Sidney Frank Importing Co., Inc.

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Sidney Frank Importing Co., Inc.

20 Cedar Street
New Rochelle, New York 10801-5247
U.S.A.
Telephone: (914) 637-5700
Fax: (914) 633-5637
Web site: http://www.sidneyfrankco.com

Private Company
Incorporated: 1972
Employees: 75
Sales: $23.7 million (2004 est.)
NAIC: 312130 Wineries

Sidney Frank Importing Co., Inc. is a New Rochelle, New York-based distributor of specialty liquors. The company is best known for growing the sales of Jagermeister, an herbal liqueur, and Grey Goose vodka. The company's highly successful marketing approach relies little on advertising, focusing instead on direct marketing efforts at key urban bars by hosting promotional parties, courting bartenders, offering giveaways to patrons, concocting wild stunts, and hiring attractive young women and men to give out samples. The company is owned by its chairman, Sidney Frank, who remains highly involved in running the business despite being in his mid-80s. Well known in the spirits industry, he has used some of his marketing genius to craft his own persona—part 1940s Hollywood agent, part Winston Churchill. He likes to conduct business in his bedroom, complete with large screen television, art collection, and kitchen, dressed in either his pajamas or a colorful jacket, and is forever smoking an expensive cigar, which has resulted in his signature sandpaper voice. Although the company headquarters are located in a New Rochelle office park, Frank winters in San Diego, where he still oversees his business. Aside from distributing Jagermeister (Frank sold Grey Goose in 2004), the company represents brands such as Gekkeikan Sake, Gekkeikan Plum Wine, Tequila Corazon de Agave, Barenjager Honey Liqueur, Jacques Cardin XO Brandy, Jacques Cardin Napoleon VSOP Brandy, Henri Savard Sparkling Wines, Reynac Pineau des Charentes Cognac, Hudson's Bay Scotch, St. Vivant Armagnac, and Genofranco Wines.

Founder's First Taste of the High Life in the 1930s

Sidney Frank was born in 1919 in Montville, Connecticut, one of four children, and grew up on a small farm that raised chickens and maintained an orchard. Because money was tight, his mother sewed their sheets out of flour bags and bought dayold bread. The young Frank grew up longing for the rich life, his dreams fueled by the New York skyline he watched from the train window when visiting relatives in Brooklyn. Like a true Horatio Alger hero, he would rely on pluck and luck to make his fortune in the world. During high school at the Norwich Free Academy he found work at a local hotel, where he worked as a busboy in the morning and a waiter at night. He also worked construction during the summer months, and saved his money for college, determined to be the first one in his family to attend college. Other than in French class, he was a straight-A student. Despite his modest circumstances, Frank set his sights on the Ivy League and in 1937 applied to Brown University. He was admitted, supposedly due in large part to the firm handshake he offered the admissions officer (and that he played football). The luck involved in his rise to riches was the chance assignment of his freshman roommate, Eddie Sarnoff, son of RCA president David Sarnoff. During holidays Frank visited the Sarnoffs' New York mansion, where the "chicken farmer's son" began to use his good looks and winning personality to make connections. He also learned first hand about the life to which he aspired. After staying with the Sarnoffs, Frank told Forbes in a 2004 profile, "I knew I had to marry a rich girl." It was through Eddie Sarnoff that he would meet his future wife, Louise "Skippy" Rosenstiel, who was indeed one of the richest girls in the country, the daughter of Lewis Rosenstiel, owner of Schenley Co., at the time the largest liquor distiller in the world.

Marrying Skippy was no easy feat. She turned him down six times before accepting his proposal. In the meantime, Frank had to contend with a lack of money. At the end of his freshman year at Brown he was forced to drop out. He found work at Pratt & Whitney Motors, and represented the company in India and China during World War II as a troubleshooter, investigating crashes and testing airplane engines. After the war he continued to woo Skippy but had quicker success with her father, who hired him to work for Schenley. In his first assignment, Frank was sent to London to check out a money-losing scotch distillery Schenley had recently purchased. He quickly discovered that the operation was operating only two days a week, a practice that was in keeping with outdated laws but no longer necessary. Frank simply ramped up production, an obvious decision in his opinion but one that established his reputation at Schenley. He turned to sales and worked his way up to sales manager, married the boss's daughter, and from there became president of the company in 1960. It was not always smooth sailing working for his father-inlaw, however. He reportedly did not get along with Rosenstiel's many successive wives. Whatever the reasons, Frank was fired, rehired, and fired again. As a result, he became an art dealer for a few years. When Skippy died in 1972, Frank decided to go into the business with his brother Eugene. He sold his personal art collection and launched the liquor importing and distribution company Sidney Frank Importing.

