FTSE Global Equity Index Series

SECTOR REPORT: DISTILLERS
66
global companies need a full
range of spirits, single malts
and aged rums and brandies
even before you get to the
modern liquid candy
confections striving for
market share. Bacardi’s
purchase of Grey Goose and
other brands such as
Bombay Sapphire and
Dewars shows that it realises
that the fairly generic white
rum that it is usually
associated with does not pull
in the growth and dollars it
wants. Bacardi, itself one of
the world’s most recognisable brands, has also grown
apace, but not perhaps as fast as its rivals, or indeed as fast
as the family. There are constant hints that its 600-plus
(and increasingly extended) family shareholders may want
to go public so they can take a quick shot from the stock
markets. Bacardi executives meanwhile are looking
askance at their declining market share as the major, stockmarket-funded
giants merge and acquire.
And of course, to add a little spritz to the mix, Bacardi has
been fighting its own grudge fight against Pernod-Ricard
over the American rights to Havana Club. Pernod-Ricard
has the worldwide rights, except in the USA, where the
courts and Congress share the Bacardi family’s antipathy to
Fidel Castro.
Some cynics also suggest that Havana Club’s distinctive
nose shows up the blandness of Bacardi – which might
explain how, without selling a single bottle legally in the
world’s biggest marketplace (i.e. the USA) Havana Club
sales have been steadily rising until it is now 44th in the
world’s top hundred spirits list.
Among the quoted spirit companies meanwhile, the
present reshuffle began when Edgar Bronfman Jr decided to
pull out of the family’s Seagram’s spirits empire, whose
success had been built on the proximity of Canadian
distilleries to Prohibition-era America. Diageo and Pernod-
Net turnover by business area %
Year end figures, August 2004.
Total £2,611m
Spirits & Wine £m %
1. North America 632 28
2. Europe 734 28
3. Latin America 268 10
4. Asia Pacific 226 9
5. Premium Wine 475 18
6. Other 50 2
7. Quick Service Restaurants 226 9
Total 2,611
“If Pernod-Ricard can pull off the
Allied Domecq takeover, it will be selling
77m cases of spirits a year, and own 20
of the top 100 brands, even after
divesting some of the Allied Domecq’s
brand portfolio to Fortune brands. It
would also double Pernod-Ricard’s share
of the American market to over a
quarter and make it the second biggest
spirits company in the world.”
Source: Allied Domecq’s Press Pack 2005.
Ricard worked together to
pick over Seagram in a $8.7bn
vivisection that gave each of
them the brands they wanted
and they thought that the
regulators would let them get
away with.The effect has been
to shuffle the pack of the top
brands, and more cards are
now about to change hands.
Pernod-Ricard – eagerly
building up its portfolio since
it decided that its eponymous
anise flavoured drink alone
was not going to conquer the
world – added Seagram’s gin,
Chivas Regal and Martell Brandy to its cabinet to give it 12
of the world’s 100 biggest spirits brands.
In the end, while Bronfman would undoubtedly have
been better off sticking with booze than chasing a dot.com
dream with Vivendi, there is a distinct hint of bubble
economy about the spirits fad. The Super Premium brands,
creations of astute marketing as they are, require heavy
investment in brand maintenance, especially as others try
to recreate their success. No less than 130 new brands of
vodka were launched last year, each of them hoping to
knock Grey Goose off its precarious perch.
However, high maintenance costs raise the entry
premium for new brands, and in the modern world global
brands tend to dominate. Size does matter in the booze
business. Smaller brands wilt. The giant multinational
drinks businesses often do not even make their own
drinks, but market and distribute other companies’
productions, assembling brands to make up a balanced
global liquor cabinet.
That is the background to current takeover battles
when, in April, Pernod-Ricard and Fortune Brands bid
$14bn for the hearts and spirits of Allied Domecq,
Diageo’s British rival.
If Pernod-Ricard can pull off the Allied Domecq takeover,
it will be selling 77m cases of spirits a year, and own 20 of
Trading profit by business area %
Year end figures, August 2004.
Total £657m
Spirits & Wine £m* %
1. North America 183 29
2. Europe 139 22
3. Latin America 44 7
4. Asia Pacific 68 11
5. Premium Wine 98 15
6. Other 16 2
7. Quick Service Restaurants 86 14
Total 634
*Excludes £23m of Britannia Source: Allied Domecq’s Press Pack 2005.
JULY/AUGUST 2005 • FTSE GLOBAL MARKETS