Allied Domecq grabs the domestic rights away from Britain's Diageo, a company that has marketed the brand in the US since 1994.

The deal, effective January 1, throws a one-two punch at Seagram, whose spirits business is up for sale as a term of its pending merger with France's Vivendi. Seagram is the current distributor of Swedish government-owned Absolut. Allied Domecq, a bidder in the Seagram auction, was widely known to crave a premium vodka to fill a major gap in its portfolio. The new deal to market Stoli makes Allied Domecq less dependent on the outcome of the Seagram auction.

By clinking glasses with the Russian-owned brand, Allied Domecq joins the fastest-growing segment of the US spirits industry, as well as one of the more interesting advertising battles. Allied Domecq, which has already spiked the ad budgets for several of its other brands, such as Kahlua liqueur and Beefeater gin, says that it will commit about $25 million to Stoli in 2001 - or more than double Diageo's annual outlay.

"The largest issue with Stoli has been the level of investment, and therefore the level of top of mind awareness for the brand," says Mr Todd Martin, president of Allied Domecq Spirits & Wine North America. "We plan to address both fronts."

To vodka buffs, the Stoli bottle, with its Art Deco-ish label and simple lines, is a familiar sight in bars, if not in magazine ads. Though the brand has been a leader in the trend towards flavoured vodkas, new and restyled imports have gradually eroded Stoli's US market share. According to Impact Databank, Stoli in 1995 had a solid 20 per cent of the category. Four years later, after the debut of super-premium vodka hits such as Ketel One, and with sexier ads coming from rivals, Stoli had a domestic market share of only 18 per cent.

As other vodka marketers have discovered, it takes lots of effort - and lots of cash - to stand out against superstar Absolut, the No. 1 vodka import in the US, with 4.1 million cases sold in 1999. According to Competitive Media Reporting, Seagram spent $32.3 million in 1999 to advertise Absolut in the US. Most of those funds came from Seagram's Swedish partner, government-controlled V&S Vin & Sprit, which owns the vodka brand. Created by Omnicom Group's TBWA Chiat/Day, Absolut's famously quirky advertising campaign - featuring original artwork, celebrities, even an ice hotel - has helped make its curvy bottle something of an icon.

So perhaps smartly, Allied Domecq says it won't seek to out-hip Absolut. "We believe in brand differentiation," says Mr Martin. "Any strategy we pursue, we will ask ourselves, 'How will this be perceived differently by the consumer?' " Currently, advertising for Stoli is handled by Margeotes/Fertitta & Partners, a unit of Toronto-based MDC Communications.

Allied says it will "get to know" the incumbent agency, but may seek a review for the account.

In the fashionable vodka sector, where image is everything, fresh advertising has been known to revive flagging brands. Brown-Forman, which earlier this year purchased a 45 per cent stake in Finlandia vodka, decided several years ago to put more ad power behind the brand. After tweaking the package to achieve a sleeker look, the company launched a splashy campaign touting the vodka's purity. The result: retail sales for Finlandia have increased more than 50 per cent since 1996, when Brown-Forman first signed on as distributor. Its new "look" also helped transform it from a "value" brand into a premium product, with pricing now on par with Absolut.

Allied Domecq's vodka track record hasn't been so impressive. In the mid-1990s, the company attempted to revive a Danish vodka brand called Fris.

But after several years of trying to strike the right ad chord, and significant outlays approaching $20 million a year, Allied Domecq gave up and jettisoned the brand.

The Wall Street Journal