The sweet outlook for bitters lies behind Campari’s Picon buy

The next time you see someone try a negroni for the first time, watch their reaction. Chances are the lips will be pursed and the eyes screwed up; there’ll probably be a sharp intake of breath, possibly accompanied by some form of expostulation. They may grow to love the classic combination of gin, Campari and vermouth – millions of people do – but the initial response is often one of shocked surprise. We’re preconditioned to shy away from the bitter, and towards the sweet, and for good reason. Bitter is bad, and best avoided, because many (though not all) poisons are bitter. Nor is this a socially learned response, because babies are born with it, and primates also have it. Some scientists even argue the rejection of bitter flavours is a reflex since it is also present in rodents that have had the neural connection between the brain stem and the cortex severed. As humans, however, we are open to other influences beyond instinct. Just about all of us are aware of the perils of excessive sugar intake, and we (sometimes) act in accordance with that, eschewing sweet food and drink despite their obvious attractions. In this context, the bitter can seem like a virtuous choice. Over the past decade or so, that’s been good news for the owners of a whole raft of beverage alcohol brands, from gins to vermouths and bitters. As the bitterness trend has expanded by geography and product type, it has also diversified; many gins have migrated into different flavour territories, most obviously via the growth of often much sweeter flavoured gins and gin liqueurs. But the distinctive – challenging, even – nature of bitter drinks could be a positive in terms of the longevity of the trend. Industry analyst Edward Mundy of Jefferies expounded the “continued attractive runway” for bitters a couple of years ago, when giving a positive assessment of the future prospects for Campari Group – with its Aperol and Campari brands, possibly the greatest beneficiary of the bitterness trend. That trend, Mundy argued, could be perpetuated simply because bitter flavours are difficult. “This argues against the early democratisation of the category, which helps to extend the duration of the cycle,” he posited. And that’s just what we’ve seen over recent years in the stellar performances of Aperol and Campari, expanding across Europe and North America, with Asia Pacific likely to be next on the radar. After a difficult, Covid-affected 2020, Aperol sales were up by nearly one-third in 2021; meanwhile, Campari revenues rose by just over 30%. Both brands still have plenty of headroom for growth but, at some point, that impressive momentum will begin to fade, the growth curve will start to flatten and, at best, markets will mature and the magnitude of the gains to be had will shrink. Then the question will be: what’s next? For Campari Group, the answer to that question appears to be: Amer Picon, acquired in May this year from Diageo for EUR119m (US$125m). Amer what? It’s fair to say the bittersweet orange liqueur – like Aperol and Campari, produced in Italy – isn’t a household name around the drinks world. Largely that’s because it has lived its life as a local speciality, with 80% of its EUR21.5m sales in the year to June 2021 occurring in France, and the rest in the Benelux countries. Invented by Gaétan Picon in 1837, it has some decent heritage for the marketers to play with. Clearly, Picon was nowhere near the top of Diageo’s priority list and, in that sense, it fits in with Campari Group’s track record of picking up neglected brands, dusting them off and reinvigorating them. See, for instance, Wild Turkey in 2009, Appleton Estate in 2012 and Grand Marnier in 2016. With deals like this, timing is key. Pernod Ricard selling Wild Turkey to Campari for $575m in 2009 may look like corporate lunacy through the prism of the current Bourbon boom but, back then, American whiskey was the drink that fashion had forgotten. The acquisition was a bet – and a smart one, as it turned out – on that situation changing. Picon also makes sense in the context of Campari’s long-term targeting of the French market, following the purchases of Champagne Lallier, and of rhum agricole brands Trois Rivières and La Mauny, not to mention the distribution network of Baron Philippe de Rothschild. France is now the company’s fourth-largest market, accounting for 6% of global revenues in 2021. I’d link those two strategic strands: the focus on France looks like the geographical equivalent of picking up a dusty, unloved brand – a market that has been positively lacklustre in recent years but with an underlying strength that augurs well for the future. In that sense, Picon is an each-way bet: already strong in France, but ripe for a little reinvention to spread its appeal there; more importantly, boasting the right combination of qualities, including heritage, a distinctive flavour and its own signature serves, to expand into new territories in the future. The curious factor in all this is the similarity in product type and flavour profile to Aperol and Campari. While the potential for Picon to find success beyond Francophone countries is clear, will its future success also eat into the sales of Campari’s pre-eminent brands? Cannibalisation has to be a risk. That note of caution apart, it’s hard to argue against the wisdom of the Picon acquisition, not least because of Campari Group’s recent history of pursuing an idiosyncratic, but largely successful, corporate strategy: picking up the right brands, at the right time and for the right price, and then letting them fly. The efficacy of that approach can be measured in pure brand revenue terms, but also in the company’s broader corporate performance. Since Campari Group was floated in 2001, the company’s share price has increased by a multiple of about 13, well in excess of rivals such as Diageo and Pernod Ricard. More than enough to justify a few celebratory negronis or Aperol spritzes in the Milan boardroom – or possibly a refreshing Amer Picon Bière?