Smirnoff Vodka: Brand Profile

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Smirnoff vodka is the world's biggest-selling spirit by volumes, and one of the main trophies in the cabinet of drinks giant Diageo. Arch-rival Absolut may arguably have had the edge as far as trend-setting is concerned (at least until recently), but Smirnoff has size on its side. It is sold in more than 130 countries worldwide, with an overall lead enhanced by the fact that, for almost 30 years after the Second World War, it was virtually the only vodka available for purchase outside communist Russia. At the turn of the 21st century the brand enjoyed considerable success with ready-to-drink spin-off Smirnoff Ice. In America this so-called "malternative" didn't even contain vodka, allowing it to compete head-to-head with the local beer industry. More recently though, vodka as a whole sector appears to have lost some of its charm for drinkers, prompting Smirnoff to seek out new avenues for growth.

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Recent stories from Adbrands Weekly Update:

Adbrands Weekly Update 25th Oct 2017: In an extraordinary upset to the status quo in the US spirits market, Tito's Handmade Vodka - the only independently owned brand among the 40 top-selling spirits - has overtaken established giants Smirnoff and Jack Daniel's to become the biggest brand by revenues in US retail channels. According to data from IRI quoted originally by trade source Wine & Spirits Daily, craft-based Tito's registered sales of $190m in the year to September, up an astonishing 44%. Jack Daniel's Black Label was at $178m and Smirnoff at $173m. Those totals don't include bar sales, which probably give the more established brands the edge overall. Nevertheless it's an extraordinary achievement for a brand celebrating only its 20th birthday. Tito's is still wholly owned by founder Bert "Tito" Beveridge, now one of the newest members' of the US billionaires club with an estimated net worth of around $2.5bn.

Adbrands Weekly Update 21st Jul 2016: Diageo has appointed Vince Hudson as SVP & global brand director for Smirnoff vodka. Hudson was previously VP, US marketing for Samsung mobiles, and before that spent 20 years at P&G.

Adbrands Weekly Update 22nd Oct 2015: Ads of the Week: "What We Bring". Smirnoff vodka has launched what is said to be its biggest ever global marketing campaign in a partnership with agency 72andSunny and alt-media upstart Vice. The resulting push aims to create a “global social movement powered by music collaborations that span the globe”. It's pretty cool stuff, and a vigorous response to Bacardi's equally millennial-targeted new marketing campaign, which launched last week. Enjoy!

Adbrands Weekly Update 19th Mar 2015: Impact Databank published its annual ranking of the world's Top 100 most valuable spirits brands. Johnnie Walker retained its commanding lead at the top of the table, despite an 8% slide in value to $5.3bn. The Diageo brand has suffered the effects of a clampdown on luxury spending in China as well as political turbulence in Russia. Smirnoff held second place almost $2bn lower at $3.4bn, but long-standing #3 Bacardi slipped back to 5th at $2.5bn. It was overtaken by Hennessy cognac ($3.1bn) and Jack Daniel's ($2.7bn).

Adbrands Weekly Update 22nd Jan 2015: Whisky gets the majority of the headlines these days, but vodka is continuing to show steady growth in the US market, according to industry monitor Impact Databank. Seven of the leading brands showed growth and the top 10 combined rose by around 2% to 37m cases. However, all the gains went to the likes of Svedka, Grey Goose, Skyy and New Amsterdam. Market leaders Smirnoff and Absolut both registered a decline as did former hotshot Pinnacle. Smirnoff slipped 1% to 9.7m cases, and Absolut shed 1.5% to 4.6m. Pinnacle was the biggest loser overall, down more than 2% to 2.7m cases.


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Background

Free for all users | see full profile for current activities: Pyotr Arsenyevitch Smirnov founded his vodka distillery in Moscow around 1850. Vodka was already firmly established as the national drink of Russia, as commonly consumed as wine in France or beer in Europe's Anglo-Saxon countries, and there were numerous other distilleries throughout the country. However Smirnov quickly gained a reputation for producing one of the finest forms of this popular liquor, largely as a result of what was then a unique charcoal filtration method, as well as continuous distillation to produce a steady stream of top quality vodka.

In 1877, Smirnov's vodka was granted a royal warrant by the Russian Imperial Court, the first of three such awards it would receive. Smirnov also began to export his product widely throughout neighbouring European countries. In 1886, the House of Smirnov was appointed as official purveyor of vodka to the Russian Court, and was also adopted by other royal families in Spain and Sweden. The Smirnov family, meanwhile, became enormously wealthy. However, as a result of their wealth and close links to the Russian monarchy, they were an obvious target during the political upheaval that followed during the early years of the next century.

