Diageo sets its sights on new FAB niche

- Last updated on GMT

Related tags: Alcoholic beverage

UK based drinks giant Diageo could get round increasing duty and
the uncertain future of alcopops in Europe by leading a new market
of mid-proof flavoured alcoholic beverages (FABs), reports Kim
Hunter Gordon.

The group has announced an acquisition agreement with Dutch company Ursus Vodka Holdings, whose brand 'Ursus Roter' has been tipped by Euromonitor​ as the leading brand in a new generation of half strength vodka products.

Subject to anti-trust clearance in Greece, Diageo propose to invest 145 million Euros to acquire the brand and its brother 'Ursus Vodka'.

Ursus Roter, "the Icelandic surprise", is a 21 per cent proof red vodka drink flavoured with sloe berries. It is one of a string of mid-proof FABs that are expected to take the spirits market by storm over the coming years. These drinks are either consumed as a shot mixed with energy drinks such as red bull.

A series of duty rises throughout Europe have targeted the sugar content in alcopops such as Smirnoff Ice. Governments have claimed that these products have been enticing young drinkers.

Isabelle Thomas, head of corporate relations at Diageo​, said "Roter is particularly relevant to the 18 to 34 year old age group, wanting a drink with spirit credentials but with an easy and pleasurable taste."​ Spirit credentials, she explained, refer to the trendiness and proven track record of strongly branded vodka-based drinks.

Ursus Roter currently ships around 350,000 cases, mainly within The Netherlands, Turkey and Greece. It was originally marketed in 1998 as 'Red Vodka'. This attracted criticism within the industry, as the product was not 40% alcohol.

Ursus Vodka, a 40 per cent proof product, is marketed as clean, crisp and pure and as having derived its recipe from a "traditional Icelandic secret". It is distilled five times in four column rectifiers to remove impurities without the need for charcoal filtering. It currently ships 50,000 cases and has become the most popular white spirit in Greece.

In addition to the Smirnoff brand, Diageo currently produce vodkas Tanquerey Sterling, which is triple-distilled in small batches and French-made Ciroc, distilled from grapes. However these are super-premium vodkas, and display strength mainly within the US market. If approved, the acquisition of Ursus​ would complement Diageo's vodka brand portfolio within Europe.

Positioned as premium vodka with a strong brand image that emphasises its Scandinavian roots, freshness and purity, Ursus would occupy similar market territory to the Swedish brand 'Absolut'.

Diageo were unable to explain how they would market the product alongside the larger Smirnoff brand but said that: "Latest market trends, consumer research and trade feedback all indicate that the brand is very strong. Ursus has the potential to grow outside of its current core markets but we do not have specifics at this time. "

Results for 2003 showed that Ursus was the leading branded spirit in Greece, and that Diageo was the leading company in the Greek spirit sector. The acquisition would further secure the company's control of the Greek spirits market. A decision from the Greek authorities is awaited over the coming months.

Related topics: Markets, Diageo

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