Posted on | October 1, 2005
Written by | Kristen Wolfe Bieler
Moët Hennessy USA’s Super-Premium Portfolio Never Underestimates the Consumer
It’s been eight months since the creation of Moët Hennessy USA, the New York-based wine and spirits group of LVMH Moët Hennessy Louis Vuitton. And according to president & CEO John Esposito, the company’s early success proves one thing: When it comes to selling wine and spirits, price is not the most important factor.
In the luxury goods arena, brands that offer quality and bestow status upon those who consume them enjoy a price elasticity that all retailers should be profiting from. And in a market where consumers globally are drinking less but drinking better, MHUSA is in the right game. “The retailer is not going to see us advocating tight margins to hit a magical number,” Esposito explains. “With the heritage and quality of products in this portfolio, we can really focus on creating value throughout the distribution chain.”
The company – which has the combined portfolios of Schieffelin & Co., Clicquot, Inc., and Millennium Import LLC – is in many ways an embarrassment of riches; an unprecedented concentration of super-premium brands and a top-quality team of high performing, creative people dedicated to growing them. “We bring the retailer a portfolio of products that has some of the highest margins across the industry,” says Esposito. “We generate incredibly strong profits for all three tiers. When you have consumer pull, great alignment with distributors and products that everybody wants, it’s a healthy proposition for everybody.”
Founded in 1794, Schieffelin & Co. has a rich history of marketing brands – Hennessy, Moët & Chandon, Dom Perignon among others – that resonate in meaningful ways with consumers. From 1987 to 2004, Schieffelin & Somerset was a joint venture between Diageo and Moët Hennessy in the US market. From 2002 to 2004, the companies embarked on a unique, combined distribution strategy: in most national markets, both portfolios were consolidated with one distributor which then created a selling division entirely dedicated to just their brands. “With the combination of the Diageo portfolio and the Schieffelin & Somerset portfolio, we created enough value and scale inside those distributors that enabled them to develop a selling organization dedicated just to the two companies,” explains Esposito, who served as the president of Schieffelin & Somerset for many years. “The advantage is that the selling organization operates with about 750 SKUs, versus a normal organization which runs with about 3,000-5,000 SKUs.” He still believes that the joint venture created “a bit of a mousetrap in this industry” which offered both companies “a very strong competitive advantage.”
The amicable end to this joint venture, which was dissolved in 2004, was the result of a changing industry climate. “In all honesty, it was awkward for Diageo to have their brands marketed by a third party,” says Esposito. MHUSA will keep in place its alliance with Diageo with regard to joint distribution, which continues to deliver enormous efficiencies.
So why eliminate a company name that has been recognized in the industry for 200 years? Switching from Schieffelin & Co. to Moët Hennessy USA “helps communicate the company’s desire to move in tandem with LVMH’s global luxury message,” says Esposito, who adds that in the global drinks market, the MH portion of LVMH has a strength that’s hard to compete with. “Besides, when you’re bringing three companies together to form a new one, we wanted to create a culture that was something entirely new, versus absorbing two companies into ours.”
While they are number six worldwide in volume, according to Esposito, the company’s laser focus on luxury products catapults them to number three globally when it comes to value and profitability. “When dealing with luxury brands, what we understand is that it’s as much about what the brand does for the purchaser as what the purchaser is actually buying,” says Esposito. “The association with buying and consuming these brands is that one is ‘in-the-know.’ The key is to always back up that luxury proposition with the highest quality product.” This is why, for example, Hennessy will never be the least expensive Cognac on the shelf, and why MHUSA’s sales force arms licensees with the tools to get their customers to trade up. “Consumers don’t buy $35 bottles of Champagne if it doesn’t bring any value or passion to their lives. That is something that is critical to the success of this company and to its portfolio,” says Patrick Piana, senior VP Belvedere / Chopin / Moet / Dom Perignon Brand Company. “That’s what we’re good at. It’s a place in the market that not too many people have.” Lori Tieszen, senior VP Hennessy / 10 Cane Brand Company, says this makes doing business easier because there aren’t competing philosophies or multiple pricing and marketing agendas. “By being focused on the luxury tier of the industry we can develop company-wide solutions that help all our brands. This becomes incredibly clear in our training efforts, as evidenced by our recent hiring of a Master of Wine, Charles Curtis.”
