The 10th Spirits Strategies and Innovation Conference in London last week was a great opportunity to meet with many companies and clients.
This year's conference took place against a challenging market backdrop. At one level, the geopolitical and macro outlook remain unpredictable. At a consumer level, spirits companies are challenged to engage with a myriad of changing consumer and societal trends; for example, the focus on convenience, ESG, and low-no alcohol ("LoNo").
With concerns over post-COVID declines in wine and spirits consumption continuing and share prices of spirits companies taking a hit over the last year, spirits companies continue to seek advice on how to navigate a disrupted world.
What we are hearing from them is "how do we orientate on where to play, which go-to-market channels should we be prioritising, how do we optimise our portfolio, where can we win, what role can M&A play, and what does the best execution plan look like?''
In fact, these are the questions we are hearing across our broader Consumer practice, which manifest themselves in the work we are undertaking:
- Strategic options review: Assessing the full gambit of strategic options to provide clarity to board thinking – what do we need to believe for options X, Y, and Z to be delivered?
- Optimising and de-risking M&A exits: Throughpre-process performance improvement, robust due diligence preparation, and confidential market soundings.
- Figuring out the growth agenda: Channels, countries, partners, priorities – how to win?
Turning back to the conference, many topics were discussed during the event and it's impossible to cover them all here. However, there are themes that are particularly pertinent in relation to driving strategic activity in the industry:
Premiumisation: This remains firmly in focus but isn't a panacea – as my colleagues in our North American Beverage team recently wrote in The productivity imperative in U.S. wine & spirits, the premiumisation trend has tapered.
Consumer spending remains under pressure and consumers are increasingly discerning, leading to a flight to quality based on factors such as provenance, quality ingredients, and heritage. While the premiumisation trend has slowed with current economic and geopolitical turbulence, in the longer term – and looking through the cycle – the trend does appear to be structural.
Premiumsation will continue to drive M&A activity, in particular, where premium brands can fill a portfolio gap – e.g., Diageo's acquisition of super-premium Don Papa-Rum and Pernod Ricard's recent investment in Almave, the super-premium non-alcoholic agave spirit, co-founded by seven-time Formula One World Champion Lewis Hamilton.
Brand collaborations: These are a way for new and established brands to build their customer bases and engage with customers through a partner that demonstrates authority in an associated field.
There are numerous examples of brands aligning themselves with events, such as music festivals, celebrities, or athletes. The importance of experiential events to activate brand collaborations was also discussed at the conference, and the example of CleanCo partnering with Hoka, the running shoe brand, to host running events was discussed. Brand partnerships is another area where our firm is seeing increased activity from our clients.
Little Mix: One manifestation of brand partnerships is liquid collaborations – e.g., Jack Daniel's and Coca-Cola, and Pepsi Max and Captain Morgan, and there are many more examples of alcohol/soft drink combos. Of course, these collaborations are also in the fast-growing ready-to-drink (RTD) category. Whether it be hard seltzer, canned cocktails, canned wine, or RTDs with adaptogens, the focus on convenience and innovation through single serve remains a key agenda topic and will be a driver of strategic thinking and subsequent potential M&A activity. We have explored the RTD revolution in an article earlier this year.
Message on a bottle: It was fascinating to hear first-hand some of the innovations (and challenges) in packaging from an ESG perspective. Great insights were shared into the design and production of the Johnnie Walker Blue Label Ultra, the world's lightest 70cl Scotch whisky glass bottle (yours for a cool £1,000 and limited to 888 units). Inevitably, low / no alcohol was a major theme and follows a spate of recent deals in the spirts and wine sectors (Ritual Zero Proof, French Bloom, Almave). We can expect more strategic activity here with a health, wellness and ESG bias.
Breaking up: We expect an uptick in strategic option and carve-out assessment reviews in the consumer and beverages sectors. Companies are looking to actively manage their portfolios, running the rule on which markets and brands to enter, exit, or double-down in. Critically, however, following a spate of deals that have failed to complete, there is renewed focus within corporates (not just in the spirits sector, I hasten to add) on ensuring such non-core divestments are thoroughly prepared and de-risked. Meticulous preparation, buyer friendly carve-out perimeters, robustly prepared due diligence processes, and providing management with bandwidth to focus on "delivering the numbers" prior to and during a sales process are all key to securing a deliverable transaction.
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