Beam Continues Narrow Geographic Thinking with Pinnacle Vodka Acquisition

Beam’s US$605 million acquisition of Pinnacle Vodka and Calico Rum brand is a continuation of its strategy to focus on developing itself in a small number of core markets, primarily the US. All of Beam’s most recent acquisitions – Effen, Skinnygirl and Cooley Distillery – have the US  in mind. The Cooley acquisition does give it a decent presence in Germany as well.

The acquisition, narrow in geographic terms, has at least broadened the company’s category presence, as it has lacked a major vodka brand, especially since it announced in mid-April 2012 that its large volume Kamchatka and Wolfschmidt brands were being reformulated as liqueur style drinks.

Big in US vodka

Pinnacle Vodka can certainly count as a major brand in the US. In 2011, it ranked as the sixth biggest vodka brand in volume terms with 4 percent share having had only a 0.3 percent share in 2006. The brand’s growth was most rapid in 2011 when volumes of the brand nearly doubled.  The brand has benefitted from its economy level pricing (US$13-14) but also its strong focus on flavoured vodkas, especially its Whipped flavour.

The focus on flavours will be of particular interest to Beam considering Beam’s strong emphasis on developing flavoured bourbon, which is seen in its recent Red Stag additions, “Red Stag Honey Tea” and “Red Stag Spiced”.

The acquisition of Calico Jack is less important as its volumes are still negligible, even in the US. It again is an economy level brand and has obviously been bought due to the rapid growth of spiced rum brands, led by Admiral Nelson and the more premium Sailor Jerry brands.

Narrow focus not just in acquisitions

The narrow geographic focus of Beam’s acquisition strategy is also shown in its brand development strategy, where the key focus seems to be on maximising growth of its brands in its core markets of the US, UK, Australia and Germany. This has been done via strong promotional activity (including price) and a wide range of product innovation, such as with flavoured bourbons and new variants of its core brands such as Courvoiser and Sauza.

Beam should look to develop its brands in emerging markets, but as Bacardi found with the US-centric, Grey Goose Vodka, it will not be easy. Seven years since the acquisition of the brand, well over 90 percent of the brand’s volumes remain in the US.

The momentum of the brand’s performance, combined with Beam’s strong distribution presence throughout the US, should allow the brand to continue to see rapid growth.  However, if Beam is to sustain this growth, it needs to spend greater time developing its portfolio in new markets.