Edrington: we must treat US as emerging market

Edrington Americas’ CEO Paul Ross talks to The Spirits Business about the company’s unique approach to the world’s biggest premium spirits market, the US.

Paul Ross, CEO of Edrington Americas, said the group is seizing “every opportunity” to reach new consumers

It’s a unique approach to consider the United States as an emerging market; as we all know, it’s the largest premium spirits arena in the world. But for Edrington, the Scotland-based producer of The Macallan and Highland Park, the US represents an opportunity for the group that has been largely untapped, until now.

It’s been almost a full year since Edrington launched a dedicated distribution arm to handle its operation in the Americas, rolled out as part of a wider strategy to develop an international distribution network across the world, which also saw the launch of Edrington FIX in the Middle East, Edrington Singapore and most recently, Edrington Webb for Americas travel retail.

The move has been described by CEO Ian Curle as a “step change” for Edrington’s global business, which is “seizing the opportunity to increase investment in our brands and reach even more consumers”, specifically in Asia, the Middle East and the US. It seems strange to lump the US – which is one of the more mature Scotch whisky markets – alongside two emerging ones, but despite having a presence in the country for decades, the group sees the launch of Edrington Americas as a “start-up situation”.

Targeting growth

“Back in 2008, we got about 14% of our business from North America; you’d expect over 30% for a company of our size,” Edrington Americas CEO Paul Ross tells me – the group saw turnover of £607.7 million in the year to 31 March 2014. “So what we’re targeting is to grow North America almost like an emerging market and invest significantly behind that growth to rebalance our global footprint.”

When I speak with Ross on the phone from his headquarters in New York I expect a heavy American drawl, so am surprised when I’m greeted by a thick Scottish accent. Educated in accountancy at Glasgow University, Ross has been with Edrington since 1996, working in various positions located in Caracas, Hong Kong and London.

Having functioned as MD of Asia Pacific from 1999-2002, and head of emerging markets and Asia from 2003-07, he moved to New York in 2011 to establish Edrington Americas, priming the business to take over from distributor Rémy Cointreau USA in March 2014. However he claims the prospect of suddenly adapting to a much more mature market was not lost on him. “I’ve always enjoyed working with emerging markets,” he explains. “Edrington was under-represented in the US, which is the world’s largest premium spirits market, so therefore the opportunity to come here and set up a start-up again was very exciting. But for the company, more importantly, we needed to drive exceptional growth.”

In the last four years Ross has more than doubled Edrington’s revenue in the US and now has grand ambitions to double it again in the next four through utilising the group’s 150 staff across its Chicago, LA, Dallas, Miami and New York offices to drive visibility through “experiential” marketing. “We’re finding that if you’re going to target 25- to 35-year-olds, really you have to look at experiential rather than traditional blank advertising,” he explains. “So we are investing heavily in brand ambassadors, events and social media, and trying to get consumers to create stories themselves and recommend word-of-mouth. It’s a strategy that’s always worked for us.”

The Macallan is delivering “substantial growth” for Edrington on the US

Macallan leading growth

Unsurprisingly, at the forefront of its US effort is The Macallan, which is seeing “substantial growth” in expressions priced above US$100. Campaigns such as Raise The Macallan, which places the brand in front of 10,000 influential, aspirational consumers every year through free, invitation-only tasting events, has driven incremental demand for the luxury brand.

Coupled with the US-exclusive launch of The Macallan Rare Cask, a no-age-statement expression that features “the top 1%” of the distillery’s whisky, Ross claims the future is bright for luxury Scotch in the country. It’s good news for The Macallan, which is the leading spirit by value. “Whisky above US$100 grew by about 24% in the last year, to give you an idea of how consumers are trading up,” he says.

Ross’ optimism is in stark contrast to the latest export figures from the Scotch Whisky Association (SWA), which put sales to the US in the first half of 2014 down 16% by value and 12% by volume. “I was confused by those numbers somewhat because we certainly haven’t seen that trend in our numbers,” Ross confides. “All of our brands are in growth. But what I would say is the propensity for people to go buy expensive, far more sought-after, rare whiskies is certainly evident in terms of consumer trends. And that means you’re getting significant revenue growth if not so much volume growth.”

