Campari Spices Up Bourbon for Flavor-Seeking U.S. Tastebuds

Davide Campari-Milano SpA’s answer to the prolonged European slowdown lies in a $43 million factory set to open today in Kentucky.

The Lawrenceburg plant, bottling spirits from Wild Turkey bourbon to Skyy vodka, caps a decade of investment in the U.S. by the Milan-based company and will allow it to step up the speed of innovation for the world’s most profitable spirits market, while reducing its reliance on Europe and drinks including Campari’s namesake orange liqueur.

“Earlier on, we’d develop something new and have to go to our competitors about two years before launching and say ‘Will you bottle this for us?’” Chief Executive Officer Bob Kunze-Concewitz said in an interview in Milan. “Now we have a lot more confidentiality and we can innovate much faster as we don’t need to go through an external third party.”

Campari is honing its focus on new products and markets to ignite growth that trails major competitors Diageo Plc and Pernod Ricard SA. As the world’s most profitable spirits market, the U.S. is an obvious target for expansion, with impressionable younger customers being a particular aim.

One of the first new spirits to be produced in Lawrenceburg, Wild Turkey Spiced, hits shelves this month. The spirit’s strong taste and novelty are designed to appeal to a younger clientele than Wild Turkey’s traditionally middle-aged customer base, while also capturing dark rum drinkers.

“Bourbon missed a whole generation,” Kunze-Concewitz said. “Young people don’t drink what their parents drank.” The spirit is now seeing resurgent demand, he said.

New Skews

Wild Turkey is one of the company’s biggest brands, representing 11 percent of sales last year, the same as the eponymous Campari brand and Aperol. Skyy made up 12 percent.

Since buying Wild Turkey in 2009, Campari has repackaged the brand and added new skews, including Russell’s Reserve, a small-batch, craft-like bourbon, and the limited edition “Forgiven” drink, a mix of rye and bourbon.

Growth has been boosted by a surge in demand for American Honey, Wild Turkey’s first new flavor, Kunze-Concewitz said. A 2006 relaunch of American Honey has led to a range of competing products from spirits makers such as Jim Beam and Jack Daniels.

“Wild Turkey led innovation in bourbon, but other distillers are playing catch-up,” said Samar Chand, an analyst at Barclays Plc in London. “Overall, they’re generally behind the curve in innovation compared with larger competitors, but new products are absolutely key to drive their core brands.”

Negroni Cocktail

Sales and profitability will increase with the newer drink lines, Kunze-Concewitz said, declining to give specifics.

“Structurally, the in-house production of Wild Turkey and Skyy should ultimately have a positive impact on margins as well as give greater flexibility for innovation,” said Ed Mundy, an analyst at Nomura in London.

Whiskey was the fastest-growing spirit in the U.S. in the year through Aug. 11 by volume, rising 13 percent, according to data from market researcher IRI. Vodka and even Campari itself are also growing, buoyed by the increasing popularity of the Negroni cocktail.

Campari gets just over a fifth of sales from the U.S., little changed from the proportion it got there after the 2001 purchase of Skyy, its first major foray into the country.

Sales in the Americas region increased 5.6 percent last year, compared with growth of 3.4 percent in Europe and a 3.3 percent slide in Italian sales.

Acquisition Funds

Nomura analysts estimate that Campari’s organic sales will rise just 1.5 percent this fiscal year, while Diageo is aiming for average 6 percent growth over three years. Pernod, which is yet to set an annual forecast, reported 4 percent organic revenue growth in the year ended June 30.

Campari “doesn’t jump into” geographic expansion, Kunze-Concewitz said. “We look at markets and portfolio and opportunities and go from there,” the CEO said, avoiding what he calls “the emerging-market fad we now see popping” that lured other distillers to expand in countries including China.

The distiller aims to get 50 percent of growth from existing brands and 50 percent from takeovers, and is eyeing expanding each spirit outside their biggest markets, according to the CEO. For Wild Turkey, that includes Japan and Australia, where sales slid in the first half.

Campari is always looking at assets, and would “never say never” to buying a cognac brand, Kunze-Concewitz said.

The distiller’s balance sheet would “easily” allow it to spend as much as 600 million euros on an acquisition, he said, though it’s in no hurry.

“One thing we manage to do well is to sniff the macro trends out in the industry,” he said, referring to increased demand for Skyy, Wild Turkey and now Appleton Rum, which it bought in 2012 in a deal worth $414.8 million and which maintained a “positive performance” in the first half.

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