Struggling in the 1970s

The first ten years or so was a struggle for Sidney Frank Importing. Most of that time, Frank devoted his efforts to building a limited number of brands, in keeping with the liquor business of the 1940s, an era dominated by family-run firms willing to patiently grow a brand. Frank's first product was Gekkeikan Sake, which he sold to sushi restaurants. Next, Frank discovered Jagermeister, which would become a veritable cash cow but at the time was a very unlikely prospect to serve as the foundation for a distributorship. The German after-dinner drink, made from a secret recipe of 56 herbs and spices and possessing a 35 percent alcohol content, was introduced in 1935. It was popular in Europe more for its medicinal value than for its taste. As described by Forbes, reddish-brown Jagermeister at room temperature tasted "like a mixture of root beer, black licorice and Vicks Formula 44." Frank stumbled upon the drink at a New York City bar in 1974. Learning that only 600 cases were being sold in the United States, he sensed an opportunity, believing he could do a much better job promoting the beverage. He flew to West Germany to visit Jagermeister's distillery and convinced the brand's owner to give him the rights to sell the product in the southeastern United States.

Frank soon learned that marketing warm Jagermeister in a warm climate was not an ideal combination. Selling Gekkeikan Sake and Jagermeister was a tough go for the first six years, as Sidney Frank Importing consistently lost money. Frank was eventually forced to sell 500 acres of beachfront property in Antigua to raise $500,000 to stay in business. He was not the only one having trouble selling Jagermeister, but he was the most persistent, and gradually he picked up more territories as other suppliers dropped out. By 1985 he had the rights to the entire United States. Although Frank had succeeded in growing the brand, annual sales by this point were still just 55,000 cases. But once again in his life, Frank's pluck would be followed by a dose of good luck. He came across a story published in the May 12, 1985 edition of the Baton Rouge Advocate that told about a cult drink, nicknamed "Liquid Valium," which was being served in a New Orleans Bourbon Street bar. It was actually shots of cold Jagermeister, poured from a bottle kept in the freezer. Moreover, there were rumors that the drink was doped with opium, Quaaludes, and aphrodisiacs.

Frank seized the opportunity the article presented and ran with it. Although he denied the drug rumors if asked, he printed thousands of copies of the newspaper article and passed them out at college bars around the country. He also convinced other Bourbon Street bars to begin serving freezing cold shots of Jagermeister. College students who came to New Orleans for the Sugar Bowl, Mardi Gras, and other events brought bottles back to school and helped spread the growing fad. Frank tried an ad campaign that failed to work, then fell back on bar promotions to grow Jagermeister sales. In 1988 he hired an attractive young woman and clothed her in a sexy outfit to become the first Jagerette. Her job was to talk young men into having shots of Jagermeister sprayed into their mouths using a specially made bottle. The idea took hold and hundreds of Jagerettes were hired across the country, paid $25 an hour for three hours of work each night. In addition to spraying shots, the Jagerettes handed out promotional items including T-shirts, pennants, and Frisbees. Eventually the Jagerettes would be supplemented by male counterparts called Jagerdudes. Frank also invented a tap machine to dispense Jagermeister: It was capable of chilling three bottles to three degrees and with the push of a button meted out a measured shot.

After a dozen years of promoting Jagermeister as an ice cold drink, Sidney Frank Importing had increased annual sales to 430,000 cases, and the brand would continue to grow at a torrid pace. But success did not come without some complications. In 1997 the company and its marketing subsidiary, All State Promotions Inc., were hit with a sexual harassment lawsuit, filed by the United States Equal Employment Opportunity Commission and initiated two years earlier by a pair of former Jagerettes and that now represented more than 100 women. The suit alleged that Sidney Frank and other executives of the companies, as well as bar employees and patrons, kissed, groped, and made improper advances toward the women. In particular, Frank was accused of requiring the women to attend company functions where he offered them clothing, trips, and jobs to accept his sexual advances. Moreover, the company was alleged to have required the women to sign a restrictive arbitration agreement that waived their rights to compensatory and punitive damages and a trial by jury. Frank denied the charges. The matter would not be settled for another two years when in June 1999 the company settled the matter by agreeing to pay $2.6 million to 104 women, the largest settlement of its kind in New York State. It did not admit any wrongdoing, and in a released statement contended the company settled because of the mounting costs of litigation and a desire to put the matter to rest. The company also agreed to provide sensitivity training to supervisors and to create a 24-hour toll-free phone line to accept employee complaints.

