Lawson Whiting, Brown-Forman CEO, joins Yahoo Finance’s The First Trade with Alexis Christoforous and Brian Sozzi to discuss the state of the wine and spirits industry, booming categories, future outlook for the holiday season and much more.
ALEXIS CHRISTOFOROUS: We're getting an inside look this morning at the spirits and wine industry during the pandemic. Brown-Forman, that's the company behind Jack Daniels and Korbel champagne, beat earnings expectations in its latest quarterly report. The company's President and CEO, Lawson Whiting, is joining us now. Good morning to you Lawson. Good to have you here. So the latest earnings report, pretty good. Volumes grew by 22%. How has this pandemic impacted your business? I have to think a lot of people are drinking a lot more.
LAWSON WHITING: Yeah. I mean, it's been extremely volatile, that's for sure. And it's it's been very different depending on where you are in the world. But, I almost call it a phenomenon, that's really happened in the US is the amount of home consumption of spirits. And so what you've had is this dynamic where all the bars and restaurants close and global travel retail, which is also a big segment for us.
So 25, 30% of our business goes to zero-- not all the way to zero, but close to it. Offset largely by at-home consumption. And so the grocery channel, the liquor store channel, all those are absolutely booming right now as consumers love to throw their little home parties. It's worked out quite well for us.
BRIAN SOZZI: So true, and Lawson, so many eyes right now on the hard seltzer market. Every day, a new hard seltzer comes to market. But you guys are actually playing in this Ready to Drink space. What are you doing in that space? You have a new drink. It's in 14 markets. What your plans for that brand right now?
LAWSON WHITING: Yeah, so the Ready to Drink category, you're right, has boomed. It's convenience has really been a big part of this home consumption occasion, and that's global. That's not just the US. So we've, I mean, that business for us, we've been in it for 30-plus years with various different brands, but Jack Daniels & Cola being the biggest one, really, around the world. It's a huge brand down in Australia. It's big in Germany. It's big in a lot of markets around the world, and that business is truly booming. In the US, so White Claw and those brands like that certainly have taken off, obviously, and they are really putting a hurt on the beer category as a whole.
We have something called Jack Daniels Country Cocktails, which you may have seen. They're in bottles. There's a variant called Southern Peach that is just on fire. And in our first quarter, that business nearly doubled, so it's been a great business for a long time. Now, what you're referring to, the seltzer, there's a Jack and seltzer spirit-based RTD that we're introducing, as you said, in 14 states. But it's only been out there for a few months, so we're still sort of in test mode. But yeah, consumers love anything in a can and anything with the seltzer name on it these days.
ALEXIS CHRISTOFOROUS: Yeah, it seems to be. I know that over the summer, you actually sold Early Times and Canadian Mist. Are you looking, though, to make some acquisitions elsewhere in the beverage sector right now, and if so, what are you what are you looking at?
LAWSON WHITING: Oh, yeah, so over the last, I'll say, really, decade, we've done a lot of we call it reshaping the portfolio where we've gotten out of the lower priced wine businesses, and we've shed most of our brands that are, call it, value priced brands or, you know, below $20. And so the vast majority of our portfolio now is in the premium or super premium spirits space, and we've been working hard on that. So in the last, even in the last five years, we bought three single malt scotch brands, we built a distillery in Ireland, we bought a brand last summer called Fords Gin. So we've really worked on buying more and more super premium spirits products, and we're still, you know, we're on the hunt for more now. And, you know, this pandemic is shaking up the world and hopefully providing some opportunities for us to go and acquire.
BRIAN SOZZI: Lawson, what's your sense of the celebrity backed liquor market? We have Snoop Dogg now launching a new gin. It took him 24, 25 years to do this, not sure why. You had George Clooney sell his brand for $1 billion. You had Ryan Reynolds sign off on a $610 million acquisition of his brand. Why are these celebrity brands so hot, and do the valuations make any sense?
LAWSON WHITING: It is tough to justify the valuations, I must admit. They are a paying, I mean, in the old days of paying something times, you know, EBITDA are long gone, and everybody's paying 10 and 20 and 30 times sales. And so, we're not really going to participate in that type of environment. I mean, it's hard to justify.
But, you know, celebrity endorsement has worked in our industry for a long time. I mean, Jack Daniels benefited 30, 40 years ago from all the rock and roll, the Frank Sinatra's and the Jimmy Pages and all the Stones and all the rest of them, so. We never had to pay for that, though. Those were, they just came along with us.
That part has changed. You basically can't get celebrity endorsement anymore without paying for it, and so it's not something we do a lot of. We've got a good relationship with Eric Church, the country star, but we don't pay him. He just loves our brand and writes about it, and we might give him a little bit of free product, but that's about the end of it, so.
ALEXIS CHRISTOFOROUS: That's the best kind of endorsement for you guys, Lawson. Talk to me about what you think the holiday season is going to be like. It's going to look so different, right? Restaurants are not going to be open, parties aren't going to be happening the way they normally would. What are your expectations for sales during the critical holiday time?
LAWSON WHITING: Yeah, we talked about that yesterday on a conference call, because it is-- we came out of this first quarter hot with pretty good sales growth, but I am still concerned about the holiday season. As you say, without bars and restaurants, without company Christmas parties, all of that was likely to go away. Replaced by, I do think you'll get the home, you know, the home entertainment occasion, which is happening now in smaller groups, and you'll likely get a lot of that. But I do worry a bit about what this holiday season is going to do for the spirits business. I think it's going to be a tough one.
ALEXIS CHRISTOFOROUS: All right, Brown-Forman CEO, Lawson Whiting, thanks so much for being with us and best of luck to you.
LAWSON WHITING: Thank you. Good to be here.