Following Pyotr's death in 1906, the business was controlled by his sons, Vladimir and Nicolai. In 1917, following the Bolshevik Revolution, the Smirnov distillery was one of thousands of private businesses confiscated by the new government. The Smirnovs were arrested and imprisoned. Nicolai died in jail in Moscow, but Vladimir was able to escape when the prison in which he was held was stormed by followers of the deposed Czar. He fled the country, ultimately ending up in France, where he adopted the more Western spelling of Smirnoff, and posthumously renamed his father Pierre instead of Pyotr. He attempted to launch a distillery in Paris in the 1920s, but the business struggled to stay afloat. In an attempt to raise money to support himself he sold the Smirnoff trademark and details of the distillation process in 1933 to Rudolph Kunett, a fellow Russian who had fled the country some years earlier and had established a successful import-export business in the United States.

At that time, the US Prohibition ban on alcohol was about to be lifted, and Kunett was convinced that sales of legal liquor would soar. In 1934, he established the first vodka distillery in America in Connecticut. However the expected boom failed to materialise, and all America's liquor companies found business exceptionally slow. Times were especially hard for Kunett. Vodka was unknown in the US outside the country's eastern European immigrant community, and the company struggled to build a market for such an unfamiliar drink. Finally Kunett sold the business to US distillery Heublein, whose president, John Martin, agreed to pay Kunett $14,000. It was an excessively generous price in the eyes of Heublein's shareholders, who named the deal "Martin's Folly". As it turned out, it was the smartest deal John Martin ever made.

Shortly afterwards, a labelling error in the distillery warehouse resulted in Smirnoff vodka being packaged as whiskey. This gave Heublein an idea for boosting sales, and the drink began to be marketed as "Smirnoff White Whiskey. No Taste. No Smell." Suddenly American consumers began to develop a taste for vodka, especially when they found this spirit could be mixed with virtually any other drink. Smirnoff's popularity was sealed two years later when Heublein joined forces with Hollywood restaurateur Jack Morgan, who was trying to create a market for another unfamiliar import, the British soft drink ginger beer. Martin and Morgan invented the Moscow Mule, a combination of Smirnoff and ginger beer with a twist of lime, which became one of the most popular cocktails of the decade among Hollywood's influential movie crowd.

Smirnoff became even more prized in the years following Word War II. As a result of the new cold war between Russia and the West, the country's communist leadership closed down all exports of vodka, leaving Smirnoff as the only significant Russian brand outside Eastern Europe for almost 30 years (until PepsiCo's ground-breaking trading agreement with Russia in 1972). This was a remarkable stroke of fortune for Heublein. The popularity of cocktails soared in the late 1940s and 1950s, and Smirnoff vodka became a key ingredient in virtually all of the most popular drinks, replacing gin in the Martini and the Collins, and forming the base of the Screwdriver, the Bloody Mary, Bullshot and Black Russian. In 1955, annual sales of Smirnoff broke 1m cases for the first time. An innovative advertising campaign spread the brand's fame nationally, while the drink's international fame was sealed when it was revealed as the key ingredient in James Bond's favourite cocktail, the vodka Martini, "shaken, not stirred" of course.

In the 1960s, Heublein was acquired by diversified foods group Nabisco; then sold in 1987 to International Distillers & Vintners (IDV), the spirits arm of what was later to become Diageo. In 1991, IDV reintroduced the brand in Russia for the first time since 1917. However the following year Boris Smirnov, the original distiller's great-great-grandson, launched his own version in Russia under the Smirnov name. He claimed that the worldwide rights to the brand had been acquired illegally by Heublein and tried to stop production in Russia. The battle raged in Russian courts for several years, with even Russian president Boris Yeltsin coming out on the side of the local brand. Meanwhile other descendents of Pyotr Smirnov backed Diageo's cause, especially after the drinks company established a generous charitable foundation in Moscow, and appointed another great-grandson, Vladimir Smirnov, to run it. The row escalated when Smirnov brought his case to the US in 1998, with a $1bn lawsuit, but this was dismissed the following year.

By this time, Smirnoff had come under intense pressure, especially in the US market, from trendy newcomer Absolut. In 2000, for example, Smirnoff's volumes in the US fell by almost 7% to 5.7m cases, while Absolut jumped over 11% (to 4.5m cases). To defend its turf, Diageo found a new way to support its main brand, with the introduction of single-serve ready-to-drink cocktails. The sector had in fact been launched in 1989 by Bacardi with the introduction of the Bacardi Breezer. This was the first mainstream ready-to-drink premium packaged spirit, consisting of a single serving of a Bacardi-based cocktail. Diageo followed in 1994 with the first Smirnoff derivative, Smirnoff Mule, a pre-mixed single serving of the Moscow Mule cocktail.

