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Why Beam's Sale Could Be a Boon for Brown-Forman

To some American drinkers, the impending sale of Beam (NYSE: BEAM  ) -- the distiller of beloved bourbons Jim Beam and Maker's Mark -- to Japanese spirits maker Suntory is looking an awful lot like the sale of iconic American brewer Anheuser-Busch to international brewing giant InBev in 2008. That latter sale formed the megabrewer Anheuser-Busch InBev (NYSE: BUD  ) , which today produces about one of every five beers consumed around the globe. It also turned many American beer drinkers off the iconic brew with the red, white, and blue label -- shipments of the King were down more than 9% between 2010 and 2012 alone.

Notable among those upset by the Beam sale to a foreign company is Blue Collar comic Ron White, who said he's never sipping one of Beam's bourbons again. Plenty of others agreed, expressing their displeasure on the distiller's Facebook page. The piling on also included a Time article headlined "Five Jim Beam Alternatives for the Patriotic Bourbon Drinker" and a DealBook piece whose title began "My Old Osaka Home..."

In position to capitalize
None of this will matter all that much to Beam shareholders. When this deal goes through, they'll get their $83.50 per share, a 25% markup from Friday's closing price.
But if these bourbon drinkers really do follow through on their pledge to abandon Beam and Maker's Mark, this could be an opportunity for Brown-Forman (NYSE: BF-A  ) in the years to come. The producer of Jack Daniel's Tennessee whiskey and Woodford Reserve bourbon is in prime position to capitalize on those drinkers looking to cover their rocks with something that feels more authentically American.

Brown-Forman has plenty of competition from other American brands. Smaller makers of bourbons and craft whiskeys abound. Chief among them are Heaven Hill, which makes Evan Williams, Elijah Craig, and a number of other smaller brands, and Buffalo Trace, which distills both its wonderful namesake bourbon and several other high-end, small-batch labels.

But Brown-Forman also has several things working in its favor. Chief among them is the reputation of its flagship whiskey, Jack Daniel's. It's already the best-selling whiskey in the world, and if there's one spirit that Americans identify as their own, it's J.D.

The craft movement comes to whiskey
Beam's most famous bourbon is certainly it's namesake. It's the best-selling bourbon in the world.
And the company has been expanding its Jim Beam offerings in recent years. They now include Jim Beam Devil's Cut, Jim Beam Black Double Aged, and Jim Beam Jacob's Ghost White Whiskey, among others.

But the true shining stars in the Beam portfolio of bourbons aren't the ones with the company name attached to them. They're the smaller names distilled under the Beam umbrella. This is one area where distillers have differed from beer brewers. Most of the brands of American whiskey you'll find on store shelves are distilled by a small handful of companies. And a number of those that are distilled by the big players, like Beam and Brown-Forman, are world-class.

That's given these companies a real leg up. Americans are developing a taste for all things craft -- not only beer, but coffee, tea, and indeed, whiskey. And a number of the top-shelf, smaller-batch American whiskeys are made by these larger companies. So, while A-B InBev and Molson-Coors scramble to find answers to the craft beer trend -- acquiring stakes in smaller brewers, buying others out, and experimenting with original, crafty labels -- Beam has been able to go right on distilling its small-batch collection and welcoming the craft trend in whiskey.

Big growth, small labels
Let's take a look at the growth of Beam's best labels over the past nine months:


Sales growth

Jim Beam


Maker's Mark


Knob Creek


Basil Hayden's


Source: Beam investor relations.

The small labels have been growing fast, despite considerably higher prices. American whiskey drinkers have developed a taste for these smaller-batch bourbons, much the same way they've embraced craft beer.

Brown-Forman has been a beneficiary of this, as well. Its Woodford Reserve bourbon has been selling better than ever, seeing 28% growth in fiscal 2013. Last year, the company announced it would invest $35 million in an expansion of the Woodford distillery, the oldest working distillery in the U.S., in order to keep up with demand.

The Foolish bottom line
There are some things that Americans cherish as their own and don't like to part with when foreign buyers come calling. Clearly, American bourbon is among them. If whiskey drinkers are serious about their desire to abandon Beam products after the sale to Suntory, Brown-Forman is in a great position to pick up their business.

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  • Report this Comment On February 13, 2014, at 1:31 PM, Haise wrote:

    Are BUD shipments down because of foreign ownership, or due to shifting consumer taste? Toyota is a good case for showing that American consumers care more about growing jobs here regardless of the ownership (just so happens they have a strong Kentucky presence too). Suntory will only improve BEAM's portfolio, and consumers will forget about ownership. But I am a buyer of BF -- plenty of room in the global market for these brands to grow.

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John-Erik Koslosky

John-Erik Koslosky is a writer, journalism instructor, investor, and all-around Fool. He follows the media and social media industries, and writes about some of their publicly traded companies.

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