Sazerac Co. is buying Southern Comfort and Tuaca from Brown-Forman Corp. for a whopping $543.5 million. The deal comes as no surprise to experts who predicted Brown-Forman would rid itself of the struggling brands to concentrate on its central whiskey business.
As previously reported by The Inquisitr, another big alcohol-related acquisition occurred in November. Corona owner and distributor, Constellation Brands, tapped into the craft beer market by purchasing Ballast Point Brewing in a deal worth $1 billion.
Gaining notoriety in the 1960’s for being Janis Joplin’s drink of choice, Southern Comfort sales have been steadily on the decline in recent years. The brand held 5.2 percent market share in the liquor category in 2014, down from 6.3 percent four years ago.
While other whiskey brands have been adding flavors and gaining traction in the highly competitive market, Brown-Forman has not been able to get Southern Comfort to effectively stand-out against competitors like Diageo PLC’s Crown Royal Regal Apple or even its own brand, Jack Daniel’s Tennessee Honey.
Southern Comfort has also been specifically struggling against Sazerac’s Fireball Cinnamon Whiskey, one of the fastest-growing whiskey products. Fireball has strategically edged out Southern Comfort in many bars to become the favorite choice of shot drinkers.
Brown-Forman experimented with lime and caramel versions of Southern Comfort with some success, but the products never seemed to catch on with consumers. However, the company continued to pour money into advertising the brand. They even produced a video and song “ShottaSoCo” featuring actor Danny McBride that ultimately went viral.
“That’s evidence that the brand continues to get support and we continue to try to put our best foot forward in a really competitive environment for it,” Paul Varga, CEO of Brown-Forman said during an earnings call with analysts in December.
Industry experts expect the decision by family-owned Sazerac to buy Southern Comfort to be a good one and Mark Brown, the company’s president, is thrilled with the opportunity to continue where Brown-Forman left off. “We are looking forward to many more years of successful brand building,” the CEO remarked.
In the U.S., whiskey sales have increased substantially as drinker’s tastes have turned towards brown spirits and away from clear liquor like vodka. According to the Distilled Spirits Council of the U.S., sales of bourbon and Tennessee whiskeys have grown seven percent every year since 2012, while exports rose from $800 million in 2005 to $1.5 billion in 2014.
Southern Comfort sales fell seven percent in the six months ended October 31 and declined 4 percent to 2.2 million nine-liter cases in the year ended April 30. During the same period, Brown-Forman’s Jack Daniel’s brand rose seven percent to 21.3 million nine-liter cases.
Meanwhile, sales of Fireball increased to 4.6 million nine-liter cases in the U.S. last year. In comparison, Sazerac only sold 100,000 cases in 2010.
The decision to sell Southern Comfort seems to make sense for Brown-Forman.
As reported by Bloomberg, the sale of Southern Comfort and Tuaca is part of an overall strategy by the Louisville, Kentucky-based company to focus on its core whiskey business and concentrate resources to build growing brands like Jack Daniel’s and Woodford Reserve. Late last year, Brown-Forman consulted with Goldman Sacs Group to decide which brands should be put up for sale.
The sale to Sazerac will create a one-time operating income gain of $475 million in fiscal 2016 for Brown-Forman. They have not yet disclosed what they will do with the money, but intend to provide details later this month.
“We’re proud of the work undertaken over the years by our employees and partners on behalf of Southern Comfort and Tuaca. Both brands played important roles in the Brown-Forman success story, and we will have fond memories of the enjoyment they brought to consumers, our partners, and to Brown-Forman,” said Mr. Varga.
Mostly sold in the U.S. and the United Kingdom, Tuaca is an Italian liqueur with tastes of vanilla and orange. The brand was bought by Brown-Forman in 2002, while Southern Comfort was acquired in 1979.
By buying Southern Comfort, Sazerac will add a well-known global brand to its portfolio. About half of all sales of the sweet, whiskey-flavored drink are to overseas markets, particularly Europe and Australia. The New Orleans-based liquor maker also owns bourbon brands Buffalo Trace and Eagle Rare.
The Sazerac purchase of Southern Comfort and Tuaca is expected to close by March 1.
[Photo by Justin Sullivan/Getty Images]