. 5
( 11)


Distillers, the alcoholic beverages business accounted for between 80 and
91 percent of its annual sales during the 1960s, with the remaining sales

14 For a more detailed analysis of diversi¬cation of multinationals in wines and spirits, see
Alfredo Coelho and Antonio de Sousa, “Strat´ gies de D´ veloppement des Groupes Multina-
e e
tionaux des Vins et Spiritueux,” Economies et Soci´ t´ s, Vol. 10“11, No. 24 (2000): 257“70.
15 This Appendix provides an illustrative sample of ¬rms with high levels of diversi¬cation
and internationalization. There were nonetheless other ¬rms with similar levels of diver-
si¬cation that are not included in Appendix 8. For example, the U.S. ¬rms Schenley and
Heublein had diversi¬ed into other businesses as a consequence of Prohibition. The gov-
ernmental restrictions imposed on consumption and on production during that period left
¬rms with excess resources (such as production capacity and human capital). While many
¬rms closed down and sold their stocks to others, some, especially those that had ¬‚exible
resources, were able to survive by diversifying into other areas, running high levels of risk.
Heublein, for instance, developed a food business during the time of Prohibition. The ¬rm
started producing a steak sauce from an operation acquired in 1918, which turned out to
be very successful. It was still an important business by the 1960s. William L. Downar, Dic-
tionary of the History of American Brewing and Distilling Industries (London: Greenwood,
1980): 90.
Diversi¬cation Strategies
coming from investments in chemicals and biochemicals. It had diversi¬ed
into these businesses almost since its foundation in 1877, as some of the
¬rms that merged to form Distillers Company already produced alcohol for
industrial use. This available knowledge served as the basis for investments
in the manufacture of organic chemicals and in biochemicals. By the end of
the 1960s, following the litigation over the sleeping pill thalidomide (which
caused birth defects when taken by pregnant women), Distillers Company
begun to divest from these nonalcoholic beverages businesses. The poor per-
formance of the chemicals businesses ultimately led to their sale to the oil
group British Petroleum (BP) in 1969.16
Firms such as Guinness in the United Kingdom were already diversi¬ed,
but like Distillers Company, had low levels of product diversi¬cation. Guin-
ness essentially produced beer. It also had small investments in other busi-
nesses such as confectioneries (butterscotch, nougat), pharmaceuticals, and
property, and was vertically integrated in the British market, where it had
marketing and distribution activities. However, unlike British brewers such
as Allied Breweries, Bass, and Whitbread, Guinness was able to grow without
diversifying into the ownership of pubs.17
During the 1970s, three different kinds of shifts took place in the diversi¬-
cation strategies of ¬rms in alcoholic beverages. One involved the diversi¬ca-
tion into other industries by ¬rms originally focused on alcoholic beverages.
A second strategy adopted by owners of successful brands involved grow-
ing in size while remaining in alcoholic beverages. This group merged or
acquired other ¬rms from the same industry, consolidating their positions in
the domestic market. A third strategy was adopted by well-established ¬rms
operating in other industries that entered the alcoholic beverages business
through the acquisition of existing ¬rms.
Allied Breweries™ acquisition in 1978 of J. Lyons & Co., a leading food
specialist, is an example of the ¬rst strategy. With this large investment in
another industry, Allied Breweries hoped to ensure a steady cash ¬‚ow and to
spread risk.18 J. Lyons & Co. had a vast array of businesses in cakes, cookies,
and other confectionery, as well as groceries and frozen and refrigerated food.
In addition, it had services and leisure businesses in Africa, where it owned
Embassy Hotels, J. Lyons Catering Ltd., and Lyons Brooke Bond (in Zambia
and Zimbabwe). In the United States, J. Lyons & Co. owned major ¬rms
in different food sectors: Baskin & Robbins ice cream, DCA Foods (cereal
mixes), and Tetley Inc. (a leading tea, coffee, and frozen foods producer).

