Brown: Sazerac remains on acquisition trail
Mark Brown, CEO of US drinks giant Sazerac, tells The Spirits Business how his rich history in American whiskey is helping shape the future of Buffalo Trace.
Every morning, without fail, a privileged few inboxes ping to life with the arrival of an email newsletter containing the latest updates from the global alcoholic drinks industry. For the past 13 years, ever since the dissection of Seagram, Mark Brown, CEO of Sazerac, the third largest drinks group in the US, has reported the industry’s daily news to his colleagues and peers.
“Candidly, it’s a labour of love,” Brown admits. “It’s primarily designed to keep our employees abreast of what’s going on in the industry, but it gets passed along so much I have no clue as to where it ends up.”
Brown’s dedication to sending his newsletter through sickness, health and holidays is commendable but understandable. He has, after all, had a vested interest in the drinks business since 1974, when his parents bought a pub near Dorking, England and put him to work stocking shelves and washing dishes.
Just two years later he joined British cider maker H.P. Bulmer, where he remained for five years, eventually moving to Maryland to re-launch the brand in the US. But the brand was “30 years ahead of its time” in the States, and Brown jumped ship to join Sazerac.
Company of the future
“In those days Sazerac was a regional company, and only did business in nine States when I joined,” he recalls. “We had just 27 customers and 10 brands, so my role was primarily about opening up new markets the company had never been in.”
Brown served as director of new products, national sales manager and eventually vice president of sales and marketing with the group as it gradually increased its US footprint and developed a wide-ranging portfolio that included two Bourbons: Eagle Rare and Benchmark, both acquired from Seagram in 1989. But by 1992, when Sazerac acquired the Buffalo Trace distillery, Brown had his sights set on new horizons.
A role as senior vice president and COO of Brown-Forman’s Select Brands group had opened up, and spying an opportunity to work on an established portfolio that included Jack Daniel’s and Glenmorangie in an international business proved to be too tempting for him.
Brown spent five years with Brown-Forman (no relation), eventually becoming president of its advancing markets group, working to establish the international portfolio in emerging markets across the world.
“I made quite a few round-the-world trips,” laughs Brown. “Jack Daniel’s hadn’t really been developed in markets like China, Russia, Brazil, Africa or India, so my job was to establish beachheads for the brand in all those places. It was one of those eye-opening experiences. I was left with the impression that whisky is universally seen as a high-end, aspirational product, which isn’t true of any other category with the exception of Cognac.”
Brown did well to spot the potential for whisky’s global growth, even in the mid-90s. “I remember the laughter around the tables when it was suggested back in 1996 that Jack could reach 11 million cases,” he says. At the time, Jack Daniel’s was on a respectable five million, but achieved its predicted target in 2012. “There was a certain amount of incredulity and disbelief back then, but I don’t even think Brown-Forman has scratched the surface yet,” Brown muses. “It’s easily got potential to do 20m cases around the world.” Brown’s prediction may not be far off.
Growth of US whiskey
Whisky as a whole grew 2.9% in 2012 (IWSR), while Discus recently reported exports of Bourbon and Tennessee whiskey exceeded the US$1 billion mark for the first time in 2013. One reason for American whiskey’s success, he claims, is down to the Coca-Cola effect. “American consumer goods are very popular among a lot of these developing countries. They may not care for our politics or military force, but they certainly enjoy US consumer goods.”
In 1997, Brown was invited to return to Sazerac as its CEO, a company at which he felt he had “unfinished business”. The opportunity also provided him with the chance to apply his learnings from Jack Daniel’s, to the Bourbon distillery acquired just as he had previously left.
“Buffalo Trace Distillery and Bourbon are at the core of Sazerac’s business now,” he explains, adding that the group failed to “fully understand the potential of what they were acquiring at the time”. The distillery itself produces a range of American whiskey brands, including Blanton’s, Elmer T. Lee, Sazerac Rye and Benchmark, as well as three vodkas: Rain, CLIX and Platinum. But it’s the flagship
Buffalo Trace Bourbon that’s got the bulk of Brown’s attention.
When asked if it could grow to the same starry heights as Jack Daniel’s, or even Jim Beam one day, Brown is coy. “My view is that whisky as a whole will continue to prosper at the premium end of the marketplace into a 500m case category,” he says. It’s currently at 350m cases. “So now it comes down to a question of who ends up with the lion’s share of that business.”
Battle with Scotch
Instead of facing itself off against other American whiskey brands, Brown insists the battle lies between the US and Scotland. “Scotch has had too much of a head start to reign them in completely, but I bet you American whiskey distillers could develop a 75m case business as an industry,” he says, but flags up some “positioning challenges”.