Is there such thing as too much luxury in one portfolio? At what volume do the company’s high-dollar brands start cannibalizing each other’s sales? In Piana’s opinion, this problem can be avoided if they can adequately crack each brand’s “genetic code,” or in other words, the tangible or intangible elements which make each brand distinct. “One thing we do really well at LVMH is understand brand DNA and the certain characteristics of each brand that appeal to specific consumers,” he says. Each brand’s essential character and the messages MHUSA uses to communicate it needs to be consistent from Russia to Japan to Australia, much like iconic fashion brands or cars. “When you have brands like Hennessy or Moët & Chandon or Veuve Clicquot, which have been around for hundreds of years, you have to keep your brand relevant to the consumer of today,” explains Esposito.
And the consumer of today, as anyone at MHUSA will tell you, is more diverse than ever. “Understanding our multicultural market is something that MHUSA has long been good at,” says Noel Hankin, senior VP, multicultural, who has worked with the company for eight years. “We were among the first wine and spirits’ companies to dedicate significant time and resources to understanding all segments of the marketplace.” In 1951, they ran a Hennessy ad in Ebony Magazine; an unprecedented move at that time. Early efforts have paid off; brands like Hennessy – which broke the 2 million case barrier earlier this year – and Moët & Chandon are sizzling in Latino and African American communities. “The 2000 census was a wake-up call with the unbelievable increase in Hispanic population, and you can see it in the marketplace,” says Hankin. “The multicultural segments have grown dramatically. Five years ago, it was an optional opportunity to pursue, and many companies felt uncomfortable developing marketing programs for ethnic groups because they didn’t understand it. Now you don’t have that luxury if you want to be competitive. The African-American, Hispanic and Asian populations in this country are front and center and you won’t win without a plan for marketing to them.”
Having a finger on the pulse of the country’s ever-evolving multicultural fabric enables the company to market proactively, creating products and programs that strike an emotional chord with various ethnic groups. “Immigrants in this country are behaving differently today,” explains Hankin. “Historically, they wanted to assimilate, but today’s recent immigrants want to preserve their cultural traditions and they are embracing them with a new fervor that we haven’t before seen. Smart retailers will recognize this and show that they are supportive of these trends through merchandising.” For example, Hennessy celebrates West Indian Carnival which takes place on Labor Day. “Retailers don’t realize how powerful these things are; they don’t need to create it, just embrace it. It really resonates with the consumer and builds trust.”
Recent research has revealed that Mexican Americans and Central Americans, traditionally large consumers of beer, are showing new interest in cocktails. So while many believe the vodka market is saturated, MHUSA sees tremendous potential with this demographic. “The vodka category didn’t have early growth with these consumers, but we are now seeing our Belvedere vodka business steadily increase within the African American and Hispanic population,” Hankin describes. Another observation he shares is the overlapping of cultural segments that seems to be occurring at a rapid pace: “Cultures are borrowing things from each other; with music, and fashion and this has had an impact on spirits and wine consumption.”
Clearly MHUSA has learned that no matter what color, race, ethnic background or socio-economic class, you can never underestimate the consumer. Too often, package stores miss sales opportunities because they make assumptions about the purchase power of their clientele or their willingness to spend. Same goes for restaurants. For example, “Dom Perignon by the flute is one of the highest profit potential promotions that a restaurant or hotel can execute to drive incremental holiday profits,” says Mark Corcoran, senior VP, National Accounts. Corcoran encourages retailers to approach their business from a “profit” mindset as opposed to a “cost” mindset. “Most buyers have historically been taught to be concerned with their outlay of cash. By getting them to focus on net revenue, they see the exponential profit.”
Scott Oppenheimer, senior VP, Sales, North, is proving Corcoran’s point. “Our managers are working with accounts to create a ‘Luxury Drink section.’ These drinks made with luxury products will sell for $2-$5 more than other drinks, and will be presented and served in a luxury manner that will call attention to the drink and encourage consumer trade up.”
