Comment - Irish Whiskey Goes Plural

Beam Inc's acquisition of Cooley Distillery puts Irish whiskey entirely in the hands of drinks industry 'big hitters' and looks set to spur an unprecedented level of investment in the category.

It's been a rocky couple of centuries for the category. The country that claims Scotland as a one-time student has seen its distilling traditions steadily eroded by trade wars with the British, Prohibition in the US and a smaller home market due to emigration and Catholic abstinence.

Today, Scotch is a 90m-case-a-year industry. Irish whiskey is around 5m cases and almost 3.4m of those are accounted for by just one brand: Jameson. Pernod Ricard's Irish Distillers dominates the market, but the early years of the 21st Century may come to be seen as the time when drinks industry rivals finally got around to diluting its power base.

In 2005, Diageo acquired Bushmills, after Pernod was forced to dispose of it in the wake of its acquisition of Allied Domecq. Then, in 2010, William Grant & Sons acquired Tullamore Dew from C&C Group. Yesterday, Beam Inc wrapped up its acquisition of the country's final independent distiller, Cooley Distillery. 

That these companies have been drawn into Irish whiskey is itself a testament to the success of the Jameson brand. Not to disregard the efforts of Cooley or Bushmills but, for years, Jameson has been the sector's figurehead and, more recently, something appears to have clicked with consumers. Sales of Irish whiskey are storming, particularly in the US, where they grew by 20% in volume and 30% in value in calendar 2010, to US$256m, according to the US Distilled Spirits Council. Much is made of Pernod's success with Martell in China, but Jameson has been one of the group's best performers throughout the global economic malaise.

Beam's acquisition of Cooley completes a new industry line-up in Ireland and is likely to herald one of the most significant eras of investment for Irish whiskey in living memory. Already, Pernod has announced plans to double capacity at its Midleton distillery, as well as expand warehousing. William Grant is eyeing a purpose-built distillery for Tullamore Dew, while Beam has promised "substantial" investment in Cooley's Kilbeggan brand. Diageo, considering the company's size, has been relatively mute on Bushmills. However, the group is unlikely to stay quiet for too long, given the interest elsewhere.

That said, whisk(e)y's lengthy maturation period means that upfront investment always brings a certain degree of risk. How sustainable is the current demand for Irish whiskey? Cooley's chairman, John Teeling, sees Irish whiskey growing at 10% per year in volume terms and thinks that volume sales in the US will double in the next five years.

But, there is still much to prove, especially for any brand that isn't Jameson. The US is a huge - and highly profitable - spirits market, which certainly provides scope for brands like Bushmills and Tullamore Dew to emerge from Jameson's shadow. That said, it seems unlikely that Pernod will be matched in volume terms any time soon. 

For Beam, its best option is probably to go in at a more premium position. It has an enviable three distilleries in Ireland thanks to the Cooley buy, and its predecessor has already displayed scope to produce a breadth of whiskey styles. 

Pernod itself would almost certainly recognise this strategy. Its relaunch of single pot still whiskeys such as Green Spot and Redbreast last year was a signal that the firm wants to take on Scotch single malt more vigorously. However, it also wants to give Jameson drinkers something to move on to.

Competition at all ends of the Irish whiskey market looks set to intensify. But, companies will be fighting especially hard for the money of Jameson and premium Scotch drinkers thinking 'what next'?