With enthusiasm for all things local on the rise and sales of its Absolut vodka softening, Pernod Ricard (RI:FP) is looking for a profit boost from a new brand made on the riverside docks of Berlin. The world’s second-largest distiller is taking a page from McDonald’s—that bogeyman of the locavore movement—and franchising. Pernod supplies the distilling equipment and vodka recipe but leaves production, sales, and marketing—along with a small shot of the profits—to entrepreneurs in cities worldwide. “It’s extremely unusual for a spirits brand to franchise production,” says Chris Wickham, an analyst at Oriel Securities in London. “Like craft beer, they’re trying to make a virtue out of each batch being small.”
The brand is called Our/, as in Our/Berlin, Our/Melbourne, or Our/NameYourCity. Pernod introduced the Berlin version last year and is rolling out Our/Detroit this summer. Ten other city labels are in the works, from London and New York to Nashville and Austin. Pernod is betting that pairing its global pedigree with local production will appeal to drinkers who eschew big names in favor of the little guy around the corner. “People who are into this trend aren’t necessarily turned on by big brands,” says Asa Caap, the Absolut executive who created and heads the program. “They want more personal and inclusive things.”
Vodka sales fell 1 percent from 2007 to 2012, International Wine & Spirits Research (IWSR) estimates. Big players such as Pernod and Diageo (DEO), the owner of Smirnoff, have compensated by introducing variants to keep drinkers interested. While Absolut has added “city” bottles such as Vancouver, Rio, and Miami—which don’t claim any local provenance—the brand’s growth has averaged only 1.2 percent annually from 2007 through 2012, according to IWSR.
Our/Berlin is produced by Pauline Hoch and Jon Sanders in an old river port district that’s attracting clubs and bars. It’s sold from a storefront outfitted with Ikea cabinets topped by reclaimed wood. The vodka is made in a former garage by mixing Pernod’s flavorings with bulk alcohol and tap water. Behind the till, there’s a wall of squat Our/Berlin bottles, the name scrawled on the label in faux handwritten script. Pernod says it will support the Our/ partnerships until they make money and then take 80 percent of the profit. Each plant can produce 40,000 to 60,000 9-liter cases a year, a fraction of the 11.3 million cases IWSR says Absolut made in 2012.
The ideal partners for Pernod, Caap says, aren’t established distillers. Hoch and Sanders, who also run a small brand consulting firm in Berlin, paid nothing for the franchise but have used their contacts and marketing smarts to build the brand. “We provide the water and the ethanol,” Sanders says during a tour of the Berlin store. “We don’t use Pernod’s sales channels. We are completely responsible for the selling ourselves.” In addition to the dockside shop, Our/Berlin has contracts with 150 bars, cafes, and stores. A 350-milliliter bottle costs €13 ($17.70), about double the price of Absolut.
The franchise approach is a departure for big-name spirits, which pride themselves on coming from one place—think Scotch whisky or Caribbean rum. Consumers, though, are turning to drinks with limited production and hands-on makers. “There’s a certain status accorded to drinking craft spirits,” says Matt Woodhams of branding consultant Added Value. “You’re an aficionado.”
While Pernod is keen to take advantage of the growing interest in local products, it says it won’t disguise that Our/ vodka is made by the giant behind behemoths such as Beefeater gin and Chivas Regal Scotch whisky. The Pernod Ricard name isn’t currently on the Our/Berlin label, but the company says it plans to add it. Although the strategy may not do much for Pernod’s overall sales, it could help profits, because small-batch spirits can command hefty prices, says Nick Turner, a partner at Deloitte specializing in consumer goods. “There’s a significant chunk of margin that comes with selling a craft brand,” he says. “The consumer makes the assumption it’s a unique, exclusive product they’re happy to pay more for.”