Is Sweden Picking the Vodka Top?
Now this is just a crazy theory, so feel free to ignore me.
But here's my rationale:
Everyone talks about the fact that Steve Schwarzman "picked the top" in the private equity business by taking Blackstone Group public last summer, at the best possible moment before the credit implosion ended the era of cheap money and easy leveraged buyouts.
(This brings up the painful memory that I am a Blackstone unitholder, though at a price far below the IPO, but that's neither here nor there).
Blackstone became a popular icon of the era of private equity and hedge funds, though they were of course far from being the only, or even the most important, players in that field. And Steve Schwarzman became the face of Wall Street excess for having a ridiculously Kozlowskian birthday party just months before Rome started burning.
Now here's where we stretch a bit ...
Vin and Spirits, the alcohol company owned by the Swedish government, ought to be the poster child for fancy vodka. Before they launched Absolut, way back when I was a pup, there was no real branding for vodka -- the only brand you might have known would be Smirnoff. Smirnoff that was a brand that might call to mind fur hats, or maybe James Bond and a sultry fur-clad Bond girl sipping hooch in a hot tub, but it wasn't really marketed the same way consumer products are actively marketed today. No one loved Smirnoff because of it's ads. If you were a vodka drinker, you might buy Smirnoff instead of your liquor store brand because you had more money and the quality was better, but you probably didn't identify with the brand.
Absolut changed alcohol marketing forever -- their ads, often created by celebrity artists like Keith Haring, were beloved pop culture totems, hung up on teenagers' walls around the world, and their distinct style was copied by fraternity T-Shirts around the country.
Absolut created the idea of the premium vodka brand, and they were probably way ahead of their time. Who would have thought that you could make a premium version of a liquor that is primarily known (or was) for being tasteless and odorless (though that's debatable). Remember, this was well before even bottled water became widely accepted. There were alcohol bottles that were kind of cool, I suppose, like the boxy green Tanqueray bottle or whatever novelty bourbon bottle had the most wax on the cork, but few really were iconic brands -- Absolut did for vodka what the strange basket bottle did for Chianti, it made it stand out and gave it an image.
So if you were over 20 at the time it was introduced you probably thought it was ridiculous to market a vodka like this. But the Swedes did it. And I have a theory.
They rode the wave of Absolut's success. But they grew wary.
They watched the massive outbreak of premium vodkas over the past five or ten years -- including flavored vodkas of nearly every stripe, another niche that Absolut pioneered and owned for years. And they started thinking, "hey, what do we do if everyone starts making this stuff and our market wears thin?"
Mind you, they were still (and are still) among the leading distilled spirit brands in the world, and certainly the leading vodka in the US market.
But then, the signs of a peak in the premium/luxury vodka market started to appear ... the fancy frosted bottles ... the crowding of the top shelf ... maybe Vin & Spirit got a little fidgety.
And then, the sure sign of the market top, Donald Trump got on board. I wonder whether an archivist, poring through the records of the Vin & Spirit company, will note that they first considered selling off the company back in 2005 when Drinks America (a tiny OTC stock that has been awful for investors) first announced the Trump Vodka line ... and finally accepted the Pernod Ricard bit for the business when Trump Vodka this year started actively shipping to Russia ... and started selling flavored versions.
(What the hell are the Russians doing importing vodka, anyway? That seems utterly ridiculous. But I digress.)
Just a hunch. Is Pernod Ricard really buying a premium brand and getting exposure to the important premium vodka segment? Or are they picking up a marketing-driven vodka just as it seems that the market can't for these products can't get any more ridiculous?
Pernod Ricard is probably making a smart move -- they say it will be accretive to earnings within a couple years, so I suppose they're probably not overpaying. And it's true that vodka was really the hole that they needed to fill if they were to take on Diageo in all of it's important segments around the world.
But I wonder whether Steve Schwarzman is sitting somewhere right now, sipping a glass of Trump Super Premium Vodka, and raising his glass to the Swedish government for selling off a prize asset just when it seemed that it's business couldn't get any better ...
full disclosure: I own Blackstone units but not any other investment mentioned here. And I like my liquor brown.