The distiller of Jack Daniel’s and Southern Comfort released its Q3 2014 results yesterday, which showed reported Q3 net sales to January 31 up 5% to $1,027bn and net income up 12% to $177m.
The Jack Daniel’s trademark grew net sales 10% on an underlying basis, and super-premium whiskey brands including Woodford Reserve grew 16% – this brand alone grew 27%.
But Southern Comfort continues to stutter – as far back as June 2012 Varga warned the brand was suffering from increasing competition in flavored brown spirits – with underlying sales down 4%.
Brown-Forman blamed on-premise declines for the the brand’s year-to-date falls in the US “as the channel has continued to deteriorate over the past year, and remains extremely competitive," and said the on-premise channel is now "at its lowest level in almost five years" due to persistent high unemployment among drinkers aged 34 and under.
2013 a ‘banner year’ for whiskey sales in the US
During a later investor call, Varga chatted freely with Stifel analyst Mark Swartzberg on trends among millennials – a key US sales demographic that is lifting the bourbon category – and said he the possibilities presented by social media could be driving an off-premise shift.
Despite being outstripped in the US growth stakes by Scotch and Irish Whiskey, Bourbon and Tennessee Whiskey is by far the biggest category in this space, and sales still grew 10.2% to $2.4bn in 2013, with volume sales up 6.8% to 18m cases.*
Just to recap – millennials are those born between 1980 and 2000, so the oldest are now 34 years-old, and Nielsen says they’ll make up around 40% of the legal US drinking population by 2021.
Discussing this group, Varga said: “If you’re challenged from the standpoint of disposable income and still want to gather, but you can’t afford to go hangout and drink in the bar, you end up creating the bar maybe at home, and social media is a great partnership to that exercise for the consumer.”
‘Creating a bar at home…’
Social media mobilizes millennials to connect and assemble together, the executive added, and Nielsen said as early as 2011 that it provided key marketing channels for alcohol firms to reach this experimental consumer pool, which is increasingly multicultural given Hispanic population growth.
“Sometimes it’s called mobbing or hoarding and I’ve all kinds of interesting terms for the way that millennials and others are gathering – so that could have a contributing factor to some of the softness that you might see in the on premise,” Varga said.
Although he said he didn’t have any data to back up his idea, Varga cited greater access to technology and communications that provided the ability to bring people together “in different ways than always relying on the bar to do that for them”.
Such a shift implied new ways to enjoy products, Varga said, adding that ‘mixability’ was a “huge factor in the consumption of American whiskey”, especially among young drinkers in their 20s, passing through the “initial trial stage” before moving to different mixers or straight consumption.
Booming bourbon riding high on ‘mixability’
“All of us who grew up in the industry would have these references to Jack and Coke, and a lot of the leading brands that would be mixed with sodas, tonics, things like that,” Varga said.
But all the new ways in which products are prepared…One of the great aspects of this booming bourbon business is the ownership of the account in creating the cocktails…that make it delicious for a consumer to drink bourbon,” Brown-Forman’s CEO added.
“Some of it’s been classic cocktails, but also variations of old classic cocktails. The other day I saw a Peach Manhattan for Woodford Reserve, which sounds odd, but it was outstanding.”
American whiskey’s “mixability component” was perhaps one of the most important aspects underpinning its long-term growth,” Varga said.
“The ability to enjoy it in a variety of ways and to dilute the product so it’s not exclusively a straight consumption or a short consumption is a real helpful aspect of what’s going on,” he added.
*Figures: Distilled Spirits Council of the United States