Company Perspectives:

Sidney Frank Importing Co., Inc. was founded in 1972 with the ambition to turn import specialty liquor items into national brands.

Turning to Vodka in the Late 1990s

Having succeeded with Jagermeister, in 1997 Frank turned his attention to vodka, which he believed offered another excellent opportunity, especially in the "superpremium" liquor category that Absolut had defined and that was showing strong growth during the booming economy of the late 1990s. Frank explained his reasoning to Forbes in 2004: "A bottle of Absolut sells for $20 a bottle. Vodka is just water and alcohol, so if I sold a bottle for $30, the $10 difference is almost all profit." Thus he set out to produce the world's best vodka, or at least one of the world's priciest. He dispatched executives to France to have the vodka distilled and coined the brand name Grey Goose. He also used a frosted bottle that featured a Cezanne painting and asked for a price in the $30 range. Grey Goose was launched in late 1997 with some print advertising in such magazines as Cigar Aficionado and the Wine Spectator, but mostly Frank relied on the playbook he developed for Jagermeister, as well as tapping into the good will he had engendered with distributors and retailers for making them considerable sums of money with Jagermeister over the years. He also hired Grey Goose girls to hand out samples at nightclubs and trendy lounges and continued his practice of courting bartenders. The approach worked and Grey Goose enjoyed unprecedented growth in a short period of time, increasing from 20,000 cases a year initially to 100,000 cases in 1999 and 1.2 million cases by 2003, making it the third best-selling imported vodka in the United States, trailing only Absolut, with 4.5 million cases, and Stolichnaya, with 1.6 million cases.

In promoting Grey Goose, Sidney Frank Importing became involved in a tiff with competitor Belvedere vodka. They initially fought over similarities between their bottles, a matter that was settled confidentially but resulted in changes to the Grey Goose packaging. A more important disagreement grew out of the Grey Goose print advertising campaign that relied heavily on a 1998 Beverage Testing Institute blind test that rated Grey Goose as the number one tasting vodka in the world. Given that for many people vodka was odorless and tasteless, Frank needed some way to promote Grey Goose as the best brand available. He found it in the Beverage Testing Institute survey. It was one thing to boast about the strong showing of Grey Goose, but it was another to also print the lower scores of its rivals. Five years later, when Grey Goose continued to rely on the 1998 results, Belvedere cried foul, because more recent taste tests elicited higher scores for its brand. Because 1998 was the last year Grey Goose had been tested, Sidney Frank Importing argued that it was not proper to mix results from different years. The National Advertising Review Board asked Sidney Frank Importing to discontinue the ads, which it called "inaccurate and misleading," but the company refused. In September 2003 the matter was referred to the Federal Trade Commission and the Alcohol and Tobacco Tax and Trade Bureau.

The Grey Goose flap with Belvedere would soon be of little consequence to Frank. In June 2004 he sold the brand to Bacardi Ltd. for $2 billion. For Frank it was a windfall profit, the result in large measure attributable to the need of Bacardi to distinguish itself from rival Diageo PLC, which in 2000 had outbid Bacardi for Seagram Co.'s liquor business. The addition of Grey Goose would give the company greater leverage with distributors. Moreover, Bacardi was considering an initial public offering of stock and very much needed to fill out its product offering. Grey Goose, which controlled about half of the premium vodka market, was especially attractive because premium rums including Bacardi were increasing sales at only a 5 percent clip while superpremium vodkas grew by 25 percent and superpremium tequilas jumped by 30 percent.

Although Frank was in his mid-80s he was not ready to cut back. He gave away considerable sums of money, including $100 million to Brown University, but also plowed a large portion of his earnings back into his business. The popularity of superpremium tequilas did not escape his notice, but he would find it hard going distinguishing his Corazon de Agave brand. He also entered other tough categories, introducing a line of Sicilian wines as well as a pomegranate-flavored energy drink called Crunk. Also in the works were a 50-proof cognac and Blue Goose gin. Frank had succession plans in place, with his 55-year-old daughter, Cathy Halstead, set to replace him, but in 2004 he made it clear he had no intention of retiring for another ten years, when his replacement would herself reach traditional retirement age.