Campari: a rising star in spirits
While leading spirits producers are fighting to protect market share and escape the downturn in spirits sales, Euromonitor examines how Italian company Campari seems to have achieved consistent growth with little difficulty.
Having embarked on its aggressive expansion strategy to secure a selection of prominent brands, Campari looks set to become a serious contender in the spirits leadership race in the next few years.
The condition of the spirits market has not been without its difficulties, with heightened competition from beer, wine and even soft drinks in many regions of the world. Stronger awareness of the health risks of excessive drinking, combined with tougher legislation on alcohol consumption, are also set to impinge on future prospects of spirits across the globe, with global market analyst Euromonitor forecasting annual growth overall of just over 1%.
However, amidst flagging consumption, certain local brands continue to enjoy robust consumer loyalty, helping to secure strong market share and stave off a more severe decline. On the other hand, spirits brands priced at the premium and super-premium end of the platform are also successfully capturing a growing niche across several regions, and are expected to be one of the most dynamic areas of potential in the next two years.
In this context, upcoming mid-sized player, Campari, appears to be one of the best-placed players to outperform the sluggish spirits sector. Its selective range of super-premium brands and solid local leaders could give it the ammunition to become a fierce contender in the leadership race against other international players, such as Diageo, Pernod Ricard, and Allied Domecq.
Campari's spate of acquisitions during 2001 and 2002 transformed it from a niche player primarily focused on liqueurs, to a broader-based manufacturer and distributor offering a portfolio spanning several important sectors.
Prior to 2002, the main bulk of Campari's spirits business stemmed from its flagship brand, Campari. However, the 2001 acquisition of UDV Industria e Comercio Ltda, Diageo's Brazilian spirits operations, saw the company's portfolio expand to give it a crucial presence in whisky and brandy.
In 2002, the purchase of a majority stake in US company, Skyy Spirits, gave it further access to the US market. With sales of its newly acquired premium brand Skyy Vodka already enjoying high growth prior to the acquisition, Campari is set to reap handsome benefits if it can maintain the brand's popularity in future years. Furthermore, with vodka set to be among the most buoyant spirits sectors in the coming six years, growing by over 3% annually in Western Europe and 4% annually in Latin America, Campari is extremely well positioned to capitalise from Skyy Vodka's success by expanding the brand's sales beyond the US.
Its increased range of spirits has already boosted the company's position in the global rankings, putting it in 22nd place in 2002, up from 25th place the previous year. While the continuing appeal of its core brand, Campari, is expected to play an important role in supporting its rise within spirits, the impetus for growth will come from recent and future acquisitions.
Campari's main weakness is its small share or complete absence from a number of important markets, in particular, those in the Asia Pacific region, where there is particularly high growth potential. Despite the strong dominance of local spirits in certain markets, trends in this region are strongly characterised by a growing tendency for consumers to switch to premium imported spirits, which are becoming a massive hit among a younger generation of drinkers.
In 2002, Campari gained the distribution rights to two key brands, Reserva 1800 and Gran Centenario in the US market, thus providing it with a presence in the tequila market. Consequently, the only remaining area where Campari has yet to establish a presence is in rum. This places Campari at a significant disadvantage against its main competitors, Bacardi, Diageo, Pernod Ricard and Allied Domecq which all own rum brands.
Although the company has not specifically disclosed its future intentions, judging from the nature of previous acquisitions, Filipino rum brand, Tanduay, ranked second in terms of volume behind Bacardi, would be a likely target for Campari, due to its local strength, yet high success amongst global competitors.
The acquisition of this brand would not only give the company a strong footing within the rum sector, but also a vital presence in the Asia Pacific region. Building relationships with Tanduay Distillers or other Asia Pacific spirits manufacturers may also be the next strategic step for Campari. The growth which could be realised from such a move would further enhance Campari's position in terms of competing with global leaders.
One concern may be the company's long-term debt, which shot up to €183.4m in 2002, thus increasing its long-term debt/equity ratio. Nevertheless, when compared to other global alcoholic drinks manufacturers, the company continues to be in a good position to take on further acquisitions before becoming highly geared.
Despite its relatively small portfolio and lower net capital compared to international players like Diageo, Pernod Ricard and Allied Domecq, Campari's aggressive expansion strategy thus far is a good indication of its future tactics - to grow through acquisition and realise its long-term ambition of become a leading alcoholic drinks player.
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