16 Ronald B. Weir, The History of the Distillers Company, 1877“1939 (Oxford: Oxford Uni-
versity Press, 1995); James Bamberg, British Petroleum Global Oil, 1950“1975 (Cambridge:
Cambridge University Press, 2000).
17 Terry Gourvish and Richard G. Wilson, The British Brewing Industry, 1830“1980 (Cam-
bridge: Cambridge University Press, 1994).
18 Interview with Michael Jackaman, former Chairman of Allied-Domecq, Somerset, 8 Decem-
ber 1998.
112 Global Brands
In 1991, after the company incurred a £147 million loss caused by currency
portfolio mishandling and low returns on investment, Allied Lyons sold the
Lyons business.19 Since then the ¬rm has refocused its activities on its core
businesses in wines and spirits.
Within the group of alcoholic beverages ¬rms that diversi¬ed into other
businesses, different strategies of diversi¬cation were adopted. While some
¬rms, such as Allied, sought to diversify risk by merging and acquiring
other ¬rms and exercising control over their management, others sought
only ¬nancial investments in other ¬rms. In both instances, ¬rms attempted
to substitute markets by spreading their portfolios of investments indirectly.
The argument was that if investors recognized this service, then the bene¬t
would be re¬‚ected in the stock price of the ¬rms.20 In those cases where
diversi¬cation meant ¬nancial investments only, the linkages (either in terms
of physical assets or knowledge) tended to be very low or nonexistent. The
acquisition in 1980 of Home Oil Company by Hiram Walker, a leading
Canadian bourbon producer, is an example. Apart from spreading risk, this
acquisition also prevented HCI Holdings from taking over Hiram Walker.
Another example of unrelated diversi¬cation where there was no control of
the management or share of physical or knowledge linkages, is Seagram™s
acquisition in 1981 of a 21 percent interest in DuPont.21 The lack of physical
or knowledge linkages between the oil, gas, and chemicals businesses and the
alcoholic beverages business, however, led the management of the ¬rms to
realize that it was too costly to keep these ¬nancial investments. In the case
of Hiram Walker, the oil business was sold right after the ¬rm was acquired
by Allied Domecq in 1986. In the case of Seagram, the ¬nancial investment
in DuPont was sold in 1995 when the ¬rm entered the entertainment and
leisure industry, which its managers believed was more closely related.
A second group of ¬rms diversi¬ed in the 1970s by merging with direct
competitors originally from the same domestic markets. The creation of
Pernod Ricard in 1975 is an example of this strategy. Ricard™s diversi¬cation
into tea and coffee had not been successful, and Pernod had not succeeded
in its efforts to diversify into bio-products. The merger between Pernod and
Ricard created a large national alcoholic beverages company that would
diversify internationally into spirits other than anis. As a result of the merger,
the ¬rm became a leading producer of anis pastis, as well as major exporter
of Australian wines and producer of Irish whiskey. In 1973, Pernod Ricard

19 Allied Lyons, Annual Report and Accounts (1991).
20 Williamson, Markets and Hierarchies, chapter 9; Alan K. Severn, “Investor Evaluation of
Foreign and Domestic Risk,” Journal of Finance, Vol. 29 (1974): 545“50; Richard E. Caves,
Multinational Enterprise and Economic Analysis (Cambridge: Cambridge University Press,
21 However, this interest of Seagram in the oil and gas business dated as far back as 1947.
Hiram Walker, Annual Report and Accounts (1980); Edgar M. Bronfman, Good Spirits:
The Making of a Businessman (New York: Putman™s, 1998): chapter 1.
Diversi¬cation Strategies
acquired JAF juices. This business was later expanded with the acquisition in
1982 of the SIAS-MPA fruit preparation business and, in 1984, of Orangina,
a soda maker.22 This diversi¬cation into soft drinks was a reaction to the
changes that were taking place in the alcoholic beverages industry: consumers
were becoming more health conscious. These investments were, however, not
cost-ef¬cient, as it was very dif¬cult to compete with companies such as Coca
Cola. The ¬rm ended up selling these soft drinks businesses in 2001 and 2002
to Schweppes and refocusing on alcoholic beverages.23
Grand Metropolitan and Philip Morris are examples of the third strategy
mentioned above. Each entered the alcoholic beverages industry during the
1970s. Grand Metropolitan, a hotel and real estate ¬rm, gradually increased
its investments in the alcoholic beverages industry by merging and acquiring
¬rms already established in that industry. This ultimately led to its divest-
ment from real estate, its original business. Philip Morris, a tobacco ¬rm,
acquired the brewing ¬rm Miller and kept it in its wide portfolio of busi-
nesses, with tobacco remaining as its main activity. Philip Morris eventually
sold Miller in May 2002. Liggett & Myers, another U.S. tobacco company,
also entered the alcoholic beverages business. In this case, the alcoholic bev-
erages business became increasingly important in the total activity of the
¬rm. Its diversi¬cation into alcoholic beverages started in 1964 after Liggett
& Myers had suffered a decade of declining sales in the tobacco business.
The 1970s was also a period during which many leading ¬rms did not sur-
vive independently. In the United States, as a result of the changes that were
starting to take place in distribution (with a high concentration of wholesal-
ing and retailing), the alcoholic beverages ¬rms were not able to keep ef¬cient
wholly owned distribution channels. Many disappearances can be explained
by the small size of portfolios of successful brands and inadequate market-
ing knowledge acquired from managing their own brands internationally.
For example, in 1971, Schenley was sold to Glen Alden Corporation, a con-
glomerate operating in a multitude of businesses from consumer products to
textiles, construction materials, and motion pictures.
The 1980s saw the rise in the Western world of new market and ¬rm
imperfections that created excess capacity in the industry. This led ¬rms
with adequate resources to diversify further into new geographical regions
and new industries. In Japan, alcoholic beverages ¬rms increased the num-
ber of alliances with Western ¬rms while simultaneously starting to interna-
tionalize in alcoholic and nonalcoholic beverages (even though the level of
that internationalization always remained low). Japanese ¬rms also intensi-
¬ed their investments in the soft drinks industry (in particular in the health

