Vodka has come a long way since the Moscow Mule. In fact, it could now be worth $6 billion to Sweden.
Before World War II, vodka sales in America were virtually nonexistent. Then in the 1950s, Heublein Brothers -- which is now part of Diageo (NYSE: DEO ) -- came out with a popular vodka cocktail whose name played off vodka's Russian roots and spoke to the kick its drinkers would experience. Then, in the late 1970s, super-premium vodkas such as Absolut burst onto the scene. Now, vodka accounts for around a quarter of all distilled-spirits sales in the United States.
Earlier this month, the Swedish Parliament decided to auction off Vin & Spirit, Absolut's parent company. Vin & Spirit also markets Cruzan rum and Plymouth gin, but Absolut brings in more than 50% of the company's gross revenue. The company is the crown jewel of the Swedish government's portfolio and could bring in more than $6 billion in the auction. Interested parties are likely to include Fortune Brands (NYSE: FO ) , Diageo, French spirits maker Pernod Ricard, and privately held Bacardi.
Among the prospective suitors, Bacardi owns Grey Goose vodka, and Pernod markets Stolichnaya. Adding Absolut would cannibalize their in-house brands. Yet Fortune Brands, which distributes Absolut in the United States, would stand to lose the most, should another bidder prevail.
The super-premium vodka category continues to grow at an astounding 20% annually. In recent years, more than 100 super-premium brands have flooded the U.S. market. As a result, Absolut's U.S. market share has been cut nearly in half since its peak in the late 1990s of more than 60%.
For now, Absolut is still king, even if it has lost market share -- but how long will it continue to wear that crown, in the face of all the competition? Would-be buyers should remember that paying too much for Absolut could leave them with a painful hangover.