There's Nothing Sour in These Whiskey Numbers

It's not just U.S. drinkers who've acquired a thirst for Tennessee whiskey and Kentucky bourbon. The Distilled Spirits Council says international sales topped $1 billion for the first time ever last year, up 5% from 2012 as Japan, Germany, and France tippled more of these distinctly American alcoholic beverages, but it remained domestic drinkers who carried the "browns" business forward, leading sales 10% higher to $2.4 billion as volumes rose 7% to 18 million cases.

Part of the reason for the global uptake in whiskey and bourbon was the signing of new trade agreements that reduced or eliminated tariffs. Brown-Forman (NYSE: BF-B  ) , the maker of the iconic Jack Daniel's, said the Tennessee whiskey grew 10% over the first six months of its fiscal 2014 year with a global rollout of its Tennessee Honey -- the first flavored Jack Daniel's product -- helping to push net sales higher by 30%. Overall, the Jack Daniel's brand enjoyed double-digit growth for the first half of the year.

Similarly, distiller Beam  (NYSE: BEAM  )  said full-year sales hit a record on above-market growth in North America and Europe, with its flagship bourbon Jim Beam rising 4% and premium power brand Maker's Mark running 17% higher.

While bourbon and whiskey are similar, Tennessee whiskey is differentiated because it's made through the so-called Lincoln County process, which filters straight bourbon whiskey through charcoal prior to barreling. That aging ends up mellowing the otherwise harsher taste of bourbon. Kentucky not only produces 95% of the world's bourbon supply, but along with Tennessee accounts for 90% of the whiskey that's consumed in the U.S.

The popularity of the browns spirits segment got a charge from the popularity of the TV show Mad Men, which admittedly can make you thirsty whenever you watch the show. Yet today it's just as much a global uptake of whiskey and bourbon that's keeping sales afloat. Sales in Japan were highest at $120.8 million, a $22.7 million or 23% increase, followed by Germany, up 16% or $19 million to $140.1 million. France came in third with a 12.5% increase.

Also responsible for the increase in sales was the introduction of new flavors into the mix, like Tennessee Honey, that the distillers group said accounted for 45% of the increase in volume that whiskey enjoyed. It probably accounts for the strength witnessed elsewhere, too, as Irish whiskey saw a 17.5% jump to 2.5 million cases in 2013 while single-malt Scotch whisky volumes rose 11.6% to 1.8 million cases. Diageo (NYSE: DEO  ) , one of North America's premier whiskey distillers with a 23% share of the market, also dominates Scotch whisky, owning more than a one-third share.

Importantly for the distillers, spirits continued to take share away from beer, marking the fourth straight year they've recorded such gains, and now account for 34.7% of the alcoholic beverage market. Beer has a 48.3% share as of the end of the year, and wine is a distant third at 17%. 

Although that's an outcome Don Draper would want to raise a glass to toast, investors might be better served looking more closely at the individual distillers themselves. Beam was just acquired by Japan's Suntory in a $16 billion deal, but I've suggested Diageo might be one investors would be foolhardy to discount despite its sharp pullback.

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