22 “Will Pernod mix its drinks?” The Independent on Sunday (17 October 1999).
23 Interview with Thierry Jacquillat, family member and former CEO of Pernod Ricard, Lon-
don, 22 October 2003; Pernod Ricard, Annual Report and Accounts (1991); Financial Times
(11 January 2002).
114 Global Brands
and “¬tness” supplement beverages) and also in the food business. All the
major Japanese alcoholic beverages ¬rms “ Kirin, Asahi Breweries, Suntory
and Sapporo “ followed this trend because of the growth potential of the
soft drinks industry. Economies of scale and scope in distribution were also
important since soft drinks used the same distribution channels as alcoholic
beverages, in particular beer. In addition, many ¬rms in Japan started invest-
ing in industries related to health, such as pharmaceuticals.
Following the strategies of diversi¬cation into soft drinks by Pernod Ricard
and the Japanese ¬rms, Seagram acquired Tropicana, a fruit juices company,
in 1988. Despite the potential linkages in marketing knowledge and distri-
bution between the alcoholic and nonalcoholic drinks businesses, Seagram
never took advantage of these linkages and ended up divesting from soft
drinks in 1993.
Other ¬rms followed a different rationale for diversi¬cation during this
period: when Mo¨ t Hennessy, for example, joined with Louis Vuitton to form
LVMH (1987). The merger brought together two French ¬rms, producers of
high-prestige premium-priced brands where there was clearly a high poten-
tial for sharing marketing knowledge in the management of brands and in
international distribution.
The U.S. spirits ¬rm Brown Forman, the owner of the successful bour-
bon brands Jack Daniels and Southern Comfort, diversi¬ed into the con-
sumer durables industry, acquiring Lenox china, crystal, and giftware and
Hartmann luggage in 1983, and Dansk table and giftware and Gorham silver
in 1991. Unlike the successful merger that created LVMH, this strategic move
did not turn out to be cost-ef¬cient.24 The linkages between the management
of brands in bourbon, tableware, and luggage products were weak, and there
were no economies of scale and scope in distribution. In 2005 Brown Forman
sold Lenox (which by then also included other businesses such as Dansk con-
temporary tableware and giftware, and Gorham silver).
Grand Metropolitan remained highly diversi¬ed until it merged with
Guinness in 1996, when it shed its hotel and real estate interests. During the
1980s, it had become the world™s largest multinational in alcoholic beverages
as a result of its mergers and acquisitions of ¬rms such as Liggett & Myers
in 1980 and Heublein in 1987. In its growth strategy, Grand Metropoli-
tan combined geographical and product diversi¬cation, focusing not only
on the drinks sector but also on food, taking advantage of the physical and
knowledge linkages that exist between the two businesses.
While ¬rms in the 1990s tended to refocus on related activities, some
leading ¬rms either focused more on alcoholic beverages or de¬nitively
abandoned that business and concentrated operations in other industries.
In other cases, alcoholic beverages became just part of their wide portfolio