“One that Jim Beam and Jack Daniel’s face is how do they compete with Johnnie Walker Black Label? The respective positioning of the brands is quite different. Our job is to sell the quality story of American whiskey.”
Scotch certainly has more of an aspirational image to it, but while the two categories face similar challenges, Bourbon is confronted with the stark reality of failing to predict the current boom in demand.
“Every whiskey we make is on allocation,” admits Brown, referring to Buffalo Trace’s stock shortage crisis. “We just finished our semi-annual review of our inventories, and every brand from the youngest to the oldest is on some form of allocation.”
In late 2012 the group publicly warned consumers that it might be a little harder than usual to find Buffalo Trace or Eagle Rare on shelves, although not as tricky as tracking down a bottle of Pappy Van Winkle. The stock retention measure, it said at the time, was not meant as a “scare tactic” but would likely last a few years. Even Brown is unsure how long it will take to recover stock levels. “That’s the $64,000 question,” he says. “I’m not sure I have the answer to that one yet. I suspect it might be a while.”
In the meantime, Sazerac is investing US$20m in increasing distillery capacity over the next few years, and has enough warehousing space to “take us through 2019, and then we will have to start building”. But that won’t stop Brown from remaining focused on his American whiskey portfolio, which including the expressions produced at its A. Smith Bowman Distillery in Virginia, is arguably the most comprehensive in the world. As if to reinforce Sazerac’s commitment to Bourbon, despite the shortages, Brown signed off on the build of a US$3m experimental warehouse as part of the group’s “Project Holy Grail”. For the next 20 years, Warehouse X will play home to a series of maturation experiments testing the effect of light, airflow, temperature and humidity on Bourbon in a bid to find the perfect conditions.
“Crazy” Warehouse X
Some have called the elaborate, somewhat expensive project crazy, but Brown disagrees. “The experimental programme is definitely helping our everyday whisky production,” he says. “It’s a bit like Formula One racing; some teachings from producing the supercars trickle down to manufacturers’ regular car production programme. It’s the same with our whiskey.”
With such investment, Bourbon is undoubtedly at the top of Sazerac’s agenda, but the group also has its fingers in many other distilled pies. Sazerac has over 250 products in its portfolio, including 48 liqueurs and speciality spirits, 46 vodka brands, 26 rums and 24 Tequilas, although some are distributed under contract in the US by its Gemini Spirits & Wine subsidiary.
Vodka, being the largest spirit category in the States, is understandably important to Sazerac’s heaving portfolio. “We have a significant presence in the vodka category,” he explains, adding that each brand “sells somewhere” no matter how small the volume. “Most of that business however is at the economy end of the category, but we’re slowly developing some nice, more premium brands like Platinum.”
With such a vast portfolio, it’s hard to imagine how Brown keeps track of it all. Can he name all 250 of his brands? “Yes, I can, but I do have a list in front of me,” he says. Under his guidance, Sazerac has blazed a roaring acquisition trail in recent history with the purchase of 40 brands – including Epic Vodka, Fleischmann’s and Baja Tequila – from White Rock Distilleries in 2011 and 2012. More recently Sazerac bought the former White Rock bottling plant in Maine from Beam Inc., which was originally sold to the soon-to-be Suntory-owned group along with the Pinnacle Vodka and Calico Jack Rums in 2012.
On acquisition trail
“Someone once accused me of being a cereal acquirer, but I said we haven’t bought Kellogg’s yet,” Brown quips, adding that despite the large number of brand and facility purchases made in the last 15 years, Sazerac “remains generally very acquisitive” and was “certainly interested” in several Beam products before its sale to Suntory.
Speaking on the subject of the US$16bn sale announced in January this year, Brown believes the acquisition gives Suntory a perfect opportunity to diversify its business away from Japan’s dwindling population, but is adamant it will have little to no impact on the US spirits market.
If he has any advice to give Suntory on how to build a successful spirits business in the US, what would it be? “It’s different for different companies,” he says. “Diageo has been successful with a tremendous track record in acquisitions and done a very good job of then building them into brands, such as they’ve done with Johnnie Walker. It’s also true for Pernod. Conversely, a company like Brown-Forman has always been about brand building and primarily behind Jack Daniel’s, so their strategy has been a lot more around organic growth. I don’t know that there’s any particular one size fits all approach. I tend to think our industry is very slow growth and so you need patience and consistency of effort over time.”
While Sazerac’s approach is certainly long-term, with a planning horizon of 50-100 years, Brown’s more present focus lies on the development of Sazerac’s Bourbon portfolio, and of course that all-important daily email update. “I send it every morning, rain or shine,” he says. “The joke is that if it doesn’t come out every morning, I’m dead. But I will stay here at Sazerac certainly until that day comes, or they kick me out.”