Interview - Beam puts Absolut reversal behind it and looks ahead

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Beam Global Spirits & Wine was the frontrunner to land Absolut vodka but was pipped at the post by Pernod Ricard. However, president and CEO Tom Flocco says the company has quickly put that disappointment behind it. Indeed, he spoke with Olly Wehring on the day that Pernod Ricard announced its acquisition of Absolut, and outlined what now lies ahead for Beam.

Depending on which way you look at it, we either chose a good day or a very bad day to speak with Tom Flocco, CEO of Beam Global Spirits & Wine, last month. It was the very day Beam lost out in the race to acquire Vin & Sprit, and with it the prized Absolut vodka brand.

Pernod Ricard's victory surprised many in the industry, who had Beam pegged as the hot favourite to buy Absolut. One month on and with the dust settled on the bun-fight, Flocco is keen to get back down to the business of steering Beam forwards with the tools it currently has on board, without dwelling on what it could have won.

In its homeland, Beam's flagship brand, Jim Beam, is certainly a source of solace. Indeed, the company's total Bourbon business delivered value growth last year in double digits, despite price increases. "We upgraded consumers to some of our higher marques and they responded to it very well," Flocco boasts.
Also, in the US, Tequila - led by the Sauza brand - delivered double-digit growth, while Cognac - primarily Courvoisier - outperformed the category in the country.

However, it is Canadian Club, Beam's Canadian whiskey brand, which is the main joy-provider for the company. "Canadian Club really had been neglected for 20 years," Flocco says. "That brand in the last two Nielsen periods in the US has outperformed the category leader, Crown Royal. We're really pleased to see some of the work we've done - the advertising started last fall - be received very well."

Outside of the US, the company's biggest market for Bourbon is Australia, where Jim Beam is the top selling spirit overall. "It's an extraordinarily healthy category in the mix there, which continues to take share from its competitors. Last year, from a very strong base, the business was still up almost double digits. That's not just the pre-mix; full strength is also doing the same, and is growing while the category is flat to a little bit down. We keep building on its success."

Staying with Jim Beam, another strong market outside the US for the brand is Germany, where it also took some fairly aggressive price increases. "The consumer accepted it and has not looked back. So the brand is up in volume, and up even more in value."

Tequila, meanwhile, is also performing well, not only in the US but also in Canada and the UK. Flocco is also keen to point out that, among emerging markets, Tequila, Cognac and Bourbon are all doing well in Russia.

Flocco believes, therefore, that in spite of the failure to win Absolut, Beam remains in a strong position. "We're the fourth largest spirits company in the world," he says. "That hasn't changed. We're also the second largest spirits company in the US - that hasn't changed. We invested US$5.3bn in the portfolio when we brought the Allied Domecq brands on board three years ago, We picked up some terrific brands in whole new categories, giving us a very broad profile. We're now working through that - some of those brands had been neglected for a while and so we're all about getting back to the brand-building behind the Sauzas, Courvoisiers and Canadian Clubs of this world, as well as taking advantage of the momentum on a brand like Maker's Mark, that came over as healthy as can be, and we're continuing to invest behind that."

Tom Flocco, president and CEO of Beam Global Spirits & Wine

The sale of the company's US wine brands and operations to Constellation last year was viewed by many as a move to build up the capital to swoop for V&S. With the brands performing well prior to the sale, the divestment could now be seen as a mistake on Beam's part.

"They were - and are - wonderful brands," Flocco agrees. "But the reason we ended up selling that business was not driven by Absolut. It was driven by the constant attention we pay to returns. When we look at investments we can make across our business, we like the returns on spirits a lot more than the returns on wine. It's very challenging to deliver the cost to capital on the wine business. We're not a scale player that Constellation is."

Flocco also highlights the "seasonality" of wine and the relatively fickle nature of wine consumers. "When you look at the seasonality of it, the land nature of it and the difficulty of branding, a lot of spirits brands in our portfolio are 'must-stocks' if you're going to run a liquor store or on-premise outlet. A lot of wine brands aren't, so you're building brand equity up that can be switched out. It's more challenging to build that equity up and let it hold. There's that substitutability that makes the brands a little bit less appealing."

Turning to gaps in the Beam portfolio, it has been suggested that Stolichnaya, up for grabs now that Pernod has chosen Absolut over the Russian vodka brand, could fill the vodka void for Beam. While agreeing that Stolichnaya is a "good" brand, Flocco is conscious of the perils and pitfalls of chasing the brand.

"[Stolichnaya's] a brand that, based on what I've read over the last two or three years, some smart people worked very hard to get out of the dual-ownership structure," he says. "I don't know why they weren't able to get something done, so I can't really comment on whether it's ever going to become available. If it did, would we look at it? Sure. We'd have to see if it makes sense and see if it's the right solution."

In spite of Beam's absence in the mainstream vodka category - the lesser-known Vox and Wolfschmidt brands notwithstanding - Flocco believes the company still has plenty else to shout about. "I look at the portfolio today, and we have leadership positions - by which I mean number one or two - in Bourbon, in Tequila, in Canadian whisky and cordials," he says.

"We have a good, strong position on the Cognac side - would I like to see it stronger? Yes, I would, but we're working on that. We also have some very attractive assets in the Scotch business. Teacher's was up double-digits in volume last year, and even greater in revenue. We have a lot of very important categories very well covered. So, we have a lot of opportunities and a lot of work to do with our portfolio, with a good-sized position both inside and outside the US."

Flocco also warns, ominously perhaps for some smaller spirits companies, that Beam has "a lot of dry powder" as a result of not having chased the V&S opportunity. "We have capital to invest, and we'll do that prudently. When you look at categories that are doing well today and we have holes - such as vodka, or premium or super-premium rum or gin, or in the Irish whiskey side - those are the areas that we'll look at. Some things we'll be proactive on, other things we'll see what happens."

Beam's high profile in the Vin & Sprit saga, incidentally, appears not to sit well with Flocco. "We were more visible during the V&S transaction, because it was a government selling the asset," he says. "That was new for us; we typically like to be quite quiet." Going forward, Flocco says that the company will "certainly look for [acquisition] opportunities", but warns that "we're not going to chase brands with silly prices".

So, with Beam's courting of Vin & Sprit having proved unsuccessful, it may be that Flocco and his staff have decided to boycott the Swedish company's vodka brand. Flocco is a businessman through and through, however. "Absolut's still part of our Future Brands and Maxxium portfolio," he notes. "We don't boycott brands that are inside our own portfolio."

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