You could tell that the GMG Brands merger, between GrandMet and Guinness, was likely to be a strategic success from the moment rival distiller Seagram began screaming blue murder.
The fit between their spirits portfolio – the real force behind this 24bn deal – and their complementary geographical strengths are so compelling that the wonder is a similar deal was not concluded long ago. (Not for lack of trying, the cynics will say, despite Guinness chairman Tony Greener’s disavowals.)
The plight of those in the global spirits market is no mystery. Margins are under pressure from several quarters: saturation in more mature markets has been compounded by the increasingly coercive buying power of retailers and the growing reluctance of those under 60 to buy the product. Guinness, less diversified and therefore protected than GrandMet, has done well to raise its brands’ profiles as well as profits. But this recent performance could not continue without more broad-based support. GrandMet, on the other hand, will be able to exploit Guinness’ unsurpassed position in Far Eastern emerging markets.
The really interesting question is what happens now. Despite Seagram’s invocation of every bit of anti-trust legislation known to man, the regulatory authorities are unlikely to be very interested. Though one or two brands will drop out of their own accord – for instance, GrandMet’s champagne and cognac interests directly conflict with Guinness’ pledges to MoÃ« Hennessy – Seagram’s hope must be that it will acquire a few more by vigorous harassment.
But any such prize would be no more than temporary consolation for loss of competitive advantage. A further round of global consolidation seems very likely, with Seagram leading the way. Better late than never, it has to be said. While Allied Lyons was buying Hiram Walker, then Domecq, Guinness was pouncing on United Distillers and GrandMet acquiring Heublein, what was Seagram doing? Well, it bought Martell – a pretty small player; moved heavily into soft drinks and then decided it was more interested in Hollywood. A spectacular coup is now called for to restore its core credentials.
And many in the market see Allied Domecq, which has powerful brands and an indifferent track record, as the ideal means of doing so…
Two things in this new scenario are certain. There will be a new round of global consolidation moves in the spirits sector. And, just as important, it is the globalisation of brands – more than distribution clout, more than paper profits – which is driving it.
Cover Story, page 10; George Pitcher, page 25