By the late 1990s, the trickle of packaged RTDs had turned into a virtual flood, although many of the new products targeted the low end of the market, especially in the UK, where cheaply produced and over-sweetened alcoholic lemonades had captured a considerable share of the mass-market, especially among women. Diageo entered the market once more in 1999, introducing Smirnoff Ice, a lightly carbonated, low-alcohol blend of vodka and lemon juice, in the UK. It added a much-needed sophistication and brand authority to the sector. Smirnoff Ice sold around 7m cases in its first year. It was subsequently rolled out in other countries including Ireland, Portugal, Canada, Belgium, South Africa and Kenya. In 2001 Diageo claimed that the spin-off was generating sales of £200m, around a quarter of the company's total Smirnoff-brand revenue. By the second half of the year the group claimed to have a 25% share of the UK's RTD drink sector.

In 2002 Smirnoff Ice was launched in the US. Crucially the vodka was removed and replaced by malt-based alcohol. This freed the product from the many legal restrictions surrounding spirits. In the US, spirits (or even products which contain spirits such as Bacardi Breezer, for example) are categorised as hard liquor and must be sold through controlled retail outlets. They also face much tighter restrictions on advertising. In fact, at the end of 2001, US network NBC generated a storm of controversy when it broke the US TV networks' decades-old self-imposed veto on hard liquor by agreeing to carry ads for Smirnoff's main vodka line, albeit late at night. It was the first time since 1946 that hard liquor advertising had run on a US network. Careful to play safe, the ad, which was produced as a one-off by political lobbyists Glover Park Group, offered a responsible drinking message. However the network later bowed to public pressure and dropped the campaign.

By contrast, beers have virtually none of the same advertising restrictions and are commonly sold in supermarkets. Because of their low alcohol content, "malternatives" could be marketed head-to-head against beer brands. With the US beer industry already struggling to maintain sales, Smirnoff Ice got off to an exceptionally strong start, selling 2.8m cases in the US in the 12 months ending June 2002, and it kick-started a new round of launches. Like Smirnoff Ice, these borrowed the brand values, but not the actual alcohol of leading spirits brands. Smirnoff Ice's main competitor was Bacardi Silver, a low-alcohol rum-flavoured malt drink launched by a partnership between Bacardi and Anheuser-Busch; rival spirits company Allied Domecq teamed up with US brewer Miller to launch a similar range of flavoured drinks based on their own spirits brands. However none of these came close to matching Smirnoff Ice's popularity in the US.

By late 2002, Smirnoff Ice alone accounted for around a third of US "malternatives", but sales across the sector as a whole had slowed dramatically. By the middle of the following year, Smirnoff Ice's share of the flavoured malt beverages segment had risen to 37%, although at significantly lower volumes. In the UK, the company attempted to broaden the market, launching a less sweet version, named Smirnoff Black Ice, targeting a male audience. A US version was also launched under the name Smirnoff Ice Triple Black, with the vodka once again replaced by malt liquor. In early 2003, the group withdrew Smirnoff Ice from the very successful South African market, and relaunched it as Smirnoff Spin. No full explanation was given, but the move was thought to be designed to counter illegal exports of South African Smirnoff Ice bottles into the UK.

However, in many of its existing markets, sweet-tasting flavoured alcoholic beverages (FABs) had begun to generate widespread concerns that they encouraged under-age drinkers, as well as excessive consumption by adults. Popular tastes began to change once again, and by the second half of 2003, volumes within the RTD sector in most countries had begun to fall or at best stall. Smirnoff Ice was not as badly hit as other brands. The group maintained a small increase in volumes in the US with the introduction of Smirnoff Twisted V. In the UK, the market as a whole plunged in the second half of the year, with Smirnoff Ice volumes down by around 12%. Despite that fact, its share of the remaining market increased as other RTDs suffered even steeper falls. Even so as these main markets matured, other territories were introduced to the delights of the brand, with the result that worldwide volumes continued to grow. During 2004, sales of Smirnoff Ice and other "alcopops" were threatened by a Europe-wide crackdown on underage drinking. In Germany for example Diageo launched a battle to counter government plans to introduce a higher tax-rate on FABs to make them less attractive to teenage drinkers.

Meanwhile, in February 2006, after several years of legal challenges, Diageo agreed to settle its long-running dispute with Smirnov, now established as the higher-selling brand in Russia. The group paid around $50m to acquire a 75% in the Russian distributor of Smirnov, which also took over local marketing of the Smirnoff brand. See full profile for current activities


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