Consumers like to buy locally made things. The July 21-July 27, 2014 issue of Bloomberg Businessweek contains an interesting article about a potential new local trend. The owners of Absolut vodka, the French group Pernod Ricard, are looking to profit from those buyers who will pay a premium for small-batch locally made vodka. They are franchising. Pernod supplies the distilling equipment and the vodka recipe, but the production, sales and marketing and some profits are the entrepreneur’s.

The locally made brand is called Our/NameYourCity as in Our/Berlin, Our/Melbourne, Our/Detroit. Ten other city labels are in the works, including Our/Nashville. Pernod is betting that the local production will appeal to drinkers who normally bypass big names in favor of the little guy around the corner.

Our/Berlin is produced in an old river district of new clubs and bars. The vodka is made in a former garage by mixing Pernod’s flavorings with locally purchased bulk alcohol and tap water. Pernod says it will support the new Our/ partnerships until they make money and then take 80 percent of the profit. Each local plant can produce 40,000 to 60,000 9-liter cases a year.

The owners of Our/Berlin paid nothing for the franchise but are totally responsible for the marketing. The entrepreneurs also own a brand consulting firm so they are familiar with marketing. In addition to the river district shop they have contracts with 150 bars, cafes and stores. The cost of a bottle of their Our/Berlin is about double the price of Absolut.

The production franchise concept is a major departure for Absolut and others. Absolut is a Swedish vodka – Pernod purchased ownership from the Swedish government in 2008. There are other big-name spirits that pride themselves on coming from one place – Scotch whisky, Caribbean rum. Why the change? Because of the trend in drinking craft spirits. Although the Pernod name isn’t currently on the Our/Berlin labels, it will be soon.

And the overall plan? Pernod’s sales may not change much, but the profits from small-batch spirits will be high because they command higher prices. The consumer makes the assumption it’s a unique, exclusive product they’re happy to pay more for.

I find this an interesting business model – cash in on the “buy local” and “craft/artisan” trends; supply the franchise at no cost to the entrepreneurs, supply the equipment and recipe and support the start-up until they start to make money. The entrepreneur is required to do all the marketing and get local contracts to buy all they can produce. When the local company begins to make money, take 80% of the profits on a product that sells for much more than your flagship product. Other than the name on the bottle there is little difference except locally sourced water and ethanol and local production. If consumers look closely they will even see Pernod’s name on the label in the near future.

…………………..Fascinating!………….. Create new small businesses, support entrepreneurs and collect 80% of the high margins consumers are willing to pay over your own label that is also available……….

Interested in brainstorming fascinating new concepts for your business? Call for an appointment and we’ll see what we can come up with. 931-456-4910.