JACK DANIEL’S DISAPPOINTS IN THE U.S.
In all, it looks like Brown-Forman did well internationally but felt a squeeze in the U.S. during the second quarter for a number of reasons. The problem is two fold, the company said. One, growth of the U.S. spirits market is slowing, and two, B-F and Jack Daniel’s in particular are feeling the burn from mounting cost pressures and consumers trading down to cheaper spirits, beer and wine. Rising grain prices and other factors made costs for Jack Daniel’s grow in the mid-single digits in fiscal 2007, the company said. Not good.
Chairman and ceo Paul Varga summed it up by saying, “the spirits industry growth rate is down a little from where it was just 12 months and within the spirits industry Brown-Forman is disproportionately down due to a combination of consumer dynamics, competitive efforts and company specific factors.”
CONSUMERS DRINKING OFF-PREMISE. He estimates that growth of the U.S. spirits industry is down about 1.5%-2% versus last year. Meanwhile, wine and beer is growing at the same or improved rate and therefore recapturing share back from spirits, which Paul thinks is a function of consumers feeling short on cash. As a result, consumers are shifting occasions from on-premise to off-premise and making price more important, he said.
“When people move their consumption from on-premise to off-premise spirits suffers a little bit because they’re not as easy to prepare. Beer and wine is actually easier for consumers to prepare in their homes then making a Cosmo or a mixed drink at home,” said Paul.
Volume of Jack Daniel’s is down 4% versus the same period last year, while sales dollars are down less than 2% due to higher prices. He said half of that is attributable to a drop in the US spirits industry and the other half to B-F and Jack Daniel’s. These two factors have led to a combination of trading down, trading over and trading up.
“When times are challenging as we’re seeing today it’s more difficult for some of our consumers to pay the premium price for Jack Daniel’s with the regularity they normally do.”
PRICE INCREASES TAKE A TOLL. In addition and as a result of consumers feeling tight on money, Paul said B-F is having trouble competing with Diageo’s and Fortune’s deep discounting as a way to gain volume.
“In this more challenging consumer environment our largest competitors are increasingly focused on gaining market share, occasionally with little regard for short term cost or longer term brand equity. At a time where the consumer is somewhat cash challenged and our competition is discounting at deeper levels, we’ve been continuing on with our regular price increase and discount activity...These factors related to competitive pricing have contributed to lower short term growth rates for several of our brands in the United States.”
In a research note, Kaumil Gajrawala of UBS wrote, “We view B-F’s pricing discipline favorably (especially in light of the COGS environment) and believe consumers will adjust to the new price points.”
B-F will continue with its moderate price increases and regular discount activity although it has contributed to lower short term growth. To help make up for things, Paul said the company will work on making promotions more relevant to the current consumer and trade environments.
“We’re going to have to step up our pricing execution and looking closely at pricing from market to market...I just think during these harder times we’ve really got to be on top of the promotional price points...but it doesn’t make us feel like we can’t continue with the moderate price increases that we’ve been doing for some time,” Paul continued.
B-F FOCUSED ON INTERNAL ISSUES. Another issue for B-F? Paul said internal issues at B-F have taken the focus away from its distributors, the trade and consumers in the U.S. He also hinted that since Diageo is currently renegotiating its contract with distributors, it’s getting more attention from wholesalers.
“For the last year and a half our U.S. team has been more focused on internal organizational matters such as roles, responsibilities and trending. This has come as some sacrifice and focus on our distributors, the trade and our consumers.”
The company said it has stepped up its game in the past couple of weeks with distributor programming, pricing execution, in-store merchandizing and consumer value added programs. One example is that Jack Daniel’s has significantly increased its gift packages during the holiday season.
“We believe we’ve diagnosed what’s going on in the US and we believe it’s fixable to getting back on track.”
“We’ve had these short challenging periods in the US and each time we’ve bounced back...we believe the US market continues to hold potential for Brown-Forman,” said Paul.
INTERNATIONAL SCOPE. It’s clear that B-F is keen on becoming a larger international company. Its growth in the global marketplace largely helped to make up for its underperformance in the US market. Volume of Jack Daniel’s grew 10% internationally on a 12 months rolling basis through October 2007, while Finlandia’s volume grew at a double-digit rate internationally.
Globally, Southern Comfort volumes grew at a low-single digit rate in the quarter, as double-digit increases in the U.K. and South Africa offset a low-single digit decline in the U.S. Paul said a key thing for SoCo long-term is to get the brand firmly entrenched in the premium set
HERRADURA BODES WELL. Meanwhile, cfo Phoebe Wood said B-F’s Herradura and El Jimador brands have made excellent progress in the US in increasing distribution.
“With what we’ve seen so far, we’re very pleased with this acquisition,” she continued.
BEAM GLOBAL LAUNCHES 100 ANOS VERDE TEQUILA. Beam Global today announced the U.S. launch of 100 Años Verde Tequila. 100 Años Verde is the most recent addition to the 100 Años family to join the portfolio in the United States, the company said, and is now available on retail shelves.
A 100% blue agave reposado, 100 Años Verde is geared towards 24-40 year old male tequila aficionados. It is available nationwide with a suggested retail price of $21.99, which varies by market.
