Absolut vodka and Jameson whiskey maker Pernod Ricard has agreed to buy a majority stake in a West Virginia craft whiskey distiller, the latest bet by a big alcohol producer to invest in a smaller rival.
The French beverage giant—the world’s second-largest liquor producer after Diageo—on Thursday announced that a subsidiary has invested in Smooth Ambler Spirits Co., an award-winning maker of brands including Smooth Ambler Contradiction Bourbon and Old Scout Single Barrel Bourbon. The deal is expected to close early in 2017.
“This investment illustrates perfect our strategy of partnering with rising entrepreneurs,” said Pernod Ricard CEO Alexandre Ricard in a statement. “It represents a strong opportunity to enter the fast-growing, high-end bourbon market.”
The craft spirits industry has grown to a little over 1,300 active distillers in the U.S., reportedly achieving $2.4 billion in retail sales last year and posting compound annual growth rate of 27.4% in volume. That sharp growth is far better than the broader industry, a trend that mirrors the craft beer industry. Alcohol beverage consumers have been favoring smaller, often local options, a trend that first took hold in the beer world but is now extending to spirits.
That consumer-driven movement toward craft has also led to some deal making. Beer has seen a slew of deals, and now craft spirits are also seeing themselves get acquired. In October,Constellation Brands (STZ-B), makers of Corona beer, agreed to pay $160 million to buy High West Distillery. Other recent deals include Pernod Ricard’s majority investment in dry-gin brand Monkey 47 and rum-maker Bacardi’s acquisition of bourbon brand Angel’s Envy.
These deals make sense on both ends. The craft producer gets an immediate boost in distribution and can also get help with marketing and sourcing, while the often slower-growing large beverage companies can add a fast-growing brand to their portfolio. One risk is that if the craft brand becomes ubiquitous, it can seem less trendy.
Many of the craft spirits acquisitions have tended to favor the brown spirits industry, namely whiskey makers. That’s because consumers, especially millennials, are tilting more toward whiskeys and drinking fewer clear spirits like vodkas.