24 Hoovers Directory of World Business, “Brown Forman,” (Austin, Tex: Reference Press,
Diversi¬cation Strategies
of businesses. The high level of competition and stagnation of consumption
in many product categories in¬‚uenced this trend. Most important, this was
a way for ¬rms to eliminate costs associated with investments where both
the physical and knowledge linkages were weak or nonexistent.
Examples of ¬rms that during the 1990s increased their investments
in other businesses are Louis Vuitton Mo¨ t Hennessy (LVMH), Seagram,
Whitbread, and Bass. Of all these ¬rms, LVMH was the only one that by
the beginning of the twenty-¬rst century still operated independently in the
alcoholic beverages industry. Since the late 1980s, it had intensi¬ed its invest-
ments in the perfumes, leather goods, and fashion industries. In 1996, it
acquired DFS (Duty Free Stores), the U.S.-based world leader in the sale
of luxury goods to international travelers, which then became a major dis-
tributor of LVMH products. Here the linkages involved not only marketing
knowledge in terms of the general management of brands and distribution,
but also knowledge about speci¬c markets, such as the Far East. The strength
of the linkages in the distribution of such apparently different products is
related to the fact that the beverages produced by LVMH are premium priced.
LVMH can, therefore, use the same distribution channels and address the
same kind of customers in all of their businesses (e.g., through Duty Free
In the 1980s, when the beer market was sluggish, many brewers diver-
si¬ed into other leisure and related activities. For example, traditionally a
brewing and pubs retailing business, Bass Brewery entered the hotel and
restaurants business with the acquisitions of Crest Hotels. Later in the 1980s,
they sold this business and acquired instead Holiday Inns International. Bass
also invested in biotechnology, bar developments, and the leisure business
with the acquisition of Coral Social Clubs, and British American Bingo Inc.
Whitbread, traditionally a brewing and wholesaling business, in the 1980s
diversi¬ed into the restaurant sector by building a chain of Beefeater Steak
Houses and forming a joint venture with Pepsi Co.“Pizza Hut. It also had a
small wines, spirits, and soft drinks business that was sold to Allied (Hiram
Walker) in 1992.
Seagram had made major investments in the ¬lm and entertainment indus-
try in the 1990s, after which the alcoholic beverages business lost importance
in its overall activity. Although one of the CEOs had a personal interest in this
area since 1967 when Seagram acquired Sagittarius Productions (an invest-
ment that did not turn out to be very successful), it was only in the 1990s
with the acquisition of MCA in 1995 and the investment in the share capital
of Time Warner that the entertainment business became the major source of
this ¬rm™s revenue.25 Seagram ended up being acquired by Vivendi, which in
2002 sold the alcoholic beverages business to Diageo and Pernod Ricard.

25 Bronfman, Good Spirits: chapter 6.
116 Global Brands

Geographical Markets
In addition to growth in size, ¬rms were also increasingly involved in for-
eign markets.26 Table A8.2 in Appendix 8 provides a ratio of geographical
diversi¬cation for some of those ¬rms between 1960 and 2005. This ratio
includes the percentage of sales generated outside the continent of origin of
the ¬rms.27
Despite the fragmentation of the industry, many leading multinationals
were already in advanced stages of internationalization during the 1960s
and 1970s, generating more than 30 percent of their sales in foreign mar-
kets. Examples are the ¬rms Distillers Company, International Distillers and
Vintners, and Guinness, each of which set up operations on other continents
in former colonies of the British empire.
Despite having their production operations based in their domestic mar-
kets or continents of origin, many ¬rms had high levels of exports. Mo¨ t e
& Chandon and Hennessy internationalized as early as the eighteenth cen-
tury.28 However, the foreign direct investment of the newly merged ¬rm
essentially began in the 1970s in response to problems of asset speci¬city
associated with the geographic limits on champagne production, the need
to target lower segments of the market with sparkling wines, and the tariff
barriers imposed on trade in countries such as Argentina and Brazil.
Most spirits ¬rms and producers of still wines, for example, Distillers,
Mo¨ t & Chandon, and Hennessy, internationalized earlier than the beer
¬rms, with the exception of Heineken (see Table A8.2 in Appendix 8). Two
main factors explain the earlier internationalization of spirits and processed
wine ¬rms. On the one hand, they had products that were easily branded
and that did not change their characteristics signi¬cantly when traveling
to different places. On the other hand, spirits and processed wines ¬rms
had beverages that were drunk by consumers who tended to have higher
levels of income and a greater tendency to have more “global” tastes. By
internationalizing very early, these ¬rms played an important role in creating
habits of alcohol consumption and in educating consumers in markets like
the Far East, which were traditionally negligible.29

