The business community is buzzing about Japanese brewer and distiller Suntory's $16 billion purchase of Beam Inc., the maker of Jim Beam bourbon. The sale sent Beam's stock price soaring by 25 percent on Monday, but the deal also has all the makings of a smart long-term investment. Here are three big reasons why buying Beam was an excellent move for Suntory.
1) Whiskey: so hot right now.
Spirits in general are posting faster production growth than either beer or wine, and consumption of American straight whiskey is growing faster than most other spirits, according to data from Technomic Inc., a food industry consulting firm.
American straight whiskey sales also are outstripping those of many spirit competitors in financial terms. Dollar sales of American straight whiskey – a category that includes several Jim Beam brands – grew by 6.8 percent in 2012, while total spirit sales grew by 4.6 percent.
2) People want what Beam is selling.
Beam is already the No. 2 top-selling spirits marketer in the U.S. with 11.3 percent of total volume supplied in 2012, a total that grew by 3.1 percent since 2011.
And though many drinkers may not know it, Beam sells far more than its namesake whiskey in the white-label bottle, which Technomic classifies by price as a "value" whiskey. It also sells Maker's Mark, classified as "high-end premium," and Knob Creek, a "super premium" whiskey. Those higher-end drinks are driving a lot of the whiskey category's growth, one expert says.
"The spirits category overall is experiencing the most rapid dollar growth primarily because of premiumization," says Donna Hood Crecca, senior director of the Adult Beverage Resource Group at Technomic. "People are really essentially trading up to more expensive spirits products, and we're seeing that in American whiskey, too."
3) Millennials are really into spirits.
Beer and wine sell in higher volumes than spirits, but as shown above, spirits are growing fast – and youngsters have developed a taste for hard liquor. According to data from Gallup, 28 percent of 18- to 29-year-olds say liquor is their preferred drink, up from 13 percent in 1992-94. That's second to beer, but younger drinkers' preference for beer has fallen off dramatically, from 71 percent to 41 percent over that same period.
Likewise, 30- to 49-year-olds' preference for liquor also has grown slightly over that period. True, the 50-and-over set's taste for spirits has diminished, but distillers have an asset in younger drinkers, who could develop brand loyalty now that could last for years to come.