The company grew net sales 1% to $1.093bn in Q3m while reported operating income grew 7% to $272m. The Jack Daniel’s core trademark grew 8% on an underlying basis, Tennessee Honey sales +32%, while ultra-premium whiskey brands – led by Woodford Reserve, +32% – posted double-digit growth.
Speaking with analysts on yesterday’s results call Varga lauded US whiskey’s versatility and premium potential.
“In our communications with you over the years, we’ve discussed an aspect of American whiskey that I believe is particularly unique. It is simultaneously enjoying the desirable attributes of both mixability and premiumization,” he said.
Scotch lacks ‘horizontal agility’, vodka lacks ‘vertical agility’
“Most often in distilled spirit categories, these two dimensions are observed as mutually exclusive. If you consider the two largest multi-country categories in the spirits industry by volume, and that Scotch and vodka, the point is made rather clearly," Varga added.
Within Scotch, leading brands are very often positioned successfully at multiple price points spanning standard to luxury, Varga said.
However, vodka had not shown the same vertical agility, he added, with the leading brands at each successive “price tranche” in vodka typically carrying a different brand name.
“By contrast, however, vodka has shown tremendous horizontal agility, if you will, through flavored vodkas and pre-mixed RTDs that provide consumers with a broad range of flavor options for the consuming occasion.
“Scotch, on the other hand, has had little success extending their trademarks along the same flavor or mixability dimension,” Varga added.
“But uniquely within American whiskey and best evidenced by our own Jack Daniel’s, the category’s brands have shown the ability to be successful along both of these attractive dimensions within the same trademark.”
‘Jack Daniel’s is enjoyed in a more varied fashion than Scotch’ – Paul Varga
In terms of mixability and flavor, Jack Daniel’s is drunk today in a more varied fashion than Scotch whiskey competition, the Brown-Forman boss said: with everyday mixers like Coke, in canned RTD form, and through flavored line extensions like Jack Daniel’s Tennessee Honey and Tennessee Fire, which is now being rolled out.
Despite what Varga describes Jack Daniel’s “inherent mixability”, he said the brand had also demonstrated its ultra-premium appeal through the success of Gentleman Jack and Jack Daniel’s Single Barrel – in the last quarter volume these two brands together posted sales of over one million cases.
“Beyond being our company’s shining illustration of premiumization within American whiskey, these brands represent a very valuable, ultra-premium whiskey business for Brown-Forman given their attractive profitability, returns and growth rates,” Varga said.
Despite his pleasure at reaching the one million case milestone, Varga said he was equally excited by the fact that the ultra-premium price segment of American whiskey was “still in a very early state of development”.
“Contrasting this price segment of American whiskey to the equivalent one in Scotch…we observed that the highest end represents only 2-3% of total American whiskey retail dollars, whereas the same price segment accounts for 30%+ of total Scotch,” he said.
“So on a share of category basis alone, there is a 10-15 fold opportunity for the highest end of American whiskey if it can develop as ultra-premium Scotch has.”
(Photos: JD & Cola: MrkJohn/Flickr; Scotch: Paul Joseph/Flickr;