The drinks industry’s big names spread wings to capture less loyal drinkers

It says a lot about how much the beverage alcohol industry has changed in recent years that the news that Gallo is moving into beer via an investment with Montucky Cold Snacks barely twitched an eyebrow among most experienced industry watchers.

After all, this is the reinvented wine business that already has a considerable presence in spirits and RTDs – and changed its name from the altogether anachronistic E&J Gallo Winery in February, when CMO Stephanie Gallo asserted that “the simplified name removes all limitations”.

The beer market in the US is hardly going gangbusters at the moment but there are still growth opportunities to explore and Montucky ticks a lot of the right boxes: sessionable lager, 4.1% abv, low in carbs and calories; strong ESG proposition; growth from 130,000 cases to nearly 1m cases over the last five years.

Cross-category diversification is an industry trend with a long history and one that has re-emerged in recent years as companies target a drinking population that increasingly flits between categories, brands and modes of consumption. When Gallo CEO Ernest J Gallo proclaimed that “today’s consumer is shopping brands, flavours and occasions across beer, wine, spirits and RTDs”, he never spoke a truer word.

Pre-Montucky, Gallo’s moves in this area have centred on spirits and RTDs, encompassing brands such as New Amsterdam and High Noon, as well as ventures including VMC canned cocktails, Soonhari Soju, plus RTD brands Fishers Island Lemonade, Salt Point and Waterbird (the acquisition of the latter was also disclosed for the first time this week).

The spread of activities speaks of a determined play to become a serious operator across multiple alcohol segments but other wine-centred businesses have been more selective in their forays into spirits.

Last week, Jackson Family Wines (JFW) unveiled its first spirits launch with Stonestreet Kentucky Straight Bourbon, and in April, Familia Torres – a wine business with an existing presence in brandy, pisco, liqueurs and vermouth – announced its first whisky, blended Scotch Liathmor.

The creation of Stonestreet is very much in keeping with JFW’s willingness to explore new origins in wine – the company has about 40 wineries across the US, Canada, France, Italy, Australia, Chile and South Africa, and recently made a move into English wine.

Stonestreet’s roots in family history – it was founder Jess Jackson’s middle name, and references the Jacksons’ horse racing involvement via Kentucky-based Stonestreet Farms – add to a sense of authenticity and provenance, and the product sits at an appealing US$60 price point.

I’m rather less certain of the rationale behind Liathmor, a tie-up between Torres and La Martiniquaise-Bardinet, the French owner of blends Cutty Sark and Label 5, and Speyside single malt Glen Moray.

The details that have emerged to date – low malt content (20%), supplemented by young (less than five years old) grain whisky – don’t exactly scream luxury. Indeed, we’re told that Liathmor’s “competitive benchmark” is Johnnie Walker Red Label and Ballantine’s Finest – two of the world’s best-selling competitively-priced blends, backed by the respective muscle of Diageo and Pernod Ricard. Is the Torres spirits operation geared up for that kind of battle?

Such quibbles aside, it’s entirely understandable that wine businesses should be mulling moves into higher-margin spirits segments at the moment, given that their core category is battling a toxic combination of cyclical (economy-related) and structural (demand-related) declines.

For the same reasons, it’s equally understandable that, right now, few spirits-centred businesses appear to be contemplating any moves in the opposite direction, and investing in the wine industry.

Indeed, only this week we hear fresh speculation that Pernod Ricard might be looking to offload its Antipodean wine interests – including Jacob’s Creek and Brancott Estate – amid rumoured discussions with Accolade Wines.

That follows confirmation in February this year that Accolade and rival Aussie producer Australian Vintage were in “very early” talks over a possible merger, raising the prospect of a corporate love triangle involving the three businesses. The abrupt departure of Australian Vintage CEO Craig Garvin a few weeks ago only adds spice to the story.

Will Pernod sell? I’ve argued previously that I think it’s likely at some point, but the timing – when Australian wine is in an utter mess, despite the reopening of the Chinese market – doesn’t look great in terms of achieving a good selling price. Depends, perhaps, on just how desperate Alex Ricard and co are to get out of this particular part of the wine business.

I say “this particular part” because, if there’s one thing that cross-category diversification should teach us, it’s this: in a much more fragmented beverage alcohol landscape, serving a much less category- and brand-loyal audience, there are multiple growth opportunities, and not always in the most obvious locations.

Hence Gallo moving into beer; hence – in my view – Pernod staying loyal to the healthy parts of its wine activities, such as Champagne and Provence rosé, even if it does cast off its Antipodean (and possibly Spanish) operations.

Hence, also, Jackson Family Wines selling Bourbon, and even – although I remain sceptical for the moment – Familia Torres selling Scotch. The most proactive and forward-thinking companies in today’s beverage alcohol marketplace aren’t scared to explore beyond their core capabilities to discover new growth opportunities – the key is knowing exactly where to look, and which of those opportunities to take.

"The drinks industry’s big names spread wings to capture less loyal drinkers" was originally created and published by Just Drinks, a GlobalData owned brand.

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