Focus - Brown-Forman targets Brazil in export drive
Jack Daniel whiskey distiller Brown-Forman is investing heavily in Brazil as part of its strategy to expand drinks sales in emerging markets.
Brown-Forman has decided to go it alone in Brazil and is building up its presence in the country, group CEO Paul Varga said yesterday (9 June).
"After many years of trying a wide variety of models down there, we're making some pretty significant longer-term investments by basically setting up our own operation," Varga told analysts following Brown-Forman's full-year results announcement.
Brown-Forman's share price crept up by around 1.5% yesterday after it reported net sales up 1% to US$3.22bn and net profits up 3% on the previous year, to $449.2m.
Non-US sales already make up just over 50% of Brown-Forman's annual turnover and the firm is keen to reduce further its reliance on its domestic market.
Brazil is one of several key export markets identified by Brown-Forman and, together with Russia, is currently being prioritised over the other two BRIC nations, India and China, which are considered longer term prospects.
Varga said that the firm also sees near-term opportunities in Poland and Mexico, as well as France, a strong whisk(e)y market but where Jack Daniel's accounts for only 2% of the category. The group will also invest directly in Germany, which is the company's sixth largest contributor market to net sales and where it recently decided to exit from a long-standing distribution deal with Bacardi.
Jack Daniel's will spearhead Brown-Forman's international aspirations, although the firm has previously made clear that it also sees opportunities for Finlandia vodka and Don Julio Tequila in some of the same markets.
The group recently announced new distribution deals in several markets and said yesterday that other markets remain under review.
Back in the US, spirits sales figures from the 19 control states in the US showed year-on-year rises for all price categories in March and April, according to the National Alcohol Beverage Control Association (NABCA).
"We think we're seeing a little less discounting, but it's too early to tell," said Brown-Forman's chief financial officer, Don Berg. He said that price promotions will remain an important tool for the company in the medium term.
Both Berg and Varga defended Brown-Forman's decision to selectively drop prices on Jack Daniel's whiskey in the US and in some export markets during the economic downturn.
"We really believe that at times a price reducton in a difficult economy to a loyal consumer is a really important brand building investment," said Varga. "We think it can be done in a quality manner, without some of the harmful side effects that go on with haphazard discounting."
Varga said price promotions contributed to Jack Daniel's resilience to recession. Global net sales of the brand rose by 3% at constant exchange rates, while sales of super-premium whiskies Single Barrel and Gentleman Jack also increased over the year. "I'm really pleased with how well Jack Daniel's has held up," said Varga.
The company is looking to expand its offering in the US in order to profit from an ongoing consumer shift to the off-trade.
"Brown-Forman will introduce several line extensions in the US to drive fiscal 2011 underlying growth," said the firm, adding that two new products will be pre-mixed Southern Comfort Lime and Southern Comfort Lemonade.