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Politics and a whole lot of Whisky

Global Trends

From the effects of China’s crackdown on conspicuous consumption to the unstoppable North American market, Intangible Business looks at worldwide market trends in the spirits industry.

North America: has continued to be the driving force within the spirits market. Consumer appeal is very eclectic with a wide variety of demand for different spirits giving drinks conglomerates extensive opportunities to experiment and evolve their brand portfolios. In particular, Irish Whisky and premium Tequilas have taken prominent positions within the market.

Eastern Europe: Current political tensions are affecting legislation and preventing certain foreign brands from entering the Russian market where there is high demand for spirits. The suspension of particular foreign brands followed reports conducted by Russia’s consumer rights protection body which found ingredients that did not comply with legal requirements. Banned spirits brands included; beer made by Sun InBev Ukraine and imports of Sazerac’s Kentucky Gentleman Bourbon.

Western Europe: remains stagnant. The results of the Scottish referendum went in favour of the Scotch industry. Independence from the EU would have raised concerns in relation to the country’s taxation policy, which is currently in-line with the rest of the UK. It could have also damaged Scotch whisky’s geographical status and hindered export objectives. It comes as no surprise that a lot of CEOs from premium Scotch producers signed an open letter urging a ‘no’ vote.

Latin America: is an emerging market for the spirits industry, however shifts in legislation could affect this development. Despite increasingly available international brands, local producers continue to dominate sales. There is also insufficient protection of intellectual property within the LATAM region. The black market represents approximately 21 per cent of the total alcoholic market within these countries.

Australasia: 2014 seemed to be the year of ‘premiumisation’ which was very prominent in Australia where consumption of premium brands flourished - especially in the, ‘ready to drink’ category where pre-mixed cocktails from brands such as Smirnoff are popular, especially amongst 25-35 year old professionals. 2015 will continue to see this high demand for high quality spirits brands.

Asia Pacific: China will have a slow and precarious recovery due to austerity measures imposed by the government. The suppression on conspicuous consumption continues to inhibit demand which suggest that the market for spirits will decline in China during 2015. This has affected international groups overall volumes. Drinks companies may be forced to lower annual profit expectations.

Top M&A stories of 2014

In November 2014 Diageo swapped its Bushmills Irish whiskey brand with Casa Cuervo, for full ownership of Don Julio tequila. The deal has strengthened both portfolios and 2015 will see whether the swap improves the group’s position in each category.

Diageo took majority control of United Spirits, gaining a 55 per cent stake in the company in a $1.91bn deal. The deal gave Diageo the opportunity to position the group as a significant player in the alcohol market in India as it aimed to increase sales of premium products such as Johnnie Walker and Smirnoff by using the extensive distribution network of United Spirits.

2014 also saw Suntory Holdings complete an approximately $16bn acquisition of US distiller Beam, making it the third biggest overseas acquisition by a Japanese firm. The combined company is now Beam Suntory Inc. Suntory Holdings split its beer and spirits division, placing the leftover spirits unit under the control of Beam Suntory Inc. The deal has lifted Beam Suntory into third place in the Spirits Business behind major players; Diageo and Pernod Ricard.

Brand due diligence and integration services play an integral role when leveraging brand value during an M&A. Intangible Business’ integration services and expertise within the drinks industry help to maximise operational synergies in all M&A transactions.