As has been seen in the beer sector, the next stage after the emergence of the craft movement is the acquisition of brands that are ready to graduate to a bigger stage.
Market leaders such as Pernod, Beam Suntory and Diageo are scoping potential targets; the main challenge is not buying them, but integrating them into their portfolios without damaging the brand’s craft authenticity.
There are hundreds of high calibre craft spirit entities producing high grade drinking experiences for investors to choose from. Even at a relatively early stage of a fledgling brand’s lifespan, it should be possible to gauge whether the brand is suitable for acquisition: these brands will have already had the opportunity to demonstrate that they can win a larger audience.
The risk you take when buying a craft brand is that the upheaval of the acquisition will disrupt the entrepreneurial momentum that has taken the brand to where it is; the unique values, ethos and culture that will have underpinned the early success of the brand could be washed away when it becomes part of a larger corporate environment.
The risk you take when buying a craft brand is that the upheaval of the acquisition will disrupt the entrepreneurial momentum that has taken the brand to where it is.
Industry leaders have developed strategies to select, buy and manage new additions to their portfolios. Pernod Ricard’s recent investment in a majority share of bourbon whiskey brand Rabbit Hole is their latest investment as part of their three year ‘Transform and Accelerate’ strategic plan. Rabbit Hole joins a number of recently backed craft ventures from Pernod Ricard which include Smooth Ambler whiskey, mezcal brand Del Maguey, Italian gin Malfy, and German gin brand Monkey 47.
Giving craft brands access to Pernod’s financial resources, marketing know-how and substantial global distribution network allows them to develop considerably – these new brands will also be able to tap into Pernod’s Ecommerce expertise and contribute to the development of Pernod’s fastest growing channel.
The results of the Monkey 47 gin deal in 2016 have already been very favourable. Since the end of 2015, IWSR data shows that Monkey 47 Gin sales have increased by 2.5 times in both value and volume. In the cluttered UK gin market, the brand has seen sales rise over 150%. Pernod is now focusing on the US in 2019 with events that include ‘Wild Monkey’, an immersive pop up shop in a fashionable part of New York.
Since the end of 2015, IWSR data shows that Monkey 47 Gin sales have increased by 2.5 times in both value and volume.
Pernod recognise that the corporate culture shock of their immediate involvement could have a negative effect on the craft company culture, and to negate this have opted for ‘majority buyouts’ rather than full takeovers for Rabbit Hole Whiskey, Del Maguey and Monkey 47.
At the end of 2016, Beam Suntory also acquired a controlling share of one of the first craft gin players, London based Sipsmith. Both Beam Suntory and the founders of Sipsmith were adamant that production and ethos would remain the same – Beam Suntory’s objective was simply to provide the route to market and help the brand gain an international presence.
IWSR’s numbers highlight how this approach has already yielded dividends for Sipsmith: in 2016, around 9 in every 10 litres sold was traded in the UK, but by 2018 that figure had dropped to less than 7 in 10 litres, with more than 30% of sales now coming from outside of the UK. It is notable that some of this growth has stemmed from the travel retail channel – a critical showcase for up and coming International brands. Overall Sipsmith sales volumes have jumped by 180% since the acquisition in 2016.
Overall Sipsmith sales volumes have jumped by 180% since the acquisition in 2016.
Like Pernod and Beam Suntory, Diageo have been conscious of the danger of overwhelming start-up businesses by integrating them into their global operations too soon. One of their solutions was Distill Ventures, an independent company that looks to get involved with start-up brands at an even earlier stage of their development. Distill began identifying suitable brands in 2013 and provides mentorship, funding and structure with the objective of promoting them to Diageo’s portfolio after they have sufficiently grown.
Fifteen brand propositions have been part of Diageo backed Distill academy, including Belsazar, a premium German aperitif. Distill’s support for and involvement with Belsazar began in 2014, before the brand had performed strongly enough for Diageo to justify buying it in March 2018.
Another of Distill’s students is the non-alcoholic spirit Seedlip. Distill’s involvement since 2016 has not just cultivated an international brand with fast rising sales, it has helped create a new non-alcoholic segment of the spirits market – this will give Diageo pole position as the non-alcoholic segment expands to meet the demands of the new temperance trend.
The importance of incorporating high-end craft drinks into product ranges will only rise as consumers become decreasingly loyal in their brand choices and drinks players need to constantly diversify their product offerings; with this in mind, Diageo, Pernod and Beam Suntory will be satisfied that the results to date show that they are successfully developing mechanisms to address the complexities of seamlessly recruiting craft brands to their portfolios.
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