Drinkers in America and overseas are developing a growing taste for Tennessee whiskey and Kentucky bourbon. Sales of American brown whiskeys were up more than 10% in the U.S. last year, according to the Distilled Spirits Council. That left the plodding U.S. beer industry in the dust.
What's more, drinkers outside the U.S. are warming up to the styles. Sales of bourbon and Tennessee whiskey were up 6.8% worldwide. There are a number of companies benefiting from this trend. Diageo (DEO -0.80%) has a new and growing bourbon on the market in Bulleit. Beam (BEAM.DL) has the most widely recognized and best-selling bourbon on the planet with its flagship Jim Beam. But the company that may be best-positioned for this trend is Jack Daniel's maker Brown-Forman (BF.B 0.24%).
Let's take a closer look at the market, and at how these spirits makers are positioned.
"Brand America" sells overseas
This marks the fourth straight year of record exports of American spirits. It's also the fourth straight year that American bourbons and whiskeys have gained ground against beer. On the international front, Distilled Spirits Council executive Christine Locascio attributed growth in part to "a genuine affection for 'Brand America' as a symbol of quality and taste."
We know there's plenty of interest in the American labels. We don't need more evidence than Japanese whiskey and beer maker Suntory's $16 billion bid to buy Beam. But Brown-Forman may be better-positioned than Beam or Diageo to capture the international markets. Brown-Forman has what may be an even better-recognized American label in Jack Daniel's. But it also has much more room for growth in emerging markets than either Beam or Diageo.
Brown-Forman's sales in emerging markets grew by 7% in the first half of fiscal 2014. Diageo saw sales rise only 1% in those markets during the past six months. Brown-Forman CFO Donald Berg in December told analysts that the company was "definitely outcompeting" other spirits makers in the developing world. It should continue to. The company derives only about 20% of its sales from these markets. Its key competitors generate nearly double that percentage. That means Brown-Forman should have a longer runway for growth in the developing world.
On the homefront
The company is in a strong position here in the U.S. as well. After Beam's sale, it will become America's reigning distillery champ, with a truly iconic American brand leading its product line. And it may benefit from the sale of Beam to a foreign company, as more American drinkers look to stay true to the red, white, and blue.
One of the most promising elements of the trends in brown spirits is that the biggest growth is coming at the high end. Diageo has seen that with its Johnnie Walker scotch, not only in the U.S., a strong area of growth, but also in emerging markets, where sales of lower-end liquors are struggling. Beam has seen its top-shelf bourbons like Maker's Mark, Knob Creek, and Basil Hayden's far outpace the 3% growth of its flagship brand, despite those spirits selling at a considerable premium -- double the price or higher, in some cases. Basil Hayden's, the most expensive of the four, grew at the fastest rate over the past nine months, notching 34% growth, double any of the others.
At Brown-Forman, where Jack Daniel's sales are growing at an impressive rate, sales of its super-premium Woodford Reserve have been the real shining star. Woodford posted 28% growth in fiscal 2013, and 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
Drinkers in the U.S. and abroad are gaining an appreciation for American whiskey, and distillers are looking to position themselves for the trend. Diageo's new entrant is selling well, and Beam has a great-selling flagship and some the best small-batch bourbons out there. But it's Brown-Forman, with Jack Daniel's and Woodford Rerserve, that may be best-positioned to continue capturing growth both in the U.S. and in the developing world.