Our penultimate part of the 2010 review of the year affords our spirits commentator, Richard Woodard, to look back at the last 12 months for his specialised subject.

After 18 months of reeling and reacting to the global economic downturn, 2010 marked something of a return to normal for the spirits industry, although the recession’s aftershocks continued to impact trade in many markets. 

The mixed picture was put in sharp relief as recently as late November, when the IWSR Forecast Report 2010-15 predicted recovery for the world’s spirits brands, but with sales rises occurring more slowly than in those halcyon pre-recession days. The timing and speed of the recovery would vary, the IWSR said, with India and China cementing their position as the markets to watch. Meanwhile, rum and whisk(e)y were predicted to snatch a larger market share, partly at the expense of vodka.

The size and strength of the Asia-Pacific spirits market, driven by China’s thirst for Cognac and Scotch whisky, was also reflected in another IWSR study, which found that Asia-Pacific had become the top spirits market in value terms over the past five years, recording 9.9% CAGR.

Nonetheless, for every story of renewal and reinvigoration, there were as many signs of continuing difficulties and pessimism in the more mature markets of the west. In June, Diageo warned of a tough 12 months ahead in western Europe, predicting that only modest growth would be possible amid the patchy recovery and widespread introduction of government austerity measures.

The UK-based multinational was more bullish about longer-term market prospects, however, particularly in relation to its market-leading Scotch whisky portfolio. September saw the official unveiling of its GBP40m (US$61.9m) Roseisle distillery – and the company signalled that it could have to build another facility of a similar size in two to three years if growth continued in Latin America and Asia-Pacific. 

Nor was Diageo alone in exhibiting the physical proof of its long-term belief in premium Scotch. Pernod Ricard-owned rival Chivas Brothers invited no less a figure than Prince Charles to cut the ribbon on the GBP10m extension to its Glenlivet distillery on Speyside – a 75% increase in production designed to secure the brand’s long-term leadership of the global market for single malts. 

Indeed, this was a year when brown spirits led the way for Pernod. The markets reacted with cautious pessimism to the company’s full-year results, announced in September, but were happier with the continued momentum shown by its Jameson Irish whiskey and Martell Cognac brands. 

Pernod also still had a few non-core assets to sell, a continuation of the disposal process initiated by its acquisition of Absolut in 2008. A number of local and low-profile spirits brands were offloaded to Finland’s Altia for EUR81m in May, and Altia also took Renault Cognac off Pernod’s hands for EUR10m in October. Meanwhile, the French company sold its Spanish Ambrosio Velasco spirits and liqueurs business to Diego Zamora for EUR32.4m in October. 

No single, industry-changing M&A deal marked 2010, but a number of smaller transactions still piqued the interest of industry watchers. Beam Global Spirits & Wine sold a number of German brands, including Kuemmerling bitters and Fuerst Bismarck Korn/schnapps, to Henkell for an undisclosed sum in July. 

French drinks group Belvédère, owner of Sobieski vodka, continued its efforts to emerge from bankruptcy protection, offloading Florida Distillers for US$48m to help meet its debt repayments. 

News of a far more significant deal came in July, with the announcement that William Grant & Sons was spending EUR300m (US$394.7m) to acquire the spirits portfolio of Irish company C&C International, including Tullamore Dew Irish whiskey and liqueurs Carolans, Frangelico and Irish Mist.

Grant’s said the buy signalled its intention to build a significant presence in Ireland, but many questioned this when, only four months later, the liqueurs were sold on for EUR129m to Italy’s Gruppo Campari

In fact, the synergies for Campari were compelling (it produces Frangelico and distributes Carolans and Irish Mist in a number of markets), and just-drinks understands that the Italian company was rather displeased to have missed out on bidding for the brands in the first place.

Beyond that, Campari remains in an acquisitive mood, following the liqueurs deal and its acquisition of Wild Turkey from Pernod in 2009. CEO Bob Kunze-Concewitz has made no bones about his intention to continue the company’s recent spending spree, eyeing up future deals in the EUR300m to EUR400m price range. 

That could mean Campari getting involved in scrapping for some of the brands currently owned by Beam Global Spirits & Wine, now that hedge fund owner Bill Ackman, who has built an 11% stake in parent company Fortune Brands, has got his way and the business is broken up.

The will-it won’t-it Beam scenario remains, at the close of 2010, one of the two great undone deals in the spirits industry. The other is that hoary old chestnut, Diageo’s on-off courting of Moët Hennessy, in which it already has a one-third stake.

Diageo would love to get its hands on Hennessy Cognac (and the Champagne brands) in particular, but its desire to get the deal done (and to spend several billion euros in the process) may yet be frustrated by the will of one man: LVMH boss Bernard Arnault. 

If Arnault wants to do the deal – say to finance a bid for Hermès – then it will surely happen. But if not, there’s not much that the world’s biggest drinks company can do about it except, maybe, offer over the odds for the rest of the company. But, that's never been Diageo's style.

Diageo was also involved in the most complex and labyrinthine spirits story of 2010: the Captain Morgan saga. Boasting more twists and kinks than the most over-the-top Dan Brown thriller, this tale concerns Diageo’s new Captain Morgan distillery on St Croix, one of the US Virgin Islands. 

That’s the easy bit. The reason for the move from the Captain’s current base in Puerto Rico was, in return for a 30-year commitment to rum production, 30 years of tax breaks and subsidies from the USVI government, rumoured to be worth US$2.7bn. 

The losers will be Puerto Rico and, thanks to the complications of US tax regulations, its rum producers – Bacardi and Destileria Serralles (which currently produces Captain Morgan). Cue much lobbying and muttered deals and threats in the corridors of Washington, plus the somewhat unedifying sight of two of the biggest spirits companies in the world squaring up to one another

And now? If tempers haven’t exactly cooled, the story has reached a kind of closure in physical form: Diageo officially opened the St Croix distillery in November. Whether that will silence the complaints from its rivals in Puerto Rico, however, only 2011 will tell.