Brown-Forman CEO warns of whiskey price rise as stock pressure builds

The CEO of Brown-Forman has said prices for North American whiskey will start to rise if global demand leaches stocks.

Paul Varga said pressure on price could build as new entrants flood in and if current rates of growth remain over the next three years. "We never have quite a good enough feel for how much supply is actually out there, so if demand outstrips supply out there, I think you'll start to see pricing go up, not down, with rational competitors," he said.

The CEO added: "We don't have any indication of that now, but these growth rates have been running pretty solid for a while... in the industry."

Varga was speaking after the release of Brown-Forman's H1 results in which the Jack Daniel's range continued to post strong underlying growth. The Jack Daniel's family, which includes two flavour extensions Tennessee Honey and Tennessee Fire, was up 7% in underlying sales in the first six months of the year. In fiscal 2014/15 that growth was 8%.

Fire was only launched last year but is already providing about three percentage points to total US underlying sales growth YTD and 1.5 percentage points to total company sales growth, according to yesterday's results. 

Varga made the comments about price increases in answer to a question on whether he was seeing increasing price competition from rivals in the US. Brown-Forman whiskies have higher price points and thicker margins than mainstream rivals in the North American whiskey category, but Varga said discounting is likely to come from others over the next few months.

"We have seen some spread difference in the US market between, say, Jack Daniel's and Jim Beam - that would be an example for this year," Varga said. "But in prior years, we'd seen other brands go deep on discounting, and all of it is just a reminder of the balancing act." Jack Daniel's has faced increased competition from Beam Suntory's Jim Beam Bourbon and Diageo's Crown Royal Regal Apple in recent months.

Earlier, Brown-Forman's CFO, Jane Morreau, said of Brown-Forman's own pricing strategy: "We're not really expecting much from pricing the whole year. Very modest pricing."

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