Five key spirits trends for 2015

After a year of heightened activity in 2014 for spirits companies in terms of mergers and acquisitions, 2015 is likely to be a lot quieter, primarily due to a lack of obvious acquisition opportunities, exacerbated by the very high valuations for spirits brands and companies at the moment, writes Jeremy Cunnington, senior Alcoholic Drinks Analyst at Euromonitor International.

(Photo: James H/Wine and Liquor Prices)

Last year saw a plethora of acquisitions, led by Suntory’s acquisition of Beam, which was only exceeded in the surprise stakes by Emperador’s acquisition of Whyte & Mackay. Less surprising was Diageo’s strengthening of its position in tequila with a series of acquisitions, including giving up its Bushmills Irish whiskey brand and gaining a majority stake in the Indian company, United Spirits, making it the undisputed global leader in spirits in volume terms. The one other major acquisition of interest was William Grant’s acquisition of Drambuie.

High prices show both the huge potential there is for international spirits brands but also the scarcity of brands, with many of them privately owned. The high prices paid for Beam by Suntory, for the majority stake in United Spirits by Diageo and, perhaps more ridiculously, for Whyte & Mackay by Emperador have encouraged all companies and brand owners wanting to sell to expect and demand very high prices for their assets. Unless sellers are more realistic, or potential buyers so desperate or see potential for huge synergies/growth, companies will shy away from acquisition.

Most international companies have gaps in their portfolios, either in category or geographic terms, and, with the exception of Beam Suntory, have money to spend, but the question is whether there is something suitable out there for them to acquire. With the owners of Grand Marnier now wanting to rationalise its distribution, rather than sell the company there are no obvious companies to acquire. Any that do put themselves up for sale are likely to be relatively small.

Chief among the companies looking to buy should be Pernod Ricard now that it has become so much stronger financially, it needs to strengthen to stop it falling too far behind Diageo. One area it could work on is its US portfolio of brands, eg with a small batch bourbon, or perhaps it could strengthen its presence in regions where it is weak and looking to develop, ie Africa and Latin America, through the acquisition of a local company.

With it likely to be a slow year in terms of mergers and acquisitions, it will be interesting to see how companies’ strategies develop in 2015. Will Beam Suntory start to broaden its geographic spread? How will spirits companies’ pushes into Africa develop? How will Edrington’s major international push continue to develop? Will Bacardi manage to gain some stability at the top to develop a coherent strategy?

Perhaps the most relevant question to future mergers and acquisitions activity will be whether Diageo can start to turn around United Spirits and, like Pernod Ricard, create a portfolio of higher margin and profitable brands in India. If it is able to do this, then this will peak the interest of other international companies in the remaining independent Indian companies and mean potential activity into 2016 and beyond.
While there will be less blockbusting mergers and acquisitions activity in 2015, it will nevertheless still be interesting to see how the major international companies develop themselves during the year.

Here, Spiros Malandrakis, senior alcoholic drinks analyst at Euromonitor International sets out key five trends for the spirits industry in 2015…

Flavour polarisation, radicalisation and experimentation

Actress Eva Green poses for Campari’s 2005 calendar

From saccharine extensions to the rise of tart offerings and from syrupy indulgence to sour, salty and bitter concoctions, the two extremes of the flavour palette will steal the spotlight. Key millennial, gen X and female demographics will find themselves in the crosshairs of large and small producers hard pressed to highlight points of differentiation in increasingly mature and saturated markets. While vodka’s cloying waves begin to subside the baton has already been passed on to whiskey and liqueurs at the same time that the inevitable backlash will pave the way for diametrically opposite flavour profiles embracing bitterness. Campari and Fernet Branca will lead the way while drinking vinegar will enter the fray.

Rum lift off

The US congress finally lifting the decades long Cuban import ban could provide the spark for the long overdue detonation of the category. While top line volume growth might continue facing headwinds battering low quality variants in emerging markets such as India, the category’s versatility and newfound premium aspirations will inform its short term performance. Embracing the unique heritage of English, Spanish and French expressions, carefully dipping a toe into the flavoured bandwagon and cruising on the enviable momentum enjoyed by dark spirits, rum will be one of the protagonists.

Whiskey coming of age

Tearing down centuries old taboos framing the debate around the category, whiskey will continue questioning gender targeting, the orthodoxy of aged statements and the stuffy associations of its historic positioning. Outsiders such as Japanese whiskeys will continue disrupting the traditional narrative at the same time that distilleries with fresh, radical propositions and a surprising geographical spread will continue making inroads in global markets thirsty for exotic options. Flavoured whiskies – or is that liqueurs? – will indeed prove more than a fickle trend and will thus retain their pivotal role as a baggage-free introduction to the wider category. On the other hand, and while experiential marketing initiatives will continue recruiting passionate advocates, vulgar and absurd luxury will need to be side-lined before it alienates the category’s core demographic.

The allure of others

Frequently obscured by international spirit behemoth’s long and heavy shadow, other spirits will exit the side-lines to assume the role of unlikely protagonists. Cachacas, fighting old prejudices and shifting from commodity status to aspirational exoticism, raki, capitalising on Diageo’s clout, Turkish diasporas and cuisine and the poignancy of the ‘’slow luxury proposition” will be ones to watch.

White spirits

If vodka was already the whipping boy of the nascent mixology movement to start with, it lost almost all remaining credibility somewhere along the lines of the launch of whipped cream varietals. However, beyond the terminal maturity of the Russian patient, vodka has now gone full circle and could provide the simple, effective, no-frills alternative to the sophistication overload and hipster pretentiousness that replaced it. On the other hand, English gin will continue going from botanical strength to aged experimentation while taking Northern European markets by storm and providing fuel for the explosive growth trajectories of micro-distillers in the UK and the US.