"There is a ceiling for Campari, but not at the level of Grand Marnier" - Interview, Bob Kunze-Concewitz, Gruppo Campari CEO - Part II

In part two of our interview with Gruppo Campari's CEO, we talk to Bob Kunze-Concewitz about the company's approach to its portfolio and to the craft segment, as well as its M&A strategy and non-core asset plans.

Let's start where we left off: Having looked at Gruppo Campari's geographical footprint at the end of part one, I ask Kunze-Concewitz how satisfied he is with the company's portfolio coverage. Does he concur with other senior spirits folk who feel that covering all consumption occasions is now more important than covering all segment bases? "What's important for us is controlling our route-to-market and then having brands that are really relevant in those markets and that are growing strongly," he says. "If you look at trends like the classic cocktails, we're definitely on it. We're there with Bourbon for the Old-Fashioned, we're there with Campari for the Negroni, we're there with the Aperol Spritz. It's important to be in the hot categories."

It's a staple question, but I'm keen to know how important the craft spirits arena is to Campari. Again, like other senior executives at the larger spirits players, Kunze-Concewitz believes this is an arena that the larger brands are also allowed to play in. "If you look at our Italian brands, like Campari, Aperol, Frangelico, in the US, they are viewed as craft," he argues. "In American whiskey, we've got Russell's Reserve. Not only is it true craft, but it's been around, it's got roots. It's not a brand created five years ago that sells ten-year-old whiskey. It was created from scratch - it's authentic.

"I think we have the assets to create our own authentic, true craft brands."

To create them, rather than to buy them? "Sure."

Much as this year's purchase of Marnier-Lapostolle is a big deal for Campari, the wider spirits category hasn't seen any recent M&A activity that could be described as transformational - indeed, one analyst suggested in June that there is little likelihood of any massive deals in the foreseeable future. "If anything happens," warns Kunze-Concewitz, "we'll all be caught by surprise. If you look at the three leaders of our industry, I don't think that they're going to put an ad in the paper looking for transformational deals.

"There have been quite a few changes at the tops of some of the larger companies," he notes. "As that settles down, maybe we'll see people getting a bit more active again."

As for Campari, its brand-acquisition approach will continue. "We're on record as saying that half of our growth will come from acquisitions," says Kunze-Concewitz. "Although we have closed our largest deal just a few weeks ago, I think in a year's time, we'll be in a position to do things that are as meaningful. Having said that, between us and the three leaders, there is still quite a difference in scale and in capabilities. We'll be realistic about what we can do and not do."

Kunze-Concewitz's second reference to 'The Big Three' - Beam Suntory, Diageo, Pernod Ricard - prompts me to ask: Is there a ceiling for companies the size of Campari? "There is a ceiling," he admits. "But, it's not at the level of Grand Marnier. The ceiling can go higher."

A look at the group's brand buys in recent years hints at a strategy centred around established, dusty products. "Oh yes," he agrees. "Look at Wild Turkey (bought from Pernod in 2009). We've always said we look for hidden gems, and there are two types: Either brands that have been around for a long time, that have deep-rooted authenticity, but have been neglected, or brands that are new to the world but the founder can only take it so far. We're active in both cases. Recently, we bought Forty Creek, which is a 25-year-old brand that was growing at double-digits. In the same year, we bought Averna, a century-and-a-half-old Sicilian brand. We're pretty disciplined - what we look for are brands with equity, with a story to tell."

Enough about buying: What about selling? In recent years, Campari has made a raft of divestments of what it has termed non-core assets. Earlier this year, it sold the Casoni Fabbricazione Liquori (CFL) private label business in Italy, with the Enrico Serafino winery, also in Italy, going last year. Considering the recent headaches it has caused for the company, will the Jamaican sugar business it inherited through the acquisition of Appleton Estate and Wray & Nephew owner Lascelles deMercado & Co be next to go?

"We're not desperate to sell it," he shrugs. " We're interested in.... finding ways from an agricultural and industrial way to render it more profitable. But, Appleton Estate is 'from cane to cup' and that will stay that way. Controlling the quality of the molasses is important. So, we're not desperate to get rid of the sugar business. It's never going to be a great business, but we don't want to lose as much money from it as we're losing this year."

The move to hive off less profitable parts of the group will continue. "We will carry on selling off non-core assets," Kunze-Concewitz says, "but it's not a fire sale. We're very disciplined not only in our buying but also in our selling. If we can sell it at the price we have in mind, we will. If we can't, we won't."

So, what's for sale? "There are still bits of the still-wine business left as well as the carbonated soft drinks in Italy." Anything in spirits? "There could be. We have some thoughts there. Obviously, our focus is on our global, regional and local priority brands. In between those three, there are a few other brands - so, we'll look into it."

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