Notions of craftsmanship appear to be steering the top end of the spirits industry, making startups attractive for takeovers.
23 Dec 2016
Pictures of Sipsmiths’ shiny copper gin distillery in Hammersmith are all over its website. A video ‘tour’ of the distillery fills the screen as soon as the page loads.
In all of Sipsmith’s sales material, it sings nostalgically about the traditional methods of making gin, with the emphasis on Sipsmith a devoted practitioner to the drink. Its site also praises the ‘craftsmanship and passion’ of founders Sam Galsworthy and Fairfax Hall (formerly of Fullers Brewery and Diageo respectively).
For many, Sipsmith is emblematic of the fascination around ‘authentic’ brands that attracts customers and critics in equal quantities.
Last week, Sipsmith cemented a deal with one particularly big admirer: the world’s third largest spirits company, Beam Suntory. It agreed to take full ownership of Sipsmith, a six-year-old startup, for an undisclosed sum. Beam Suntory is a US-Japanese firm which presides over brands such as Jim Beam and Courvoisier.
It’s the latest in a spate of deals in the booze industry where big firms have acquired companies barely a few years old. French firm Pernod Ricard bought a majority stake in German startup Monkey 47 at the start of the year for an estimated £55m. Whiskey’s since been the flavour of the season; in the past few months, Constellation Brands bought 10-year-old distiller High West for around £110m, Rémy Cointreau snapped up US malt whiskey maker Westland for an estimated £80m and Diageo’s Distill Ventures invested in the Australian whiskey firm Starward.
The Sipsmith deal is another example of financial value being attributed to this fuzzy notion of brand authenticity – regardless of whether that authenticity is real or fabricated. It clearly sells.
Sipsmith’s Galsworthy said to Courier: ‘I witnessed a movement in consumerism while travelling in the US. It was a propensity to pay more for things with substance and story.’
When asked whether setting out to create a back story for Sipsmith inherently made its authenticity claims somewhat dubious, Galsworthy said: ‘You can’t fake this stuff. The consumer wants to see how this stuff is made, where it’s made, by who, where and with what. And most importantly, why you’re doing it.’
The ‘craft’ spirits sector currently makes up no more than 2.2% of all spirit sales in the US, which is the most advanced market in the world for this sub-category. But all the action is here. The £25 to £30 price bracket of gin bottles has grown significantly in recent years, and is the outlier in a sector that has been either flat or declining.
Ten years ago, there were fewer than 100 gin companies. There are over 1,000 today. This new breed of so-called ‘super premium’ gin company is operating with a new playbook, heavily loaded with story. Each inevitably arrives with a big founder narrative (a lifelong love for gin or some such), and a manufacturing story that cranks up its credentials in using traditional techniques and quality ingredients.
It has attracted a new, younger kind of gin drinker. It stokes a new kind of geeky aficionado that studiously (and proudly) immerses themselves into understanding of product, even the category.
Craft beer is now a $22bn industry in the US with a 12% market share, as independent brands have enjoyed strong growth in recent years.
Beam Suntory, which already owns two gin brands, evidently sees more in Sipsmith than its minuscule 0.44% share of the UK gin market (its biggest market by some distance).
Although Sipsmith is now wholly owned by Beams Suntory, Galsworthy maintains he and his fellow founders have complete control and ‘want to be here for life’. The deal, he says, allows Sipsmith to tap into Beam’s sales channels around the world.
Contact began when the Sipsmith founders met fellow Brit and Beam Suntory CEO Matt Shattock at High Road House in Chiswick in the summer. It concluded last month at the spirits giant’s HQ in Chicago. ‘Matt was great. He said “We are the mules for you to take this brand into the four corners of the world”. They want us to keep what we have and keep us as the decision makers.’
Sipsmith’s craft story and its resonance with an upmarket clientele is certain to have formed a big part of its attraction for Shattock and the rest of the Beams Suntory management. The sale follows a growing trend across several consumer sectors: large companies acquiring startups barely a few years old, but with a cult following. Although many such acquisitions go sour, the operational resources of corporates and access to distribution channels around the world can spur growth. Sipsmith’s new owners will be expecting to see the £6.5m in annual sales it made last year to multiply quickly to start getting a return on its investment.