The Emergence of Flavored Spirits

This is Bloomberg Business Week with Carol Messer and Tim Stenebek on Bloomberg Radio.

Well, I want to start big. Broadly, the global luxury wines and spirits market is driven by factors such as the growth and interest in premium and unique products, the rise in demand for organic and sustainable products, and the popularity of experiential and it generated more than two hundred and twenty nine billion in twenty twenty one, anticipated to generate nearly four hundred and fifteen billion by twenty thirty one, a compound annual growth rate of about six point two

So big market.

We know we all drank a lot during the pandemic. We're still kind of figuring out what normal is post pandemic. So let's get to it. Because we have a perfect guest who is a front seat to this industry, delighted to have with us, Anne Mckergey. She is CEO of Perno Ricard North America. And as I said, joining us here in studio, welcome.

Welcome, welcome, great to be here.

Carol. I love your background. I didn't even know this term FMCG fast moving consumer good space. So you've worked at Craft Foods, Sales, Marketing, General Management, PepsiCo SG SC Johnson. Excuse me, really, Senior Roles, Global Chief Marketing Officer, Global Chief Commercial Officer at SC Johnson, Present Global Snacks and Global inside of PepsiCo. What the heck makes something a fast moving consumer good? Like I get it with alcohol, baby.

Perfect, But what makes it that?

Well, what's interesting is alcohol is actually not FMCG, it's just CpG. Fast is like stuff that just flies off in a grocery store, like lazed potato chips. A thousand units per store per week.

That's fast.

Oh my god. So it's how do you then think about like something marketing sales that kind of a good or do you even have to because it just moves so quickly.

It would just move so quickly, yeah, whereas it in Spirits we don't move a thousand units for store per week. But you know, but we have very high price points. So even we might move not that fast, we make a lot of money.

And I got to cut right to the chase. Screwball, whiskey. I'm fascinated with you for those who are unfamiliar, it's peanut butter flavored whiskey. I picture a commercial. You know you got whiskey, my peanut butter. You got peanut butter. Now I know you guys acquired the brand. I can't help but think though, if an R and D person in your company had come up with that, what your reaction would because it doesn't sound like something that would be a success, kind of a surprising success exactly.

It's like nobody thought people needed wheels on suitcases, but here we are.

We're all using them. So you know, Screwball Whiskey.

First of all, it's what an incredible gem, right, it was before we bought it the third fastest growing independent brand behind Tito's and Casa Zuol.

It's amazing. Yeah, And the.

Founders, who are amazing people, right, They gave their heart and soul into that brand. And the reason that the brand even exists did was the founder Steve. He is from Cambodia and came through refugee camps et ceterater. I'm gonna make a long story short.

No, no, it's a really facing, beautiful story.

So it comes from Cambodia. He has polio. His parents do everything to get him here. They live in refuge refugee camps. Finally they come to Houston and the very first thing they give him is a peanut butter sandwich, and for him, peanut butter represents freedom, and so he has this passion about peanut butter, and you know, then he gets into the restaurant business and he just he takes Jamison coincidentally and takes peanut butter and like puts

Go, oh, my god, that's amazing.

That was my raction. You hear about it and you're like, wait what, and then you try it and it's like, oh, we had.

We had the founders of Duke and Dame salted caramel whiskey and the same thing. We're like, I don't get it. They actually brought us some like r I'm just gonna put it out there, but no, no, no, but it was really interesting. I take no, no, no, no. I don't like whiskey. I like I like bourbon, but I don't like whiskey, and like that just what it did to the tone. And that's exactly what you were talking about. So people are playing is it easier to acquire versus play around in a lab?

You know, we do both, right because the other you know, flavored whiskey that's been a huge success for us has been Jamison orange and this whole trend around old fashions and citrus and whiskey and and unlike other kind of flavored whiskeys, jamison is very whiskey forward. But when you smell it, you smell the rind of the orange you put in your mouth. You taste that whiskey and that

So we do both.

What's the premium on acquisitions right now? Because I feel like these specialty liqueurs and people who are experimenting coming up with something different they're in people want them companies want them.

They really do. And I will tell you it's kind of all over the board. And I would tell.

You because tequilas have exploded some of the recent acquisition.

It's huge, no offense.

Celebrities love you. George Clooney loved you. But I mean it feels like everybody's creating a tequila.

