Patrón will not remedy Bacardi’s ‘major weakness’

Bacardi’s acquisition of Patrón still leaves a “major weakness” in the family-owned firm due to its North America and Western Europe-focused portfolio, a spirits analyst has said.

Bacardi is expected to finalise its acquisition of Patrón in the first half of 2018

News broke last week that Bacardi had reached a “definitive agreement” to purchase Patrón Spirits International, including its namesake ultra-premium Tequila brand, valuing the company at US$5.1 billion. Bacardi first acquired a “significant” minority share in the brand in 2008.

Jeremy Cunnington, project manager – drinks, tobacco and packaging at Euromonitor, said the acquisition of Patrón is unsurprising due to Bacardi’s minority stake in the brand and the fact its competitors all boast super-premium Tequilas.

However, he added the “US-centric brand will do nothing to help Bacardi’s other major weakness, which is a narrow geographic spread based on North America and Western Europe”.

Cunnington continued: “When North America and Western Europe hit their next recession [Bacardi] will be impacted more heavily as it will not have the safety net of healthy sales growth in other regions, which would soften the impact, with the newly enlarged Bacardi having 76% of its volumes (2016 numbers) in the two regions, up from 73% prior to the deal.

“However well it performs in Asia or Africa etc, this will not counter decline in core markets.”

He also noted that many of Bacardi’s brands are in decline in North America and Western Europe – but there is optimism to be found within its portfolio, with brands including Bombay Sapphire gin and William Lawson Scotch in growth.

For Tequila, however, the future looks bright. The US and Mexico remain the category’s two biggest markets for volumes and growth, with 87% of global volumes for 2016 heralding from the two regions, according to Euromonitor.

The third biggest market was Germany, which accounted for 1% of global volumes.

“Volume growth is expected to be healthy, with volumes growing 3% CAGR (42m litres) between 2016-2021,” said Cunnington. “However, over 90% of that growth is expected to come form the US and Mexico.”

For an in-depth analysis of Bacardi’s acquisition of Patrón, see the February issue of The Spirits Business magazine