Esposito – once a retailer himself – preaches often that wine and spirits are affordable luxuries and trading consumers up is well within every retailer’s capability. “Retailers need to make sure that their customers know all the products they have available,” adds Hankin. “In many retail outlets, I find that you have to ask for a particular brand because it is locked up or behind the counter. Products in the luxury range need to be conspicuous even when the retailer is in a low-income area.” MHUSA has developed acrylic cases for product visibility in areas where retailers might be concerned with theft to solve this problem.
For a retailer to make this proposition work, however, they must “master their execution,” says Laurent Boidevezi, senior VP, Veuve Clicquot/Krug/Wines Brand Company. “You have to be obsessed with the details. Merchandising has never been more important for us and we still have to make huge progress if you compare Champagne with other segments of the luxury industry like cosmetics (Christian Dior) or leather goods (Louis Vuitton). We have to educate our partners on our brands and product lines because we are not selling traditional consumer packaged goods. We are selling luxury products that necessitate extra care.”
And a little extra care goes a long way in creating value, says Esposito, who at times sees retailers self-sabotage by aggressive discounting. “If you look at Champagne prices now, they are lower than they’ve been in a long time. People are destroying value at some point in the system and you can only do that for so long.” When buying Champagne, consumers base purchasing decisions on details: Is the bottle chilled? Is it clean? Is the salesperson offering to wrap it? “I want retailers to realize that it’s not always about having the lowest price on earth. It’s about having a balance between value and price and our philosophy is that people will spend money for that.”
How can one company effectively market so much Champagne?
With Dom Perignon, Krug, Moët & Chandon, Domaine Chandon, Ruinart and Veuve Clicquot all part of MHUSA’s portfolio, the challenge, according to Patrick Piana, becomes “maintaining the original identity for each individual brand. Each Champagne house has a history that goes back centuries; they all have a distinct brand DNA. Moet & Chandon is about universality, leadership and ‘panache’ (fabulousness). These words have truly characterized Moët & Chandon for the last 200 years, and we need to apply them to today’s market.” Laurent Boidevezi likens Veuve Clicquot to “passion, audacity and elegance”; Dom Perignon with “charisma and seduction”; Krug offers “the ability to express one’s individuality” and Domaine Chandon expresses “friendship and vibrancy.” These differences are reinforced by varied brand priorities, pricing and distribution strategies, he adds.
With Moët & Chandon as the number one Champagne in the world, and Veuve Clicquot as the number two, the focus for MHUSA – even the responsibility, as Piana sees it – is to create more Champagne drinkers and drinking occasions. “It is one thing to be profitable and another thing to be growing. Our mission is to grow the Champagne category with our partners. We work with them about elements such as shelf-positioning, pricing , and using the right tools for promotions. The category won’t grow unless the leader grows it.” Piana believes Champagne may have lost some market share to spirits, and is working on programs to win back those drinkers by creating new ways to drink Champagne. Ad campaigns are encouraging people to celebrate the “small wins in life” instead of waiting for holidays and big celebrations. They also explore new ways of serving it. (“Does Champagne always have to be served in a flute? Probably not.”).
The company helped create the rose Champagne category a few years ago with this out-of-the-box thinking for Moët, which ran aggressive campaigns around Valentine’s Day. Moët Nectar is another success story for bringing in new drinkers, and MHUSA has been growing Champagne consumption among African Americans, Puerto Ricans and Dominicans.
Defying category trends, Hennessy hits 2 million case mark
“Cognac is a small niche, but the quality of Hennessy, the sense of luxury and the feeling it conveys has enabled it to behave differently than other Cognacs,” says Noel Hankin. “We’ve developed a relationship with the African American community which has everything to do with our success. Hennessy is a major player in markets where it wasn’t 20 years ago.” Lori Tieszen explains how Hennessy has been deeply involved with the African American community for over 100 years: “Through Schieffelin & Co., we were one of the first corporate supporters of the NAACP in 1909. We actually were the first spirit advertiser in Ebony magazine in the 1951.” Tieszen and her team work to maintain Hennessy’s identity as an independent, achieving, urban statement. “The portion of the African American community that drinks Cognac feels very close to Hennessy. The brand has done a great job of supporting and standing for the things that are important to them.”