They are And what's really matters is quality tequila. That's where we are now, right, That's what's going to win in the end. So we just bought Codigo, which is a very high end, super premium. It's got this Rose believe it or not, Rose tequila. Oh wait till you put it in your mouth. So it's it's now about.

It doesn't have to go to margarita.

No, it does not actually tell you about what could go into a margarita that you wouldn't expect. But I'll come to that in a second.

Is it peanut butter?

No, it's mescal, oh Dell mcgae mescal, which is the number one mescal Jazaars. But you make a margarita with it, and it's got that little extra smoke, it's unbelievable.

I have to get it from my brother.

He's a great Margarita make.

Oh yes, and so I will tell you now is the time for I mean, people just love to experiment. That's post COVID, right because people like they were, you know, makings at all experiential. It's all about the experience, and so having that right portfolio, making sure you're on the trend of all the things that are growing is really really critical, you know.

And over the years, consolidation has been such a big theme in the beverage industry. You know, all the beer companies getting rolled up until we have two majors. I'm kind of surprised to see this Brown Foreman news today. They're selling the Finlandia vodka brand.

Do you want it?

Would you want it to know?

Okay, we have absolutely no I but but are the big is the big deal making in this space? Has it run its course? Have all the big deals that can be done have they been done? And now it's it's looking for these new growth, small batch type of things.

Well, no, I think you're going to see it in both areas. So it did not surprise me about the deal today with Coke. You have to understand both Coke and Pepsi, right, having worked at PepsiCo you know, these are much narrow margin businesses. A lot of the carbonated soft drinks business is declining, so these people are looking for new profit pools. So you're seeing a lot of

Sense to you to bold on liquor onto a soft drink company.

So let me put it this way.

I I love competition.

Okay.

We're about to do absolute Ready to Drink with Ocean Spray like it. It's like the biggest thing every retail I.

Went Ready to Drink.

I want to talk about that when we.

But here's the thing.

The reason they're getting into it is because they need more profit, they need more margin. And what's interesting about vodka right now in the industry is it's declining. The only thing that's growing is too it's declining. Anything that's

Do it responsibly.

I cannot tolerate, under any circumstances brands coming in, you know, and using kid packaging, advertising in the kids aisle. It's unacceptable and it you know, we have a responsibility as an industry.

We've seen it with electronic cigarettes. Right, come on, folks like own it app do the responsible thing. Talking with Anne mccergey, she is Ceopronovercard North America. She's in our Bloomberg Interact Broker studio, and I was thinking about, I mean, your brands. I had a list here and I should just have you do it absolute Jamison, Kolua, hard liquor, spirits, Champagne. I mean I'm leaving out a lot. I think there's two hundred and forty brands overall. We just talked about Screwball,

So you know what's great about our portfolio is it's very premium and we have and you want to keep that, and we want to really keep that because if you look at the two buck check, no, well you know, good for train jows. Okay, So but what I tell you is when you think about consumption of alcohol, right, we all don't drink the same thing.

Every time we drink.

When we want to celebrate, we want to drink champagne, right, we want to just relax and unwined. We might want to glass a bourbon.

Right.

When we want to impress somebody, we might want to take out a very high end cognac.

Right.

Nobody drinks the same thing. Why they drink is the context in which they're in. So when you have the right premium portfolio that goes across all these different occasions, you actually have an advantage. And our strategy for no Recard is literally to activate more brands than our competition with the same cost to serve. So, but you have to do that if you know the science behind the demand, which brand belongs in which occasion, so you don't cannibalize yourself.

So that is.

Certain brands are really out front and center at certain times of the year, if you will.

So for instance, during Saint Patrick's Day, it's Jamison. Right in the summer, you're drinking Malibu, right, So there are seasons, there are occasions. Sometimes some occasions are year long, right, So you have to then devise a portfolio, and that's how you decide which brands you buy and which ones you sell.

Your business model. It's like that Humble Wamba song. You know, you got a whiskey drink. But at the same time, you know, we all do drink different drinks at different times for different occasions. But also just in general, I get the impression that liquor consumers are a fickle group. You know, one year it's craft beer is the hot thing, the next year it's Seltzers, the next year it's fine wine. So how do you get ahead of that as an executive in this industry.

So we actually monitor the trends around how people are drinking in segments. So on average, in any given month, a consumer will drink about forty five drinks. Okay, that includes everything, Okay, a month a month, right.