26 Pearce, “The Internationalisation of Sales by Leading Enterprises.”
27 This was the best proxy found to determine the level of internationalization of ¬rms, as there
is no systematic data available on the sales level in their country of origin. For that reason
this table does not illuminate the initial steps of internationalization of ¬rms, which usually
tend to take place in markets that are closer both geographically and culturally.
28 Paul Butel and Alain Huetz de Lemps, Hennessy: Histoire de la Soci´ t´ et de la Famille, 1765“
1990 (Cognac: Hennessy, 1999); L. M. Cullen, The Brandy Trade Under the Ancien R´ gime e
(Cambridge: Cambridge University Press, 1998); Claire Desbois-Thibault, L™Extraordinaire
Aventure du Champagne: Mo¨ t & Chandon: Une Affaire de Famille, 1792“1914 (Paris: PUF,
29 Teresa da Silva Lopes, “The Impact of Multinational Investment on Alcohol Consumption
Since the 1960s,” Business and Economic History, Vol. 28, No. 2 (1999): 109“22.
Diversi¬cation Strategies
In contrast, although easily branded, beer was for a long time perishable
and very expensive to transport. That is why companies such as Heineken
set up production operations abroad. Wine producers (at least the European
¬rms) had dif¬culties branding their beverages until recently due to their
high grape variety and the ¬‚uctuations in the quality of the crops; this made
it dif¬cult to produce beverages with the same characteristics every year.
Consequently, consumers could not rely on the brand name on the bottle
but had to take into account the year of the crop in assessing the quality of
the wine.
The 1980s saw a clear shift in the diversi¬cation strategies of ¬rms. The
percentage of sales generated in markets inside the continent of origin of
the ¬rm decreased even further. As analyzed in other chapters, the inter-
nationalization of ¬rms during this period not only included mergers and
acquisitions of other ¬rms, producers of alcoholic beverages, but also of for-
mer distributors. These investments were directed at the European market
and at emerging markets such as Asia, South America and central Europe
where there existed a potential for further growth of consumption of alco-
holic beverages. By making these investments in foreign markets, ¬rms were
able to use their excess production capacity and marketing knowledge.
One ¬rm that actually increased its percentage of sales in the continent
of origin is Heineken (see Table A8.2). While the European market in 1990
accounted for 76 percent of the total sales of the ¬rm, by 2000 it corre-
sponded to around 90 percent.30 Although Heineken had invested in dif-
ferent European countries after World War II, it entered actively in this
market essentially beginning in the 1990s, acquiring large local brewers in
different countries. In 1996, it acquired Fischer and Saint-Arnault in France,
thereby entering a market that by the beginning of the twenty-¬rst century
had become Heineken™s largest. Its acquisition of Birra Moretti in Italy also
made Heineken Italia a local market leader.31
The largest U.S. and Japanese beer and spirits ¬rms remained focused
on their local markets.32 For example, Brown Forman™s very low level of
internationalization is partly related to the large size of the U.S. market
and also to the ¬rm™s strategy of owning very few distribution channels
outside its domestic market.33 Brown Forman™s overseas sales relied instead
on alliances with multiple partners, in particular with other leading alcoholic
beverages multinationals, to distribute their brands in different markets. For
instance, in the early 1990s it had distribution alliances with the spirits
business of Guinness (United Distillers & Vintners [UDV]) and LVMH to
distribute its beverages in Italy, Denmark, Hong Kong, Malaysia, Singapore,