An interesting point about the brand’s growth is that it’s in both value and volume. “The price strategy that was implemented a number of years ago has changed the way people see this brand. As a result, the whole range is selling well, particularly on the high-end, which makes it a brand that all licensees should display and present properly,” says Patrick Piana. He believes the brand’s growth will come only through growing the entire Cognac category. “The consumer is not thinking ‘Am I having Hennessy or another brand?’ They’re thinking ‘Am I having Hennessy or vodka or tequila?’” For the holiday season, Hennessy will have a snifter value-added pack on the Privilege VSOP and XO as well as a holiday pack featuring a 200 ml of XO and 200 ml of Paradis.
Winning in the Wine Game
MHUSA carves out their niche in a growing segment
Moët Hennessy Wine Estates – a new division created to market and sell the company’s agency wines – is run by Laurent Boidevezi, who sees the US market as one with incredible potential when it comes to still wine growth: “The US is the number one market in wine retail value at $16.8 billion in 2003, which is 20% of the world wine market value. This market grew by an amazing 20% in value since 1999 and is expected to grow 40% by 2008.” Boidevezi is quick to add that all this growth is occurring at a time when US consumption is a mere 10.8 liters per adult compared with 60 liters in Italy and 24 liters in the UK. Needless to say, he sees tremendous room to increase consumption.
Boidevezi manages a portfolio that includes such media-praised, high-margin gems as Cloudy Bay, Casa Lapostolle (whose Clos Apalta was chosen as the #2 wine in Wine Spectator’s Top 100 Wines in 2004), Terrazas de los Andes, Newton and Chandon; wines that often sell out before they hit our shores.
While the $5-10 segment is predicted to grow the fastest, the above $10 segment is estimated to experience a 20% growth spurt between 2003 and 2008, according to Boidevezi and that’s where MHUSA will be, prepared to reap the benefits with their perfectly positioned portfolio. “Our market position is quite strong in certain niche imports segments which means that we will have fantastic opportunities in the future. We are not trying to develop a big global brand, but rather a collection of several small, quality brands from the best origins of the world that are profitable for us, our distributor and retailers.”
The future for Belvedere and Chopin in a saturated category
In Esposito’s opinion, what is more impressive than the fact that Belvedere and Chopin helped to create the super-premium vodka category is that it was the work of a team of only 13 people. “The Millennium organization did an amazing job with these brands. They had a manic focus.” With the power of MHUSA’s distribution network now behind the brands, Esposito is projecting their volume to double in the next few years. How is this possible?
“We are teaching our sales staff about the qualities of Belvedere and Chopin that they will, in turn, teach the retail trade about. We can teach them how to make the right cocktails. We can do cross-brand promotions that will be advantageous to the retailer and to the restaurateur,” he explains.
Piana is equally confident. “We want to be the sole feeder of the vodka market.” With gift packs and value-added packs with glasses to be featured this holiday season, new radio and print campaigns and on-premise cocktail programs, other super-premium vodkas would be wise to take notice.
Raising the Rum Bar
Super-premium 10 Cane creates a new category
Several years ago, the MHUSA team noticed a glaring absence in the super-premium rum category. While other categories – like vodka, tequila and gin – had all succeeded in trading consumers up to premium offerings, “all the current super-premium rums had been dark and while they are very flavorful and well-crafted they aren’t easily mixed,” explains Lori Tieszen. She observed that most consumers are looking for luxury spirits they can mix and enjoy in many ways, which is tough to do with dark, sipping rums. Tieszen, who has managed the launch of 10 Cane, sees a group of consumers that have long been waiting for this product. Gene Robinson, senior VP, Sales, South, agrees: “In the U.S., over 15 million consumers drink rum and over 10 million consumers drink super-premium spirits. We are targeting 10 Cane to the 5 million consumers who already drink super-premium spirits, but don’t have a true super-premium rum to embrace.”
Instead of molasses, from which most rum is made, 10 Cane is made from the first pressing of sugar cane juice. Made by the people who craft Hennessy Cognac and crafted in small stills in Trinidad, Patrick Piana is hardly ambiguous about the product’s impending success: “10 Cane will be the future of the rum category for a simple reason: the product’s superiority. It will be the super-premium trade up in the rum category.” Tieszen is focusing on the on-premise for the brand: “We see bars and restaurants as critical to 10 Cane’s success and it will be through upscale cocktails such as the mojito, daiquiri and signature drinks development by the account.”