As I’ve stated many times before, and as those of you in the industry know, the spirits industry is a convoluted and incestuous one.
Unless you keep a close eye, it’s tough to know who owns whom, and who distributes whom in what country. For example, in a previous story we talked about Whyte & Mackay, who own The Dalmore, but how The Dalmore is distributed in the US by Fortune Brands.
Now that Fortune owns Laphroaig – its own well-regarded single malt – what will happen to The Dalmore? Will Fortune continue to merrily distribute it, or will Whyte and Mackay want to find a new partner in the US – one with less of a conflict?
I don’t know, and likely Fortune doesn’t know either, because in the spirit industry, partnerships don’t always mean a whole lot.
Case in point. Illinois-based Fortune Brands (through Jim Beam Brands, it’s spirits subsidiary) decided to enter into a partnership with 2 other large spirits conglomerates in order to maximize their distribution network in Europe.
Maxxium formed in 1999 when Jim Beam Brands, Glasgow, Scotland-based Edrington Group (Macallan, Highland Park, Famous Grouse, Cutty Sark), and Paris, France-based Rémy Cointreau (Rémy-Martin Cognac) consolidated their worldwide distribution services outside of the USA. Two years later, the V&S Group (owned by the government of Sweden, and produces, most notably, Absolut vodka) joined to become the fourth equal shareholder.
Fortune, We Have A Problem
Apparently, two of the partners, Edrington and Rémy Cointreau, now have a problem with Fortune.
Actually it’s three problems: Teacher’s blended Scotch whisky, Laphroaig single Islay malt and Courvoisier cognac, all of which were acquired by Fortune in July as part of a £2.8 billion purchase from Allied Domecq.
Fortune had anticipated (rightfully so, owing to the standing partnership) that these brands would be distributed through Amsterdam-based Maxxium. But partners Edrington Group and Rémy Cointreau, have blocked the addition of Teacher’s, Laphroaig and Courvoisier to the Maxxium offerings, apparently fearing conflicts of interest with their own key brands, which are already distributed through the alliance.
This will certainly cause a disruption in distribution of the three brands in question, at least in Europe, while Fortune seeks a new distribution channel.
This should be less of an issue for Fortune distribution in the UK – Allied’s former sales and marketing division in the UK, which Fortune acquired as part of the deal, will continue to distribute former Allied brands. It is no longer to become a part of Maxxium. Also three-quarters of Courvoisier’s volumes are in the UK and US and Teacher’s largest market is the UK – where distribution is unaffected.
But Its Just Business, Baby
One would think that there is no way that Fortune could continue to hold its 25% stake in Maxxium after this – but there is a hurdle to a graceful exit. If Fortune chooses to exit the distribution joint venture they will have to cough up €50m-€100m under an “exit clause.”
Not only that, Fortune had agreed to move the European distribution of other Allied-Domecq acquisitions including Sauza, Canadian Club and Clos du Bois wine under the Maxxium network. In Spain and Germany, the former Allied distribution operations are already being merged with Maxxium operations.
To divorce themselves completely from the Maxxium partnership, Fortune would have find/create alternate European distribution for all of the other brands under the Jim Beam Brands umbrella.
Due to the complicated nature of spirit distribution, Fortune may very well decide to continue to participate in Maxxium, at least for the short-term. But let’s face it, when your partners start to screw you to protect their own interests, you don’t have much of a partnership.
I smell a rift, some bad blood and an eventual divorce. With the Allied acquisitions, Fortune has likely outgrown the long-term need for the distribution partnership.