Campari is set to increase shareholders’ voting rights this month, a move which may carve a path toward making a big acquisition as the Italian spirits group seeks to compete against larger rivals like Pernod Ricard and Diageo.
That shift is due to a loyalty shareholding scheme increasing voting rights for members after a certain number of years: Campari’s shareholders with an uninterrupted holding period of at least five years can increase voting rights from two to three votes. That means the controlling family’s investment vehicle, Lagfin SCA, will see all its shares receive five votes, increasing its voting rights to 84% from just below 70%.
So what does that mean for acquisitions?
The voting structure provides substantial room for the controlling family to dilute its economic interest without losing control of the company. The move was aimed to open the way to fund a potential big acquisition, CEO Bob Kunze-Concewitz told Reuters last month.
“The family retains control, and the firepower of Campari— in terms of their potential targets that they can look for—raises to something like €8 to €10 billion by some estimates,” said Luxury portfolio manager Javier Gonzalez Lastra of Tema, an investment advisor and management firm.
Lastra has done investment research for over 20 years, the vast majority of it on consumer goods, and more specifically, beverages.
Now, if a target comes up for the likes of Pernod Ricard, it has a new competitor alongside Diageo and Bacardi, he said. As for what kind of acquisition, calls with investors, and the company’s other investments point to a brand with a large U.S. presence.
“Ideally they want to one day acquire a sizable brand that has international appeal, has a presence in the U.S. already or an international brand that has potential to develop nicely in the U.S.,” he said. “They really want to exploit or leverage the investments that they put into the U.S. after they acquired Grand Marnier.”
Campari has built a steady presence in the U.S. market even prior to that 2016 acquisition, when it purchased leading premium Kentucky bourbon whiskey Wild Turkey in 2009 from Pernod Ricard. The whiskey brand now holds the fifth-largest share of the premium whiskey segment off-premise, with sales up 5.4% in the last 52 weeks ending July 15, according to NIQ data provided by 3 Tier.
The U.S. is now the group’s largest market, where sales grew by 11.7% in the first half of 2023, or 3.3% in the second quarter, reported last month. First-half year sales were up in the Americas (43% of total sales) organically by 10.6%. Performance in the first half was mainly driven by the growth of Aperol, Espolón, Appleton Estate, as well as Russell’s Reserve.
In a report from BevAlc business intelligence agency Overproof detailing the top-performing alcohol suppliers, brands, categories and cocktails among top cocktail bars in the U.S., findings highlighted the rise of Campari America as the leading brand by venue presence found in 47% of venues and the leading supplier by venue presence, with the supplier’s brands found in 70% of bars. But in share of off-premise sales, the manufacturer falls behind its major competitors.
“They put out quite a lot of investment especially in on-trade and they want to leverage that,” said Lastra. “The sales teams in the U.S. have been asking for more product, more categories to fulfill their portfolio.”
But in what category would the group invest?
Campari already boosted its high end Kentucky bourbon portfolio by taking a majority stake in Wilderness Trail Distillery last year, a move designed to expand its production capacity and inventory to meet growth plans for its premium bourbons, such as the high potential Whiskey Barons range, which were capped due to capacity constraints. In February’s earning calls, the group described plans to double the distilling capacity of its aperitif, bourbon and tequila brands.
Another fast-growing spirit in the U.S. is tequila, a category in which the company has a foothold with Espolón—a brand ranked third in share of the premium segment off-premise, behind leaders 1800 Tequila and Hornitos in the last 52 weeks ending July 15. U.S. sales grew 30.8% in Q2 according to the company. This year Campari also debuted a new high-end brand Mayalen.
“But they have suffered from problems in terms of supply, they’re not very vertical,” Lastra said.
What that means is that unlike some major groups who agave farmland, Espolón’s margins have suffered due to the rise of agave prices, which exploded around 2017 with little relief since. The tequila business has traditionally suffered from boom and bust cycles: as demand for the slow-growing plant picks up so do prices, but planting frenzies later create oversupply, which should bring down prices in the near future.
“So for them becoming bigger in tequila and potentially buying a business in tequila that owns land and is vertically integrated and can bring a supply of agave into the group could be quite beneficial,” Lastra said. “But it’s not an easy task, when things are booming it’s not easy to buy assets at the right price.”