Ben Cooper

The just-drinks Interview - Paul Varga, CEO of Brown-Forman - Part I

By | 13 December 2012

just-drinks met the head of Brown-Forman in the autumn

just-drinks met the head of Brown-Forman in the autumn

Earlier this year, Ben Cooper met the CEO of Brown-Forman, Paul Varga, in the company's heartland, the US. In the first instalment of this two-part interview, the two look at Brown-Forman's position in the drinks industry, its portfolio of spirits brands and its prospects and ambitions in the emerging markets.

It was back in October that I managed to grab some time with Paul Varga. We were both in Washington DC, attending The International Center for Alcohol Policies' two-day conference on reducing alcohol harm around the world. Fresh from the hall, we took the chance to reflect on the event, specifically the release of a new set of commitments by major drinks companies around tackling alcohol misuse.

“I think (the commitments) are in quite nice alignment with where the industry has been moving in the last five or six years,” says Varga. “The World Health Organization's initial reflex was to keep the industry out. I can understand how someone might start that way, but we consider it enormous progress to have found ways in the last ten years to deal with a more open mandate.”

Paul Varga, chairman & CEO of Brown-Forman

Varga can speak with authority on changes within the industry over the last decade, and beyond, having started with Brown-Forman in 1986. It was in 2005, at the age of 41, that he moved up from the roles of president & chief executive of Brown-Forman Beverages to become CEO of the whole group.

During his tenure thus far, Varga has overseen some major events for the family-controlled drinks firm, including the purchase of French raspberry liqueur brand Chambord in 2006, the acquisition of Tequila Herradura a few months later, as well as the divestment in 2008 of its Italian wine brands, Bolla and Fontana Candida, to Gruppo Italiano Vini. The biggest news, however, came in March 2011, when the company signalled its almost total exit from the wine industry (it only has Sonoma-Cutrer and Korbel left now) by selling off its Fetzer Vineyards unit in California to Viña Concha y Toro.

“It was more of a strategic consideration,” Varga explains. “All the businesses that we have divested served a wonderful role at Brown-Forman during developmental stages of the company; wine was one of them, so were consumer durables. But, as we looked ahead, we looked to see what would provide the best enduring growth and the best return on capital. That's what has made us favour the distilled spirits business, especially whisky.”

Brown-Forman may be seen by some as a 'one-brand pony' – Jack Daniel's, of course – and by others as a 'one-category pony' – whisky. Varga concedes that the company has had a slant in the past.

“We know whisky reasonably well,” he says. “Our whisky is sold virtually everywhere.” But, with the likes of Finlandia – bought in 2000 - and Herradura in the camp, other spirits bases are also covered. “Vodka is on the march,” Varga notes.

“Tequila reminds me of where the Jack Daniel's trademark was around 30 years ago: It's only in limited countries, and the world has a growing interest in it. So, we're heartened by the success of American whisky on a global scale, and we have that hope for Tequila. That gives you an example of how (spirits categories) are all at different stages of global development.”

The same can be said of the spirits companies. While the likes of Diageo, Pernod Ricard and Remy Cointreau have prospered in the markets of the east, Brown-Forman has kept things much closer to home. Indeed, in its latest fiscal half-year, the US was responsible for 40% of the group's sales growth.

“We are newer as a global company,” notes Varga. “When contrasted against trademarks like Johnnie Walker, we've not been out on the world stage for as long. For us, in the US, there was plenty of opportunity, so we've only been global for around 25 to 30 years.

“In some ways, we're disadvantaged by that, but in other ways it's an advantage,” he adds. "We're still developing Western Europe, for example, which is a very difficult place to be right now. We're exploding in France and we put a new company in Germany a year ago. So, places that saw other companies mature then move on to emerging markets are places where we're still seeing growth.”

In the up-and-coming markets, meanwhile, Varga maintains that Brown-Forman had a running start without actually having had to do anything. “When we went around establishing our first base in distribution in the likes of the BRIC countries,” he says, “there was already a general awareness of Jack Daniel's that had been often communicated through American pop culture. The platform for Brown-Forman comes from the appeal of the Jack Daniel's brand world-wide.”

Despite that, Varga has trouble picking out specific markets where he can see the explosive growth of the future coming from. “When we talk about emerging markets, we have a hard time prioritising below about 20 – we don't have an acronym for it. 

"The 'rest of the world' section of our data is sizeable and fast-growing, but it's hard to pin-point two or three or five countries. We're very excited about emerging markets, and it's become a meaningful amount of our business today.

"But, it's being generated from an enormous amount of geography and population, not one singular country. We're still at the very early stages, and we see the landscape as being far broader.”

Part two of this interview, in which Varga considers Brown-Forman's role in the M&A aspect of the spirits industry, can be found here.

Expert analysis

Brown-Forman Corporation (BF.B) - Financial and Strategic SWOT Analysis Review

Brown-Forman Corporation (Brown-Forman) is one of the largest American-owned spirits and wine companies in the world. The company is engaged in the manufacture, bottling, import, export, and marketing of a wide variety of alcoholic beverage brands. It offers a wide range of whiskies, vodka, gin, liqueur, tequila, and champagne through a portfolio of more than 30 brands, including Jack Daniel's, Southern Comfort, Canadian Mist, Fetzer, and Korbel. The company offers its products in more than 135 countries across the world. It's largest operations are in the United States, Poland, Australia, the United Kingdom, Mexico, and Germany. The company is headquartered in Kentucky, the US.

Sectors: Emerging markets – BRIC, Spirits, Wine

Companies: Brown-Forman, Jack Daniel’s, Finlandia, Concha y Toro, Diageo, Pernod, Ricard, Remy, Cointreau, Johnnie Walker

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