B-F Plans to Shakeup Rye Category in US

FILED JUNE 7, 2017

As momentum picked up in the second half, Brown-Forman's US organic sales growth was up 4% (versus -3% reported) for the fiscal year ended April 30. B-F chief Paul Varga describes the year as "uniquely challenging" because during fiscal 2017 the company: 1) sold Southern Comfort and Tuaca; 2) acquired the BenRiach brands; and 3) came up against the huge launch of Jack Daniel's Tennessee Fire in F2016.

However, B-F's priority brands did continue to grow--Woodford Reserve, Old Forester, Herradura and El Jimador in particular were up solid double-digits--but the most interesting takeaway from this morning's earnings call is what the company has planned for next year.

INNOVATIONS APLENTY. Jack Daniel's and the super-premium whiskey brands will continue to be at the top of the B-F pyramid, and cfo Jane Morreau added that they will be allocating "a bit more" money to US initiatives in the new fiscal year.

Part of the reason B-F will be allocating more money to the US is due to new investments and innovations for Jack Daniel's, Slane Irish whiskey and the BenRiach single malt brands.

The plans for Jack Daniel's in F2018 is to increase visibility in the US--including a fancy new, multi-year partnership with the NBA--as well as the introduction of its rye extension this fall. The Jack Daniel's rye offering will be slightly more expensive than core label (around $30 a bottle), and much smaller than the 400,000-500,000-case launches for Tennessee Honey and Fire, said Jane.

"We have waited to enter this market because we wanted to make our own rye whiskey, and it strikes me that all of the rye whiskey that--particularly [those] presented by the premium leaders in that category today--The products they are selling for the most part are not made by them, from their own distillery," Paul said. "And so I really do believe there is a credibility factor related to Jack Daniel's producing its own rye...and so it would be interesting to see how this plays out over the next couple of years."

Your editors will be interested to see if B-F can recreate the success of Tennessee Honey. Recall, it was also not the first entrant into honey flavored whiskey, but once it launched it dominated the category.

Slane Irish whiskey, B-F's entrant into the hot Irish whiskey category launches this summer, focusing primarily in the on-premise for a select number of states [see WSD 06-03-2015].

Meanwhile, Old Forester is launching an extension called Statesman as a part of a tie-in with the widely anticipated movie Kingsman: The Golden Circle.

"So there is a lot of exciting things that give us confidence to grow," said Jane.

PRICING ON HOLD. A few years ago when whiskey supplies were tighter, and there was less competition from smaller brands, B-F was bullish on price increases [see WSD 03-05-2014]. But in the current environment, Paul said in F2018 the company is "leaning a little more heavily on volume versus price to drive our net sales growth."

"I just have always felt that there are times where " particularly in a social business where the brands interact in the public domain and people actually observe the consumption...you really want to make sure that you're volumetric market share has the support, and doesn't have, in some cases, the challenge of raising prices. I think one of those times is upon us right now, and how long it will last is an open question," he continued.

M&A: WILL THEY OR WON'T THEY? The Constellation Brand acquisition offer was largely a non-issue during the call this morning. When asked about the statement B-F put out in regards to the Constellation offer, Paul said the company felt obligated to respond to the rumor because "the noise in the marketplace" was affecting stock price, stakeholders, employees etc. "There is an art of course to saying something without saying anything," he added.

CT JUDGE DISMISSES MINIMUM PRICING SUIT

Yesterday US District Judge Janet Hall dismissed the case between Total Wine & More and Connecticut over the state's minimum pricing laws for alcohol.

QUICK RECAP. Total Wine filed a federal lawsuit against Connecticut, alleging the state's practice of setting minimum prices for wine and spirits is "price fixing" and has created "artificially high price levels" [see WSD 08-24-2016]. Total Wine targeted three provisions it said violated the Sherman Antitrust Act: price discrimination prohibition; minimum retail resale price and the post and hold provisions.

The judge sided with the state and intervenors' - Wine & Spirits Wholesalers of Connecticut, Connecticut Beer Wholesalers Association, Connecticut Restaurant Association and Connecticut Package Stores Association - by granting their motion to dismiss the suit.

The challenge of the post and hold provisions and minimum price provisions were dismissed "because these provisions constitute hybrid restraints that receive rule of reason scrutiny and therefore cannot be preempted," per court documents. Moreover, the price discrimination prohibition is "preempted and also dismissed, because that provision is a unilateral restraint outside the scope of the Sherman Act."

Now we wait to see if Total Wine will file an appeal.

WSD BRIEF:

PALM BAY INTERNATIONAL ADDS TEMPUS TWO WINES TO PORTFOLIO. Tempus Two fine wines are made from Australian terroirs including, Hunter Valley, Barossa Valley, Langhorne Creek and Adelaide Hills. This marks Palm Bay's re-entry into the Australian wine category, per a release. Tempos Two comprises of two ranges: the Varietal Series (srp $15) and the Copper Series (srp $20).

Until tomorrow,
Your Editors

Emily Pennington - emily@winespiritsdaily.com
Sarah Barrett - sarah@winespiritsdaily.com

"You become limitless when you overcome what holds you back."
-- Lori Myers

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