscle, but it “originally launched in smaller ‘wine-like’ wholesalers and we received a tremendous amount of focus”, says Steen. “These wholesalers will always have a role to play.”

For any brand owner still contemplating a US launch, Ehrenkrona has one final word of advice: “Believe in yourself and don’t change your brand, whatever people tell you about America being different.” He sees a parallel with those British rock bands who were encouraged to change their sound for the US: “Only when they fired their managers and tried again without compromising their music did they have a chance of success.”