Each week, Just Drinks’ editors select a deal that illustrates the themes driving change in our sector. The deal may not always be the largest in value, or the highest profile, but it will tell us where the leading companies are focusing their efforts, and why.
This new, thematic deal coverage is driven by our underlying disruptor data, which tracks all major deals across our sectors.
The deal
Coca-Cola HBC has struck a deal to acquire the Finlandia vodka brand from spirits giant Brown-Forman.
The Jack Daniel’s maker has owned Finlandia outright since 2004 when, as the holder of 80% of the business, it bought the remaining shares from Finnish business Altia (later to become part of Anora Group).
Why it matters
There has been talk that Brown-Forman has wanted shot of Finlandia for some time. The Jim Beam brand owner has been linked with a sale of the Finnish brand as far back as 2016 and the projected growth of the global vodka market (the category is set for a modest five-year value CAGR of 3.26% between 2023-2027, compared with 6.06% for Tequila & mezcal and 7.54% for flavoured alcoholic beverages according to GlobalData) will only have added to any desire to divest.
According to AllianceBernstein’s analysis of Brown-Forman’s company reports, vodka is the only category in the company’s roster to have declined on an absolute basis in recent history, dipping by 1% on a CAGR basis in the last five years.
“The divestment improves Brown-Forman’s top-line growth outlook,” explains AllianceBernstein’s Nadine Sarwat. “Over the last five years, vodka has been the only Brown-Forman segment to experience net sales decline in absolute dollar terms, with whiskey, RTDs, Tequila and even wine in growth.”
Sarwat adds that the sale is in line with Brown-Forman’s wider premiumisation strategy. “Finlandia’s global average price per 750ml bottle is also lower than Brown-Forman’s global average for whiskey and Tequila,” she says.
Then there’s Russia’s invasion of Ukraine and the subsequent loss of sales. With no end to the conflict in sight, and Brown-Forman having already taken $148m worth of non-cash impairments to the brand in the last year, it may well have been a case of cutting its losses now, before Finlandia’s value deteriorates further.
“Finlandia has been having a slightly difficult time in recent years, hit by both heavy competition amongst top super-premium vodka brands and by category disruption from a large number of smaller craft and artisanal brands,” offers GlobalData spirits analyst David Harris. “It will use this sale to further focus on the categories it is strong in; flavoured alcoholic beverages and whisk(e)y.”
From a Coca-Cola HBC standpoint, this deal is the first time the Coke bottler has made a major international acquisition in spirits. Don’t expect a glut of deals to follow, however. CEO Zoran Bogdanovic told Just Drinks the deal represented a “unique and specific opportunity” given the close relationship between Coca-Cola HBC and Brown-Forman (the group distributes for the company in nine markets).
He also pointed to the strength of Finlandia in some of Coca-Cola HBC’s key markets where it does not presently own the distribution rights. Citing Poland and the Czech Republic as two markets in which Finlandia is the category leader, and in which Coca-Cola HBC does not distribute the brand, Bogdanovic said the deal would improve the company's bottom line and create cross-selling opportunities for brands in its non-alcoholic RTD beverage portfolio.
“It seemed quite logical in this particular case, with us being so familiar with the brand, and knowing it will unlock more geographic opportunities for us in the markets where we today don’t have Finlandia,” he said.
Whilst vodka may no longer be the spirit du jour in western markets, it is still a hugely sizeable category globally (16.4% and 24.4% of global spirits sales by value and volume respectively in 2022 according to GlobalData), and there remain opportunities for growth in the future. Polish vodka sales, for example, are expected to swell from $4.11bn in 2023 to 5.23bn by 2027, giving the category a five-year CAGR of 4.94%.
“Coca-Cola HBC are already familiar with Finlandia having distributed it widely and have sensed that they can grab a bargain from Brown-Forman,” says Harris. “They’ll be encouraged by the continued strong growth of vodka and will believe that they can reinvigorate Finlandia’s performance.”
Prior to the invasion of Ukraine, Russia was a market in which both Finlandia and Coca-Cola HBC were significantly exposed to. Hence, it is unsurprising to hear Bogdanovic say the company is open to a return in the future, should political circumstances allow.
The details
Coca-Cola HBC is to pay $220m for Finlandia and Brown-Forman Finland, the subsidiary housing the brand.
The acquisition is being made through Coca-Cola HBC's wholly-owned subsidiary, CC Beverages Holdings II BV, and is expected to close in the second half of 2023.
More research:
Brown-Forman – company profile
Italy Vodka (Spirits) Market Size, Growth and Forecast Analytics to 2026
