Campari’s €121 million acquisition of Forty Creek Distillery is an attempt to boost its range of whiskies, primarily in North America by buying into the resurgent Canadian whisky category. The acquisition will have the immediate effect of boosting the company’s position in Canada, an increasingly important market following its acquisition of Appleton rum. More importantly though it will allow it to exploit its existing strong distribution in the US to boost the brand’s presence in the largest and fastest growing market for the category. Despite this, Campari still has gaps in its whiskies portfolio to fill.
Stronger in North America
Canadian whisky is sold predominantly in two markets, the US and Canada, accounting for 78% and 16% of global volumes respectively. These two markets are also the key growth drivers of the category with provisional Euromonitor data indicating that North American volumes of Canadian whisky will increase by 2% CAGR (20 million litres) between 2013-2018, with the US accounting for 95% of that growth. As in bourbon/other US whiskies the category is being driven by flavoured variants as well as more premium offerings such as Forty Creek.
The region, and in particularly the US, is key to the prospects of international spirits companies due it is premium nature. It accounts for 9% of global volumes but 16% of global value sales. Campari’s primary strength in the US, which accounts for 90% of Campari’s regional volumes based on brands such as Skyy vodka. However, this is down from 95% prior to its 2012 acquisition of Appleton Rum which more than doubled Campari’s volume share of the Canadian market to 3%. This acquisition will boost that share in the short term, so much so that it has enough strength to set up its own distribution operations in Canada in 2015. More importantly with Campari’s increasing strength in the US, where it is the country’s ninth biggest player with a 2.5% volume share it should be able to exploit the dynamic growth of Canadian whisky in the US.
In Need of Some Scotch
With brands such as Wild Turkey and now Forty Creek, Campari has an increasingly strong whiskies portfolio, nevertheless it is still is weak in the largest international whisky category, Scotch. While the company has some brands in the category, led by Glen Grant single malt Scotch, they are not particularly strong brands and with less than 2% of malt whisky production capacity in 2013 it could do with some strengthening.
Diageo’s disposal of United Spirit’s Whyte and Mackay operations offers the perfect opportunity to gain scale as well as brands with potential such as Dalmore and Isle of Jura single malts and the eponymous blended Scotch brand. If Campari was able to acquire the division it would increase its malt whisky production nearly three fold making it the fourth biggest company in capacity terms as well as a grain whisky distillery.
While the Whyte & Mackay acquisition would make it a more rounded and strong player in the whisky category, following a question from the writer, this seems unlikely. Campari’s CEO stated that it only had US$350 million, too little for Whyte & Mackay, and stated that the company would need time to integrate Forty Distillery. If this is the case this will be an opportunity missed.