30 Heineken, Annual Reports and Accounts (1990, 2000).
31 Heineken, Annual Report and Accounts (1996).
32 For lack of systematic data these ¬rms are not included in Appendix 8.
33 Brown Forman is not included in Table 5.2 owing to lack of systematic data.
118 Global Brands
and South Korea. It had a separate alliance with Seagram to distribute in
France and Singapore. In the United Kingdom, it had an alliance with IDV;
in Portugal, with Martini; and in Germany, it used Bacardi™s distribution

The Role of Marketing Knowledge Linkages
In addition to looking at ¬rms through products and geographical markets,
it is also possible to analyze ¬rms as portfolios of resources such as market-
ing knowledge. Although all these approaches have many similarities (such
as those related to the management of the ¬rms™ portfolios of products or
resources), they highlight different growth avenues.35
Marketing knowledge can be easily transferred across different activities
within the ¬rm even if the products involved are technically unrelated and
have completely different requirements on the production side. For that rea-
son, marketing knowledge may provide a fundamental explanation of the
linkages between businesses that operate in distinct industries and where
there seems to be no apparent relatedness in terms of products, geographical
markets, or complementarity of activities (such as vertical integration).
Several different patterns emerge. The ¬rst concerns the diversi¬cation
strategies followed by ¬rms within the alcoholic beverages business (beer,
spirits, and wines). The second is related to the types of nonalcoholic bever-
ages businesses into which they diversi¬ed. The third relates to the countries
of origin and operation of these nonalcoholic beverages businesses.
Within alcoholic beverages, the strategies of the world™s largest multi-
nationals varied. Some only operated in a single business, producing and
distributing either beer, spirits, or wine. Others produced different types of
beverages, such as wines and spirits, and distributed all three categories of
alcoholic beverages, including beer. Of all the possible combinations between
these beverages and their production and distribution, the least common is
the one that involves ¬rms producing spirits and beer simultaneously. Dia-
geo, which produces Guinness beer and also spirits brands such as Smirnoff
vodka, and Johnnie Walker and J&B Rare Scotch whiskies, is an example.
But Guinness, unlike other beer brands, is managed and sold in the same way
as spirits.36 Another example is Suntory, which is famous for its whiskies
Hibiki and Yamasaki and also sells Suntory beer. This issue of the diver-
si¬cation within alcoholic beverages is analyzed in more detail in the next
section of this chapter.

34 International Wine and Spirit Record, “Mergers and Acquisitions 1992” (London, 3 Decem-
ber, 1992).
35 Birger Wernerfelt, “A Resource-Based View of the Firm,” Strategic Management Journal,
No. 5 (1984): 171“80.
36 Interview with John Potter, Guinness Brand Manager, London, 21 January 2004.
Diversi¬cation Strategies

Table 6.1. Valued-added chain relatedness between
the businesses of the world™s largest MNEs in alcoholic

Standard Industrial
Classi¬cation: Other
Businesses Beer Spirits Wine

SIC 20 Food and Beverages
+++ ++ +++/++
++ +++ +++/++
+++/++ +++/++ +++
+ + +/0
Quick-service restaurants
++ + +
Packaged foods
+++ ++ +
Soft drinks
Other SIC codes
+/0 ++/+ ++/+
Fashion and leather goods
0 0 0
Home and of¬ce products
+/0 +/0 +/0
Leisure “ music, ¬lms
+ ++/+ ++/+
+/0 + +
0 0 0
Tableware and glassware
++/+ +/0 +/0
Pharmaceuticals and
+ + +
Golf products
+/0 +/0 +/0

Legend: +++ “ strong linkage; ++ “ medium linkage; + “ weak linkage;
0 “ no linkage; +++/++, ++/+, +/0 “ depends.

