Analysis - Brown-Forman evolution adds edge to Europe drive
Brown-Forman's European expansion has been boosted by Jack Daniel's Tennessee Honey
With all-American brands such as Jack Daniel's and Woodford Reserve, Brown-Forman is very much at home in its domestic US market.
That was underlined in its full-year results, when net sales in the country increased by 4% compared to a 1% lift in developed markets outside of the US.
But the company appears to be upping its focus on Europe, and as Brown-Forman continues to expand the rollout of its already hugely successful Jack Daniel's Tennessee Honey across the continent, it has made a number of important structural changes.
Last year, the company announced it was to consolidate its European headquarters in Amsterdam, ending a previous system that had offices in Hamburg, London, Paris and Prague. At the time the company said the switch was down to “significant recent activity” in the region, which accounts for about 30% of Brown-Forman sales. However, it will also help to concentrate attention on those parts of Europe where activity is sadly lacking.
According to a note from analysts at Nomura, who met with Brown-Forman management after its full-year results, parts of Europe still look robust - namely the UK, France and Germany. However, in Portugal, Spain, Italy, and Greece, Brown-Forman posted a 4% net sales decline, and it is here that the company, and other spirits makers, will have its work cut out.
Another challenge in Europe is tax hikes. Nomura said Brown-Forman has seen some damage come from a 15% duty rise in Poland in January, while adding that further tax increases are “being discussed” in Spain.
Despite the challenges, Brown-Forman looks set to continue revamping its European structure. At the start of the year, the company took French distribution in-house, ending an agreement with Bacardi Martini France.
Outside agencies continue to act as Brown-Forman's distributor in other European markets, including Bacardi in the UK, but while it is tempting to conclude that those regions will follow France in-house, Nomura warns that it might not be that simple. The company will look to implement its own distribution “as it should be positive for profits”, the analysts said. But the decision “can also be influenced by local factors”, it added, pointing out that Brown-Forman appears perfectly happy with its partnership with Coca-Cola HBC in Central Europe and Russia and its Campari tie-up in Italy.
Which goes to show that even though Brown-Forman looks set to expand its influence in Europe, it still knows the value of an expert local guide.
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