So now Friday night, I am mega No, I'm a mega lightweight, but.

What we've seen this is on average, right, some people drink wait less. So what you see on average is before the pandemic, forty five of those drinks were twenty of them were beer. Okay, after the pandemic, they've lost two whole drinks. There's only eighteen of them now for beer. And what gained was your spirit RTDs, spirits themselves.

Wine also lost.

Yeah, it's on fire. It's on fire because people are walking away from beer. Then they went to malted RTDs. But they're like, eh, taste isn't so great?

How much is that growing? The rtd my god, for you guys.

For us, it's exponential growth. It's like fifty percent, Like it's huge every year. Yeah, it's huge, but off a small base, off a small base, a small base.

Okay, could it be a bigger base.

It could very much a bigger base.

I mean, we have RTDs in absolute, we have it in Malibu, Jamison and an Absolute. We're just about to launch our ready to drink with Ocean Spray. You know, so you think about you know, we were talking about the you know, the wonderful cocktail that we're all used to, which is the Cosmo and so it's here's the big thing. Consumers post pandemic want cocktails conveniently period.

That's what it is.

Yeah, I'm not a good I know people who are really into it and they get the gear and they're like love it. I'm like, just give me the bottle, let me throw it over some ice.

I'll tell you a great example. So this helps you understand the occasion. Women will get together, call it once a week, they'll have book club, whatever, They'll drink their glass of Chardenay.

And that's fine because it's easy to pour.

You know, after week, after a week of shardin, you're like, I really want a cocktail, but nobody wants to make a cocktail. So we launched Ready to Drink Altos margarita and literally all you do is pour it like you would wine, and it's an instant margarita. And I'm telling you, this thing is bar quality. And so now we're sourcing from wine as a as a tequila.

It's pretty wild, Like you just get your head around it. But I sampled some over this summer and was really surprised at how good they were. Listen, we'd be remiss, We're Bloomberg Booze great leading indicator, especially because you play into the premium side of things of how the luxury market is going. Right now, how are the numbers in terms of this economy and then going into.

Next year, how would you describe it? How are you seeing it?

Yeah, so you know, well, we're getting past COVID, right, and COVID was a big boom. People were stocking up, et cetera, et cetera. The economy has been tough. We're seeing retailers actually bring down their inventories a bit because it's the cost of capital with interest rates is really really hard.

That's interesting.

We have the whole we have that whole global supply chain crisis.

Now that's over.

So what's what's happening is we're seeing resiliency in consumers drinking, so you know, the sellout and what people are consuming. But now the inventory situation is kind of, you know, kind of settling out. So when you look at the numbers, you know, from a net sales or a shipment's perspective, it's lower than actually what people are buying because there's a little bit of over inventory in the industry.

But if you ask me.

Long term, you said, those numbers in the beginning of the program, like about six percent kagger right, right, pre pandemic. That's we were going four or five percent every year. In the pandemic, it was double digits.

Right.

This is now the post COVID kind of shakeout, and I think as you move forward, you're going to go right back to that forty five percent.

I love hearing about this. You've given us a snapshot on the economy. You and I and Mike we're talking the break about drinking responsibly. You guys have a campaign. We have about forty five fifty seconds left here, just talk to us about that.

Yeah.

So I feel like you can't do one without the other.

Yeah.

So we believe on return on responsibility as much as return on investment. Everything from working with the government to get the Halt Right Act, to get breathalyzers and cars so you cannot drive if you are drunk. We do a safe Nights program. We actually donated something called Engage Responsibly to stop hate online.

And you know, we.

We're trying to do everything that we can to be responsible. And you know, this call out to all my other competitors. Let's we're working together. Let's work together. Let's make it the right thing.

I love it. So cars are going to be equipped you cannot start your car if you have alcohol. When do we get this?

It's a law and now the car companies are trying to figure out can get it done exactly?

Got the UAW out of the way. Let's get this together. I know that that is a very important issue for you, and we so appreciate you coming in. This was fine.

Thank you. I promise with champagne you got it.

Next time I will be I'm kidding, I'm kidding.

This was a great way to wrap up. It's been so far a pretty crazy week. Ann Mckerzey. She is CEO pronober Card North America. In her Blueberg Interactive Brokers studio, Carol Master Mike Reagan, this is Blueberg