Vodka is on a spirited trajectory, lifting the entire industry with compounded annual growth of more than 5% since 2005. It commands more than a third of the entire spirits market, outpacing whiskey in second place at 22%, and well ahead of third-place rum with a 13% share.
Yet if distiller Brown-Forman Corporation (NYSE:BF.B) is right, the so-called “browns” of the drink world are about to see a renaissance of their own. The maker of Jack Daniel’s and Woodford Reserve says growth in the space ran about 7% last year and it anticipates seeing an 8% increase in 2013.
Perhaps we shouldn’t be surprised. Earlier this year rival BEAM Inc (NYSE:BEAM) created a stir when it announced its intention to water down its popular Maker’s Mark brand in a bid to stretch supply to meet demand. While it may have been something of a marketing ploy — it quickly backed down when a hubbub grew on its Facebook Inc (NASDAQ:FB) page and subsequently enjoyed a nice 44% spike in sales — it did indicate there was growing interest in the category.
The market researchers at Technomic say there really could be a whiskey shortage. Despite having just a little more than 8% of the market, American whiskey is experiencing the same sort of growth rate as industry-leader vodka. Because of the aging process of whiskey — it can take a decade or more to reach peak flavor — any increase in demand could result in shortages, particular among smaller craft distillers.
Like the craft beer boom that Boston Beer Co Inc (NYSE:SAM)‘s Samuel Adams spearheaded, we now see a rise in small distillers investing in the browns. And for them, the risk is much greater since it will be years before they know whether they have a good product or have simply wasted their efforts.
Where Diageo remains the largest producer in the vodka market, owning 25% of all production, Brown-Forman Corporation (NYSE:BF.B) is a major whiskey distiller, with 60% of its portfolio in the North American market (though Diageo owns a number of well-known whiskey brands too, like Johnnie Walker).