Tequila demand ‘is absolutely on fire,’ Beam Suntory CEO says

Beam Suntory CEO Albert Baladi joins Yahoo Finance Live to discuss the demand for tequila, market uncertainty, consumer spending and trends, supply chain woes, and the outlook for acquisitions and competition within the drinks space.

Video transcript

- Throwing up a fight. Japanese-American spirits maker Beam Suntory is focusing more on value over volume. That strategy reaping an 11% rise in sales in 2021. For a take on what's on the US drinks menu, let's bring in Albert Baladi, Beam Suntory CEO. Albert, good to see you here. Like we were talking about a little bit in the break, tough year for the markets. Tough year for consumers. Do you see them hitting the bottle more because they're so stressed out?

ALBERT BALADI: Brian, first of all, thank you for having me on the show. I think we're at the great moment for Beam Suntory and Suntory, our parent company. The spirits category overall has been really very resilient through economic downturns, and particularly the premium spirits company. So we are focusing very much on premium spirits. We see some great opportunities for us. And kind of the move to New York, the move of our headquarters and Suntory's New York's office is a reflection of that. It's a big moment for us as a company.

- I as a whisky fan have been a purchaser of a few of your products in the past. But when you think about what the categories are that you want to make more of an investment over the coming years, tequila is one of those that you're eyeing up right now? What are you looking for in a tequila company prior to making them kind of viable for an acquisition.

ALBERT BALADI: So let me just say a couple of things. One, in terms of global trends, we're seeing a big trend towards premiumization. And that's a very important focus for us as a company. The second big trend we see is around convenience. And consumers are moving to those ready-to-drink ready-made cocktails. And within that, of course, we believe that consumers will always pay for quality. So this is a bet we're making. As a company, we're making big investments in quality so that we can give great liquids, we can exceed consumers' expectations.

Now, as you look at other categories, there's absolutely no doubt that tequila is one of the hottest categories at the moment. It is attracting multicultural consumers, younger consumers. It's absolutely on fire. We see it everywhere. We've got a great portfolio. We've got four brands we're investing a lot in and we're doing a lot of things. But as always, we're looking for other opportunities. And when they come and when we see something exciting, we will be ready to move.

- Albert, why tequila? I asked one of your competitors this last year when tequila was still hot. And they didn't give me a really great answer. But I imagine you get a lot of research. Why are consumers saying I don't want that whiskey-- no offense, Brad. You know I like whiskey. But I'm going to reach for tequila.

ALBERT BALADI: First of all, whiskey is still very hot. And American whiskey continues to be a really, really solid category in the US. We're seeing great trends. We're seeing great premiumization in American whiskey. Now, tequila is becoming increasingly popular with young people. I think it's a question of discovery. There's an interesting story as a Mexican native spirit. There's great variety of tequila. And there's also the celebrity factor. That has played a big role, I think, over the last few years in the explosion of the category in the US.

- Just decoded the fascination with tequila. Thank you. Thank you. You nailed it. That was exactly what I needed. Thank you.

- When you look across sales into the future, which category do you believe is still going to be holding up being the strongest where you'll continue to kind of do either deal making or just investing in the brands that you own right now?

ALBERT BALADI: The core of our company really very much is whiskey. And we are the world leaders in American whiskey and bourbon, also in Japanese whiskeys. We've got great presence in Scotch. So we will continue investing a lot in whiskey. At the same time, we need to grow other categories. You're seeing that investing in tequila, as we just said. We've got some great cognac brand with Courvoisier that we're doing a lot to relaunch.

And then we're investing a lot in ready-to-drink, in pre-mixed cocktails, you know, brands like On The Rocks in the US, which are really on fire at the moment. As consumers, this is kind of the blend of the cocktail culture on the one hand and convenience coming together for consumers. And it's really working really well.

- The industry has been dealing with a glass shortage. Has that subsided at all?

ALBERT BALADI: It has largely in 2022. Last year, I must say, was really horrendous for us. I think glass, working with our suppliers-- and really, I'm incredibly proud of the work that our supply chain team has done, but also the work that when we were having real issues in 2021, the partnership that we saw between our supply chain team and our commercial team bringing solutions to the market, like, for instance, PET bottles where we had shortages of glass in very quick times.

Lastly, I mean, the last six months have been much better on glass. But we're seeing other issues on supply chain. It's a disrupted market with costs rising very high as well, cost of transportation, sea freight, which everybody is still dealing with.

- Is the glass bottle going to go away at some point? I was talking some folks in the industry. And they're now working on paper bottles, or things that look like paper but they're very I guess Earth friendly, or more Earth friendly than glass.

ALBERT BALADI: There will be a place for both. I think the first thing we need to do is make sure that we lightweight our glass and we really encourage the consumer to recycle, which is what we're doing. And we've got projects on the way to minimize the weight of the glass. And there's ways to do that. But at the same time, there'll be a market for probably more eco-friendly packages.

- We've seen so many companies just trying to restructure their costs to navigate the economic headwinds that many of them are citing at this point in time, either to investors private or public. And so with that in mind, as you go out and you look at potential acquisition targets, how quickly would you accelerate one of those acquisitions in order to do it at a time where you're getting a good deal at the same time too?

ALBERT BALADI: So yeah. I mean, obviously, when we do an acquisition, there's always a consideration in terms of how much you integrate in the beginning versus how much you leave this company kind of do what they are doing best. And that's one important consideration. We tend to bring a lot of value through the back office in the beginning and the support. But very often, we leave them alone. And then after a while, when the time is right, maybe there's kind of a closer integration. But for the time being, I think, as I said, we're focused on our core portfolio. We've got a lot to be excited about. And when these acquisitions come, we'll look at them one by one.

- Maybe you could settle this debate for us before you head out. What makes a good bar? We had a lot of different discussions this morning. Is it the chairs? Is it the lighting? What's going on out there in the industry?

ALBERT BALADI: What makes a good bar is having a good portfolio of Beam Suntory brands.

- I put that on my list. OK. There we go. Well played, sir.

- Albert Balada, who is the Beam Suntory CEO. That's a perfect answer. Yeah. And Beam Suntory brands got to be strong in that bar.

ALBERT BALADI: Thank you.

- Thanks so much for your time, Albert.

ALBERT BALADI: All the best. Thank you.