Ian Buxton

Comment - Spirits - Filling The Bourbon Hole

By | 28 February 2013

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.

Expert analysis

Beam Inc. (BEAM) - Financial and Strategic SWOT Analysis Review

Beam Inc. (Beam), formerly known as Fortune Brands, Inc, is a premium spirits company. The company offers branded distilled spirits products. The product portfolio of the company consists of bourbon whiskey, Scotch whisky, Canadian whisky, tequila, cognac, rum, cordials, and ready-to-drink pre-mixed cocktails. The renowned brands offered by the company include Jim Beam Bourbon, Canadian Club Whisky, Maker’s Mark Bourbon, Sauza Tequila, Courvoisier Cognac, Teacher’s Scotch, Laphroaig Scotch, Knob Creek Bourbon, Cruzan Rum, Basil Hayden’s Bourbon, Kilbeggan Irish Whiskey, Hornitos Tequila, Skinnygirl Cocktails, EFFEN Vodka, Pucker Vodka and Sourz Liqueurs among others. The company’s major markets includes North America, Australia and Europe, and also maintains presence in the markets of India, Brazil, Russia, Central Europe, Asia, and other geographies. The company is headquartered in Illinois, the US. The company is expanding its operations as evident from its recent acquisition related agreement with White Rock Distilleries to acquire the fast-growing Pinnacle Vodka and Calico Jack rum brands and other related assets for $605m in cash.

Sectors: Spirits

Companies: Diageo, Pernod, Ricard, Bacardi, William Grant, Beam Inc, Jameson

There are currently no comments on this article

Be the first to comment on this article

Related research

Pernod Ricard: Premiumization and decentralization fuelling growth in mixed macroeconomic environment

Over the last 10 years of rapid acquisitions, Pernod Ricard has built a strong portfolio of premium brands on a global scale. Most of its brands enjoy a leading position in international markets. The company has adopted a decentralized operational st...

Related articles

just For Subscribers - The week in drinks

Here are the ten most viewed, subscriber-only items on just-drinks this week:

just the Round-Up - The week in drinks

The top ten stories published on just-drinks this week:

Product Launch - TRAVEL RETAIL: Pernod Ricard's Paddy Centenary Edition

Pernod Ricard has launched an anniversary edition of Paddy's Irish Whiskey through its Irish Distillers unit.

Read further items in this columns

Comment - Spirits - Buxton: Banging the Dram

Augmenting our spirits coverage, Ian Buxton will be casting his eye over the brown side of the sector on a monthly basis.

just-drinks tagline

Not a member? Join here

Decrease font sizeDecrease font sizeDecrease font size Increase font sizeIncrease font sizeIncrease font size Comment on this article Email this to a friend Print this page