Highland Park prospects

Despite the declines, the US still represents Scotch’s most valuable export market, and a prime opportunity for Edrington’s secondary single malt, Highland Park. Shifting 20,000 cases in a malt market of 1.2m cases, Ross believes the brand is a “significant” growth prospect. “Highland Park has stock constraints like almost any other malt whisky these days, but it is very well recognised,” he explains. “We are going to use that as an opportunity to invest heavily in the brand. We are allocating more stock to the US so it will become a focus over the next 4-5 years.”

The success of the Valhalla Collection, which began with Thor in 2012 and finishes with Odin this March, has catapulted the brand in front of whisky consumers, while Dark Origins, a limited edition run released last September, performed so well that Edrington will continue to invest in the expression going forward.

Malt whisky aside, Edrington also sees promise for its blended Scotch portfolio, namely The Famous Grouse and Cutty Sark, the latter of which Ross claims is benefitting from a renewed interest in the 1960s era. “What we’re seeing now is a lot of nostalgia in the US; some people call it the ‘Mad Men effect’, but I think it’s more fundamental than that. Consumers are looking to the past, to what was successful in the 50s and 60s, and that’s helping brands like Cutty Sark significantly.” As the largest-selling imported spirit in the US at the time, Cutty Sark is placed right at the heart of this revival, and has seen annual organic growth of 2% over the last four years as “consumers look at brands from the past and start to discover it”.

While Cutty Sark is a “shadow of its former self”, the brand’s Prohibition bottling has boosed sales

Cutty Sark ‘shadow of former self’

One of the biggest growth drivers for Cutty has been the launch of the Prohibition edition in 2013 to coincide with the 80th anniversary of repeal, which Ross says is something the team are “quite proud of”. He admits that while the brand is “a shadow of its former self” right now, Cutty Sark is well on its way to being rediscovered by American consumers.

While it seems US consumers can’t get enough whisky, be it American, Scotch or otherwise, Edrington is struggling to get its rum offer to work in the country. The category has taken longer than other spirits to benefit from premiumistion, and despite a tiki revival spreading through the country, rum is paling in comparison to the immense growth seen in other brown spirits.

Ross admits: “Rum is not performing well at the moment. It’s a huge category at 10m cases in the US, but one year it’s up by 2%, the next it’s down 2%, and it hasn’t really premiumised the way other categories have done like vodka, Tequila and whisky. Rum is very much centred around US$10-15 a bottle, while with Brugal and its investment in the US, we are focusing exclusively on products above US$20 a bottle.”

Rum may be slower on the premiumisation uptake than other spirits categories but Ross is optimistic for the future, and is already seeing “double-digit” growth for Brugal, particularly around its Añejo expression. “We know fundamentally in the next 10 years there will be the same premiumisation in rum, and we are very much setting up Brugal for that future.”

White spirit ambitions

But despite all this talk on whisky and rum, Ross is quick to point out that Edrington’s presence is not all about brown spirits. Vodka still accounts for one in every three drinks sold in the US, and Snow Leopard, launched in 2014, gives the group a presence in that category. The market may be overcrowded right now, forcing widespread competitive pricing, but Ross hopes its charitable USP – 15% of proceeds are donated to the Snow Leopard Trust – and quality will stand out.

Edrington’s portfolio is not large compared to its competitors in the US; four Scotch whisky brands, a rum and a vodka pale in comparison to some of the largest and most successful groups such as Sazerac or Beam Suntory, but Ross is adamant the portfolio size is just, and has no plans to expand, not even into American whiskey. “We launched 17 new products in the last 10 months which has stretched our capacity,” he explains. “There’s a huge opportunity to develop products like Rare Cask, Dark Origins, Prohibition, Black Grouse, Brugal and Snow Leopard, so when I look at the resources we have, our plans for the next five years are very much around driving this portfolio. Opportunities may arise in the future, but that’s not something we’re looking at now.”

Just one year into its operation, Edrington Americas has already proved its worth, becoming one of the fastest-growing areas of the company. Ross’ aim to develop the market to account for 30% of Edrington’s global business is well on its way, and with a trend toward consumers “trading up” in the country, Ross is keen to add that “everything points to a very rosy future” for the group in the States.