Sazerac acquisitions suggest global growth

Sazerac’s recent acquisition of Southern Comfort and Tuaca was “surprising” since it suggests the producer is looking to expand its presence outside of the US, an analyst has claimed.

The acquisition of Southern Comfort suggests Sazerac is looking to up its international footprint, but the group will find it a “challenge”, says a Euromonitor analyst

According to Jeremy Cunnington, senior alcoholic drinks analyst at Euromonitor International, 99% of Sazerac’s global 169 million litre sales occur in the US, with the remaining 1% sold in Canada, meaning its recent acquisitions from Brown-Forman signify a “large leap” for the group.

“The key gain will be Southern Comfort,” said Cunnington. “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.”

Last week, Brown-Forman confirmed the sale of whisky-based liqueur Southern Comfort and Italian vanilla and citrus liqueur Tuaca to Sazerac for US$544m.

According to Cunnington, the sale will give Sazerac an extra 0.1% point, allowing the group will move ahead of Brown-Forman in terms of global volume sales and become the 17^th biggest alcoholic drinks producer in the world.

“While at a US level it will make Sazerac as the country’s second biggest spirits producer by volume with 9.5%, overtaking Suntory,” said Cunnington. “In contrast, Brown-Forman will become a more remote sixth ranked company with a 4.7% volume share.”

Cunnington believes that Sazerac will find it a “challenge” to turn around Southern Comfort’s sales, and also to find adequate distribution channels for the liqueur since it has “no other international brands”.

Despite growing Southern Comfort’s flavoured portfolio and increased marketing spend, Brown-Forman has struggled to pull the brand back into growth in recent years.

In 2014/15, the group reported “superb” financial results boosted by the strength of its Jack Daniel’s family of brands, however, Southern Comfort experienced a 5% decline in global net sales.

Between 2009-2014, the brand saw volume sales decline by 21% (4 million litres).

“The fact that Brown-Forman wanted to sell these brands is no surprise,” said Cunnington. “As was seen with its wine brands, it is ruthless in divesting brands it sees no value in keeping.”

Brown-Forman said the sale formed part of its “evolving portfolio strategy” and “efforts to focus resources on its highest strategic priorities”. Meanwhile, Sazerac said was “looking forward” to building the brands further.

According to Cunnington, Brown-Forman’s whiskey portfolio, particularly Jack Daniel’s, may be performing strongly, but the firm may need to contemplate expanding its portfolio further.

“[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.”