Just the answer – Beam Global Scotch whisky
J-D: Can you give an overview of Beam's Scotch portfolio?
Cockram: It was inherited, of course, from Allied Domecq. Beam was quite focused on the fact that it wanted Laphroaig. It's a very strong, prestigious brand, in good growth in a growing malt whisky category. Beam's strategy is to have premium spirit brands, so Laphroaig fitted in perfectly well.
The other brand is Teacher's, which frankly I think Beam got for a reasonable price. It was a very neglected brand under Allied Domecq, but with huge latent potential - a sleeping giant effectively. So what we have is a mass market blended brand with three legacy markets - the UK, Brazil and India. With 575,000 cases selling in 2006 in the UK, for example, Teacher's is hardly a declining brand, and it's still retaining its share. It's got great potential that wasn't exploited in the past by Allied Domecq.
The Scotch category for Beam, therefore, consists of two brands, which will increase to three with Ardmore going forward.
J-D: What condition was the whisky category in when Beam inherited it from AD?
Cockram: They did a reasonable job on Ballantine's, but I think it's still under-exploited. Allied was a good marketing-driven company, but they weren't investing the monies they had to to compete with the biggest players. They did quite a good job, but suffered, effectively, because they had a dichotomy of markets: one very big market in Spain, and then a growth area in Asia, and I don't think the tension in terms of positioning was ever fully resolved between those two markets.
I think Pernod is probably doing quite a good job in creating a single unified brand proposition for Ballantine's that works around the world.
At Allied Domecq, I ran the malt business. We'd spent two years creating a malt whisky portfolio which made sense, and then the takeover took place.
J-D: How satisfied was Beam with what it got in the Scotch category from the AD acquisition?
Cockram: What else would there be left? Clearly Ballantine's was something that Pernod wanted. We got one of the most famous malt whiskies in the world in Laphroaig. For value for money - Beam paid under ten times earnings for Teacher's - we had an extremely good purchase, effectively a bargain.
We missed out on Scapa, which was disappointing. It's the one I would've tried to pick off for us. That's the way it went - Pernod wanted that distillery, it's one of those things. But, frankly, the Scapa brand wasn't going to be big anyway. The most volume it could do was 30,000 cases in the next five years, but still it would have been a nice asset to have alongside Laphroaig.
In the Scotch business, the issue was could you have the Teacher's brand without having the Ardmore distillery, which is a major component of the brand. Pernod may have said Beam could run Teacher's without the distillery, and Pernod could supply the spirit. Beam, quite rightly, saw that without owning the key production asset, you're quite vulnerable. That was the argument, effectively. It was a sticking-point for a while, but I think it's just one of those complex issues you have to deal with in such takeovers.
J-D: Beam has been quite quiet since the takeover, until now. Why the silence?
Cockram: I wouldn't say it's silence. Inevitably, when you have a takeover, your first year is making sure you make a success of your first year's numbers and that the integration goes smoothly - it's a very complex thing to do. We had issues in terms of systems, finances, reporting systems you have to smooth out, so a year's been spent getting the basics right, and looking at the brands in-depth again.
With Teacher's we started looking at the brand six months into the takeover, and now we've got a new positioning for that brand. You'll see some bigger changes in terms of Teacher's next year. But with a brand like Laphroaig, for example, you wouldn't expect to see a big, new, radical announcement, because the brand is doing very nicely as it is and our basic strategy is fully on-track.
J-D: Any further clues on plans for Teacher's?
Cockram: We've come to the stage now where we grew rapidly last year, which took us slightly by surprise. What we have to do now is decide how quickly we can grow Brazil and India. We have a plan that will stabilise the UK, and that's already working. So, we need to have regimented plans for Brazil and India, but be as flexible as we can. We also need to really improve the packaging for Teacher's. We inherited a brand that had three slightly different packaging propositions - one in Brazil, one in the rest of the world and one in the UK, which was changed by AD in the year before the acquisition.
We need to have a single packaging solution on Teacher's and it needs to be stronger. The Teacher's branding is actually quite weak, and the packaging looks a bit old-fashioned, frankly, and slightly dull. That needs to change.
We also have only one Teacher's expression - except in India, where we have Teacher's 12-year-old. The rest of the world has Teacher's Highland Cream only. So this year, we're looking at NPD, which will probably be a blended malt whisky version of Teacher's, launched at a premium price point. We're trying to get a product which can compete with the Johnnie Walker Blacks and Chivas Regals of this world, so that way we'd be in one of the fastest growing segments of the Scotch whisky market, premium blends - we're not there at the moment.
By Q3 2008, I want new packaging rolled out throughout the world and also NPD in place in the key markets.
J-D: Turning to India, how do you deal with the difficult playing-field for spirits companies?
Michael Cockram, Scotch brand director, Beam Global Spirits & Wine
Cockram: With 65m cases of IMFL (Indian Made Foreign Liquor) spirit sold in India, that's where the big market is. We haven't played in that market before; it's very competitive, with strong local players. You tend to need local partners for this to work. Our strategy is to have a presence in that market, but also to keep growing Teacher's. To de-prioritise Teacher's in that market would be crazy - we have the equity and history behind that brand. But we want to play in the IMFL situation as well.
The team in India will be looking at launching Beam in India as well, and get a reasonable presence for Beam in that market. But will we be a 3m-case brand in IMFL? That's a hard thing to do, but I'm sure we'll have a bigger presence in the future.
J-D: What are your thoughts on future consolidation in the Scotch whisky category?
Cockram: Take a look at who holds the assets, what's left to buy now? Whyte & Mackay is one of the last independents, Burn Stewart is owned by other small companies. Basically, there's not a lot left. Glenmorangie has now gone to LVMH, The Edrington Group are not going to be selling themselves in the future, Grants aren't on the table. So there's little scope for major brands to change hands now, unless some big merger happens and there's a forced divestment, and I can't see Bacardi merging with Pernod, for example.
So I can't see big changes in Scotch now. I can see potential big changes in the overall industry, but not in Scotch whisky in terms of ownership of assets.
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