Comment - Spirits - Filling The Bourbon Hole
What do Bacardi, Diageo and Pernod Ricard have in common? Aside from the obvious, Ian Buxton proffers that they share the same problem when it comes to Bourbon, and that's their lack of it.
What does a Bourbon-shaped hole look like? By 'hole', I am referring to the percieved gaps in the spirits portfolios of the likes of Diageo, Pernod Ricard, Bacardi and, to a lesser extent, William Grant & Sons.
Diageo of course has Dickel (Tennessee's strangely obscure number two brand, though recently its received advertising support in specialist titles) and Bulleit which, curiously, was picked out for special mention at the company's recent half-year results presentation. While the latter may have doubled its US volumes in just six months, for Diageo to highlight a 300,000 case brand suggests that something's in the wind. Exactly what, is hard to say. But, it's even harder to believe that this happened by accident. Could this be some sort of a cryptic message for us to pore and puzzle over.
Speculation over Diageo's long-term interest in Beam Inc continues and, in general, concentrates on the latter's Sauza Tequila brand, especially now that the potential for a Diageo deal with Jose Cuervo has melted in the hot Mexican sun. But add Maker's Mark, which, as the world now knows, is having problems satisfying demand, and the eponymous Jim Beam to the equation and the potential synergy looks compelling.
With this kind of growth in a previously under-whelming category it wouldn't be surprising if Pernod Ricard has had second thoughts over its 2009 disposal of Wild Turkey. While the firm's CFO maintained as recently as six months ago that "Je ne regrette rien", it's hard to believe that he wouldn't turn the clock back if he could, especially as the recent Maker's fiasco highlights the short-term trading opportunities for any premium Bourbon brand with stock availability. Pernod's assertion that Jameson fills the gap is an disingenuous one, at least.
The rumour mill also suggests Pernod is taking an interest in Tequila, although CEO Pierre Pringuet has hinted that the company's next moves will be "tactical" and may be more in the craft distilling sector. Such a move would certainly complement the company's recent announcement of further expansion of its Scotch whisky capacity at the old Imperial Distillery site.
Craft Bourbon anyone? After all, as Pringuet says, "All brands start small."
William Grant, meanwhile, appears to have adopted this route with its acquisition of the Hudson whiskey brands from the tiny Tuthilltown distillery in upstate New York. Hudson Rye and Bourbon have already achieved some success in the US’s more stylish outlets, are beloved of whisky’s chattering classes and will launch soon in the UK. While the distillery can never supply substantial volumes, it allows William Grant to test the water – no doubt, a dedicated plant, along the lines of Tullamore Dew, could rapidly follow if the demand is shown to be there.
Growing a craft distiller to worthwhile scale might take longer than biting off a major acquisition but it would surely be cheaper. Within the next few years a number of the more entrepreneurial start-ups will be looking for an exit, so expect some further consolidation here before too long.
And, what of Bacardi? With no US whiskey in its portfolio and the Cazadores Tequila brand a regional performer at best, the firm would surely be a prime contender if any auction developed for Beam. Such an acquisition presents few problems of portfolio overlap and is unlikely to draw much attention from the competition authorities. This year's St Germain purchase aside - something of a bite-sized snack in this context - it's been a while since the family-owned giant snapped up Grey Goose and even longer since the Dewar's and Bombay Sapphire purchase.
Beam's share price, while up around 11% in the past year at yesterday's close, still lags the stellar growth of about 30% shown by both Diageo and Pernod. While Beam may have performed well, it’s clear that the big boys have performed significantly better off a larger base. It is this relative performance that makes some M&A action easier for them to finance.
And that’s how they’ll fill their Bourbon-shaped hole.
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