North American centric Sazerac’s acquisition of Southern Comfort and Tuaca is a surprise. With 99% of its global 169 million litres sold in the US and most of the remaining one percent sold in Canada such an acquisition is a large leap. While the company has been acquisitive this has tended to focus in the US. For Brown-Forman, while the divestment is no surprise it leaves itself more reliant on the Jack Daniel’s and bourbon/other US whiskies category.
The key gain will be Southern Comfort. The majority of its sales are in the US and the UK, with 63% and 12% respectively of its global volumes generated in those two markets. This equates to 0.5% and 0.7% volume shares of US and UK spirits, respectively. It also enjoys relatively high volume sales in a number of international markets, such as Australia and South Africa.
At a global level it will give Sazerac an extra 0.1 percentage points and mean it will move ahead of Brown-Forman in volume terms making it the 17th biggest in the world based on 2014 numbers. While at a US level it will make Sazerac as the country’s second biggest spirits producer by volume with 9.5%, overtaking Suntory. In contrast, Brown-Forman will become a more remote sixth ranked company with a 4.7% volume share.
Challenges for seller and acquirer alike
The challenge for Sazerac is twofold, firstly how to develop and turn around a brand which despite huge amounts put behind it has continued to decline and secondly that with little expertise and no other international brands or distribution to support the brand how will it maintain and develop Southern Comfort’s international presence.
The fact that Brown-Forman wanted to sell these brands is no surprise. As was seen with its wine brands, it is ruthless in divesting brands it sees no value in keeping. Southern Comfort saw volume sales decline by 21% (4 million litres) between 2009-2014, despite much innovation; notably flavour additions, packaging redesigns and promotional activity.
However, the divestment makes it even more reliant on its whisky and notably its bourbon/other US whiskey portfolio with 70% of its spirits volumes reliant on the latter. While Brown-Forman’s bourbon/other US whiskies brands are performing strongly, this will not last forever and the company should look to start developing other categories, due to the length of time it takes to seed and develop brands.
Sazerac and Brown-Forman face very different but big challenges. For Sazerac it will require a sharp learning curve. While for Brown-Forman there is a need to diversify and it would do well to try and diversify its portfolio using some of the money raised from this sale to move into new categories such as English gin or possibly rum rather than just re-investing in existing brands or returning money to shareholders or it will face the problems Bacardi has with its overreliance on its eponymous rum brand and struggle for growth.
For further insight, please contact Jeremy Cunnington, Senior Alcoholic Drinks Analyst at Euromonitor International, at jeremy.cunnington@euromonitor.com