B-F BOARD APPROVES $200M SHARE REPURCHASE. In other Brown-Forman news, the company said its board of directors has approved a $200 million share-repurchase program. The plan authorizes the purchase of outstanding class A and B shares over the next 12 months.
Chairman and ceo Paul Varga summed it up by saying, “the spirits industry growth rate is down a little from where it was just 12 months and within the spirits industry Brown-Forman is disproportionately down due to a combination of consumer dynamics, competitive efforts and company specific factors.”
CONSUMERS DRINKING OFF-PREMISE. He estimates that growth of the U.S. spirits industry is down about 1.5%-2% versus last year. Meanwhile, wine and beer is growing at the same or improved rate and therefore recapturing share back from spirits, which Paul thinks is a function of consumers feeling short on cash. As a result, consumers are shifting occasions from on-premise to off-premise and making price more important, he said.
“When people move their consumption from on-premise to off-premise spirits suffers a little bit because they’re not as easy to prepare. Beer and wine is actually easier for consumers to prepare in their homes then making a Cosmo or a mixed drink at home,” said Paul.
Volume of Jack Daniel’s is down 4% versus the same period last year, while sales dollars are down less than 2% due to higher prices. He said half of that is attributable to a drop in the US spirits industry and the other half to B-F and Jack Daniel’s. These two factors have led to a combination of trading down, trading over and trading up.
“When times are challenging as we’re seeing today it’s more difficult for some of our consumers to pay the premium price for Jack Daniel’s with the regularity they normally do.”
PRICE INCREASES TAKE A TOLL. In addition and as a result of consumers feeling tight on money, Paul said B-F is having trouble competing with Diageo’s and Fortune’s deep discounting as a way to gain volume.
“In this more challenging consumer environment our largest competitors are increasingly focused on gaining market share, occasionally with little regard for short term cost or longer term brand equity. At a time where the consumer is somewhat cash challenged and our competition is discounting at deeper levels, we’ve been continuing on with our regular price increase and discount activity...These factors related to competitive pricing have contributed to lower short term growth rates for several of our brands in the United States.”
In a research note, Kaumil Gajrawala of UBS wrote, “We view B-F’s pricing discipline favorably (especially in light of the COGS environment) and believe consumers will adjust to the new price points.”
B-F will continue with its moderate price increases and regular discount activity although it has contributed to lower short term growth. To help make up for things, Paul said the company will work on making promotions more relevant to the current consumer and trade environments.
“We’re going to have to step up our pricing execution and looking closely at pricing from market to market...I just think during these harder times we’ve really got to be on top of the promotional price points...but it doesn’t make us feel like we can’t continue with the moderate price increases that we’ve been doing for some time,” Paul continued.
B-F FOCUSED ON INTERNAL ISSUES. Another issue for B-F? Paul said internal issues at B-F have taken the focus away from its distributors, the trade and consumers in the U.S. He also hinted that since Diageo is currently renegotiating its contract with distributors, it’s getting more attention from wholesalers.
“For the last year and a half our U.S. team has been more focused on internal organizational matters such as roles, responsibilities and trending. This has come as some sacrifice and focus on our distributors, the trade and our consumers.”
The company said it has stepped up its game in the past couple of weeks with distributor programming, pricing execution, in-store merchandizing and consumer value added programs. One example is that Jack Daniel’s has significantly increased its gift packages during the holiday season.
“We believe we’ve diagnosed what’s going on in the US and we believe it’s fixable to getting back on track.”
“We’ve had these short challenging periods in the US and each time we’ve bounced back...we believe the US market continues to hold potential for Brown-Forman,” said Paul.
INTERNATIONAL SCOPE. It’s clear that B-F is keen on becoming a larger international company. Its growth in the global marketplace largely helped to make up for its underperformance in the US market. Volume of Jack Daniel’s grew 10% internationally on a 12 months rolling basis through October 2007, while Finlandia’s volume grew at a double-digit rate internationally.
Globally, Southern Comfort volumes grew at a low-single digit rate in the quarter, as double-digit increases in the U.K. and South Africa offset a low-single digit decline in the U.S. Paul said a key thing for SoCo long-term is to get the brand firmly entrenched in the premium set
HERRADURA BODES WELL. Meanwhile, cfo Phoebe Wood said B-F’s Herradura and El Jimador brands have made excellent progress in the US in increasing distribution.
“With what we’ve seen so far, we’re very pleased with this acquisition,” she continued.
BEAM GLOBAL LAUNCHES 100 ANOS VERDE TEQUILA. Beam Global today announced the U.S. launch of 100 Años Verde Tequila. 100 Años Verde is the most recent addition to the 100 Años family to join the portfolio in the United States, the company said, and is now available on retail shelves.
A 100% blue agave reposado, 100 Años Verde is geared towards 24-40 year old male tequila aficionados. It is available nationwide with a suggested retail price of $21.99, which varies by market.
B-F BOARD APPROVES $200M SHARE REPURCHASE. In other Brown-Forman news, the company said its board of directors has approved a $200 million share-repurchase program. The plan authorizes the purchase of outstanding class A and B shares over the next 12 months.
posted at 1:38 PM
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