Beam Global Enters New Stage of Growth

Wine & Spirits Daily
November 23, 2009
 
Dear Client:
 
In his speech at Morgan Stanley's Global Consumer & Retail Conference, Fortune Brands' chief financial officer, Craig Omtvedt, highlighted Fortune's strategy for its spirits business (Beam Global Spirits and Wine).  Right now the company is focused on cutting costs, expanding globally and increasing investment behind its spirits brands.  Here are the highlights:
 
WHY FORTUNE SOLD ITS WINE BUSINESS.  "We did that for a multitude of reasons.  First, from a market standpoint as we looked at wine we said it's more of an agri product.  We can't fully assure the consistency from year to year.  In the normal course of events as people become more sophisticated they tend to want to branch out and try other products.  And lastly, as we look at the businesses, while we were doing well from a revenue and from an operating margin standpoint, the asset base was at such a level that we weren't getting the proper ROIC...at the end of the day we determined it was most logically worth more to somebody else than it was to us....obviously that was the case."
 
CATERING TO THE EVOLVING CONSUMER.  "There is a new reality in terms of the way people are going to shop in the foreseeable future.  We think we're going to see consumers with a much stronger value for money orientation and that doesn't mean price.  What it means is that people are going to consciously look at products and say, 'I'm going to buy what gives me the satisfaction I'm looking for and I will pay whatever it takes to get it,' but it's going to be a very conscious decision.  So we think it's absolutely critical at this point to be taking the time to really understand the consumer, understand what's going in on our categories and make sure we've got the right products, that we're innovating with the right products from a value proposition standpoint."
 
SPIRITS GROW 1-2% IN THE US.  "The spirits business has held up nicely.  Here in the US we're looking at an overall market with growth in the range of 1-2% and obviously compared to what is going on in other categories we think that's a net positive, we think that stability is important.  We are seeing to a degree a migration from on-premise to drinking at home.  We are seeing some level of trading down, more pronounced in the mixable categories, vodka and other similar products, versus the brown spirits of Scotch, bourbon, others.  We also see it as a category with significant international growth opportunities.  We definitely like our position.  We're position 2 in the US; number 4 in the world overall...
 
"As we've described it to people, we're playing offense.  We think that the spirits category is a great category, great here in the US, great international growth opportunities, and we're going to continue to pursue it."
 
COST SAVINGS PUT TOWARDS BRAND INVESTMENT.  "We're now in a process of moving to ramp up our brand spend.  We're going to have higher spend, brand investment here in the fourth quarter.  Through some of the cost reduction initiatives we have and other supply chain actions we're taking, we're going to take more cost out of the organization and the current intent is we're going to put that behind the brand building."