How big? Thirty percent to 40%, Lawson Whiting, CEO, told the Deutsche Bank Global Consumer Conference in Paris this morning. What sort of media? TV, magazines.
The increase is a response to a loss in share for Jack Daniel’s Tennessee Whiskey in the company’s fourth quarter. “We were taking prices up,” Whiting explained, “when total spirits was going down and some of our competitors were going down, so we lost some share.”
The budget for promotions has been increased “a little bit. Very small price movements in certain channels and markets,” he said.
“We’re really focused on long-term growth and building for long time,” Whiting said. That explains Brown-Forman’s approach to European Union tariffs on Bourbon.
Tariffs
“We’ve been very cautious” about increasing prices in Europe, but “we have taken price in a handful of markets,” the executive said.
“It’s a very difficult area. Taking a $125 million hit is painful when you are a $1 billion company.” Whiting described the tariffs as a personal attack, say they are “a targeted focus on Brown-Forman. We’re eating the cost of these tariffs to invest in consumer momentum. It’s certainly putting pressure on our margins.
“Last summer we thought these were going to be over. It gets a little more painful each month, but I still think it was the right decision, and we’re going to stick with it,” he said.
Tequila
Turning to tequila, Whiting said Brown-Forman is one of the largest tequila producers in Mexico. The company bought Herradura right before the financial crisis. It began regaining momentum “a few years back.”
El Jimador was a 1.1 million case business, but the margins were miserable. “We went on a multi-year process of very aggressive price increases, drove 60% of the business out, but now it’s a high-margin business,” he said. El Jimador is still a 1.1 million case business, he added, “but with a lot better margins.”
Brown-Forman controls most of the agave it uses, he added, but does buy some in the spot market. “The raw cost of agave in the spot market has increased five fold, from 5 pesos to 25 pesos.” Still, “we’re trying to keep the (sales) momentum going.”
Jack Daniel’s
As for opportunities for Jack Daniel’s, Whiting noted the brand continues to grow 2% to 4% most years in the U.S. and is now a 1 million case brand in the U.S. and France. “We’ve got a multiple of businesses in Europe where we are growing mid-single-digits.”
The company is increasing its investment in China, Mexico, Eastern Europe and especially Brazil. “We’ve been increasing our investment in those markets where others are cutting back,” he said.
Unlike some distillers, Jack Daniel’s isn’t rolling out one new flavor after another. “Our strategy is that innovations are brands themselves. Jack Daniel’s Honey is a 1.1 million case business. Jack Daniel’s Fire isn’t quite as big, but still a nice brand.” To be sure, it’s been a ‘tougher row than we expected, but Fire is still a very good, profitable brand.
“We come out every five years with a new one,” Whiting added. “Apple has good margins, we’re going to be very competitive there. Apple is a very natural flavoring. We want Apple to be a big brand.”
Bourbon
Turning to Bourbon, Whiting noted that the original Brown-Forman brand was Old Forester. Our core for many years was Kentucky Bourbon. In the 1960s, it was a huge category. It peaked in 1970, then went down.” Fortunately for Brown-Forman, Jack Daniel’s “continued to grow while everyone else shrunk. Old Forester went down pretty much every year.”
Launching Woodford Reserve took courage in 1997. “We went from zero to 100,000 cases in 10 years. We were patient with it, got it up to the 100,000-case mark. Last year it grew 150,000 cases. Woodford is increasingly important to the company.
As for Old Forester, “we found the right combination of liquid, personality, timing. Now Old Forester has become a beautiful brand for the company.
“ISWR says you want to be in whiskey, tequila and gin,” Whiting said. With the just-announced acquisition of Ford’s Gin, “We now have the gin. We’re in the three categories showing the best growth, and not in categories that are struggling – vodka, rums, etc. We think Slane Irish Whiskey will do well. We think Slane will do well. We’re introducing products above Jack Daniel’s price point. Single malts are a tough category to get into, but we think the can turn into something big.”
Brown-Forman is pushing Slane “hard,” the executive said, adding:
“You’ve got to have focus. You’ve got to have a certain amount of scale, but above that certain level, you’ve got to have focus. Last summer we created the Emerging Brands Group – Herradura, Old Forester, a couple of others. Every single brand in that portfolio is growing faster today than a year ago,’ he said.
U.S. Most Valuable Market
The U.S. is still the largest, most valuable spirits market, Whiting said, adding the U.S. has seen the strongest growth. “The media picks up on gloom and doom,” he added, “but we’re growing at the fastest rate ever.
“A lot has to do with spirits taking share from beer. We’re proud we’re the last major U.S.-domiciled spirits company.
Turning to the opportunity overseas, Whiting said there is “tons of opportunity. Germany is growing double digits. There’s a good future in Asia, where we’re way under-indexed. That business has exploded in recent years.
“China is harder,” he said. Whiskey in China represents only 1.5 million cases. “More whiskey is sold in Missouri than in China.” Brazil and Mexico are “the best markets. Jack just seems to fly.”
Competition
Despite the buzz about flavored malt beverages, Whiting said he doesn’t think FMBs will take a significant share from spirits. They are at different price points, among other factors, he explained.
He doesn’t think craft spirits will take significant share from larger spirits brands, either. “A lot of new brands have been introduced. But those brands have it a hard time lately. Whiskey’s tough.”
Whiting sees two challenges for craft spirits. The first is marketing: “Many of the brands have positioned themselves as local. You’ve got to find a way to connect with consumers, and 99% of them can’t get a connection outside their home market.” The second is production. “So many craft whiskey makers take short cuts, put a product on the market a very high price points, and it tastes terrible or not good enough to deserve a $50 price point.”
Many of the craft distillers were inspired by the success of craft brewers. “Making whiskey is hard,” Whiting said. “Beer is relatively easier.”