March 24, 2017 / 3:46 PM / 5 months ago

From crepes to cocktails: can Grand Marnier's new owner make the leap?

Bartender Isaac Flores mixes a cocktail at Dick & Janes bar in the Brooklyn borough of New York City, U.S., March 22, 2017. Picture taken March 22, 2017.Brendan McDermid

MILAN (Reuters) - Italian drinks group Davide Campari (CPRI.MI) has a tall order to fulfill: take a neglected old liqueur out of the kitchen, where it is used as a dessert topping, and turn it into a hot new cocktail trend.

Grand Marnier, a 137-year-old French brand that Davide Campari bought for 652 million euros ($700 million) last year, was once a drink for the wealthy, a meld of cognac and oranges that was sipped by first-class passengers on the Titanic.

Today, in its European home market, it is more often tucked away in kitchen cabinets than featured prominently in trendy bars, and its return to the cocktail circuit is not assured, even for a company that has a record of reviving faded brands.

Grand Marnier sales have fallen around 2 percent in the past three years and Davide Campari expects them to flatline for two years before picking up in 2019. Based on the latest six-month data, annual sales of the brand are running at around 160 million euros, making it the company's fifth biggest brand.

The stakes are high for the world's sixth largest premium spirit maker, which bought the French liqueur last June in its biggest-ever acquisition. The price included assumed debt and represented more than a tenth of Davide Campari's market value.

Industry analysts say they are confident the company can restore Grand Marnier's fortunes but say it could be costly and take time, a brake on profit margins. A prolonged stagnation of Grand Marnier sales could also slow down the company's acquisition strategy, vital to compete with much bigger rivals.

The group's debts, in proportion to core earnings, are manageable but higher than the average of its main rivals after making more than 2 billion euros in acquisitions in 22 years. Euromonitor analyst Jeremy Cunnington thinks it should take a break from acquisitions and develop its newly acquired brands.

That all adds up to pressure to revive Grand Marnier, the biggest challenge yet for Chief Executive Bob Kunze-Concewitz.

He must shake off the liqueur's reputation in Europe as a fancy dessert topping and introduce it to more drinkers in America, its biggest market even though it is relatively little known there.

"In Europe the challenge is making the leap from the kitchen to the glass, while in the Unites States the issue is more of increasing the glasses drunk," Kunze-Concewitz told Reuters.

The CEO declined to give his target for Grand Marnier but the company aims to grow sales across all its brands by 5 percent in the medium term. Investment bank Barclays says that implies Grand Marnier reaching around 5 percent growth by 2020.

However, it took Kunze-Concewitz six years to shift the group's signature red aperitif, Campari, up a gear and accelerate the drink's growth from 3.5 percent in 2007, when he took the helm, to the high single digits by 2013.

"Someone says Grand Marnier is an old brand but ... three out of four consumers have never tasted it. This is a great opportunity, like it was for the re-launch of Campari," he told Reuters, adding that the company's last brand makeover, of Appleton rum, took just three years.

Bartender Isaac Flores poses at Dick & Janes bar in the Brooklyn borough of New York City, U.S., March 22, 2017. Picture taken March 22, 2017.Brendan McDermid

Kunze-Concewitz, a multi-lingual Austrian who was actually born in Turkey, expects Grand Marnier's sales to rise in value but not in volumes this year in the United States, while a return to growth in Europe will take longer.

BANKING ON THE B-52

Davide Campari will start its offensive in America's biggest cities this year, with young drinkers and also bar managers such as 32-year-old Isaac Flores of Dick & Janes, a trendy cocktail bar in Brooklyn, New York.

Flores rarely uses Grand Marnier and says brand recognition is just one of the problems to tackle. Retailing at $47 a bottle, it makes for an expensive cocktail.

Slideshow (2 Images)

"Cocktails including it should cost at least $15-16 compared to $13 I charge the cocktails I craft," said Flores. "Grand Marnier is a beautiful liqueur, which is best drunk on its own."

Since he was appointed CEO at the family-controlled spirit company, CEO Kunze-Concewitz has bought 14 brands, boosting sales by 80 percent in 10 years. But debt has trebled over that time to more than 1 billion euros, or 2.9 times its core profit against an average of 2.6 for Campari's main rivals.

The company plans to launch new long drinks and capitalize on the revival of classic cocktails that feature the liqueur, such as Grand Margarita and B-52.

It has tightened its grip on Grand Marnier's distribution, strengthening ties with Southern Glazer's Wine and Spirits in the United States, and dropping third-party distributors and rivals Moet Hennessy (LVMH.PA) and Diageo (DGE.L).

Davide Campari did not say how much it would spend on marketing Grand Marnier but the CEO said, overall, advertising and promotion expenses would rise by 20-25 basis points to just over 18 percent of sales, a level above the sector average.

Grand Marnier's main rival in the United States is Remy Cointreau's (RCOP.PA) eponymous liqueur which has a smaller market share but has long set a faster pace in terms of sales.

Davide Campari plans to hold tasting events in bars to show drinkers the difference between the two.

But food and beverage expert Vittoria Veronesi, of Milan's Bocconi University, says it should not take Grand Marnier out of the kitchen altogether.

"It would be fun to create new dishes and match them to a Grand Marnier-based aperitif, putting together the work of the chef with that of the barman."

Editing by Mark Bendeich/Keith Weir

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