The second major pattern that emerges (see Table A8.3 in Appendix 8)
involves a split between those ¬rms adopting no or low diversi¬cation strate-
gies, and those opting for high diversi¬cation. Firms were either refocusing
on alcoholic beverages and taking advantage of both product and knowl-
edge linkages or were internalizing essentially knowledge linkages (and in
some cases also physical linkages in distribution, depending on the market
of operation of the ¬rm). Physical and knowledge linkages of ¬rms with no
diversi¬cation or low diversi¬cation are easy to trace as they tend to occur at
all levels of the value-added chain in alcoholic beverages. In highly diversi¬ed
¬rms the ef¬ciency rationale is much less easy to access. Sometimes linkages
do not even exist, demonstrating the presence of conglomerates rather than
diversi¬ed ¬rms.
Table 6.1 provides a summarized analysis of the diversi¬cation linkages
between the alcoholic beverages industry and the other businesses in 2005.
In order to avoid bogus quanti¬cation, this table identi¬es four types of
linkages: strong linkages (+++), medium linkages (++), weak linkages
120 Global Brands
(+), or nonexistent linkages (0). When the strength of the linkages created
between ¬rms through internalization is not clear, depending on the situation
of the ¬rm, this is illustrated in the table as a succession of alternative signs
(+++/++), (++/+) or (+/0).
The classi¬cation of the linkages between businesses into four categories
draws on the analysis of various activities that form the value-added chains
of different industries. Basically, these value-added chains are compared in
terms of possible physical or knowledge linkages in research and develop-
ment, production, marketing and branding, and logistics of distribution. For
example, if two businesses share the same principles and methods of adver-
tising, bene¬t from the same market research, rely on the same marketing
department, and use the same warehouses and trucks to transport products,
as well as sales force, and also target the same kind of customers, then busi-
nesses are considered to have strong linkages (+++). On the other hand, if
two businesses share none of these kinds of physical or knowledge linkages,
then they are considered to have nonexistent linkages (0). It is the nature and
incidence of the linkages that may exist between ¬rms that explains the inter-
nalization of intermediate product markets and consequently the boundaries
of alcoholic beverages ¬rms.37
From the analysis of this table, it is clear that despite being apparently
unrelated and belonging to different industries, most of the businesses tend
to have linkages with the alcoholic beverages industry, even if they are weak
(+) or uncertain (+/0). Those linkages tend, however, to be stronger between
businesses within the same Standard Industrial Classi¬cation (SIC)38 class.
This numerical system developed by the Federal Government for classifying
all types of activity within the U.S. economy is very useful for illustrating
product relatedness, as it relies essentially on the outputs produced by ¬rms.
However, it does not account for those situations where linkages may exist
at other levels of the value-added chain of industries such as in marketing or
The characteristics of the other businesses into which alcoholic beverages
¬rms diversi¬ed “ essentially related to lifestyle and leisure “ point to one
common linkage with the alcoholic beverages industry, which is marketing
knowledge, since the particular competencies of ¬rms are roughly the same
as those required in alcoholic beverages.39 This is why these businesses to
which alcoholic beverages ¬rms diversi¬ed offer potential economies of scale
and scope in marketing, such as those in the branding of products or the
distribution costs of the ¬nal products to customers.

37 Neil M. Kay, Pattern in Corporate Evolution (Oxford: Oxford University Press, 1997).
38 Of¬ce of Management and Budget, Standard Industrial Classi¬cation Manual (Washington:
U.S. Government Printing Of¬ce, 1972).
39 Praveen R. Nayar, “On the Measurement of Corporate Diversi¬cation Strategy: Evidence
from Large U.S. Service Firms,” Strategic Management Journal, Vol. 13 (1992): 219“35.
Diversi¬cation Strategies
While marketing knowledge may explain most areas of diversi¬cation,
production knowledge and common inputs may explain diversi¬cation into
businesses such as pharmaceuticals and biotechnology. It is possible to apply
the expertise and knowledge used in the brewing and distilling applications
in those industries.
There are still some other cases of ¬rms where neither physical nor knowl-
edge linkages seem to exist between alcoholic beverages and the businesses
into which ¬rms diversi¬ed. For example, Fortune Brands diversi¬ed in 1970
into home and of¬ce products, which include respectively kitchen and bath
cabinets, and binders, report covers, labels, and storage boxes (among other
items). Despite the ¬rm™s claim that marketing linkages exist between all these
businesses as they are all branded products, the image transmitted by those
brands is completely different. The lack of linkages between the businesses
explains, in part, the low value the nonalcoholic beverages business adds
to the total pro¬tability of the ¬rm.40 Another business into which several
alcoholic beverages ¬rms diversi¬ed but in which the level of physical and
knowledge relatedness is very low, is tableware and glassware. The two lead-
ing Danish brewers, Carlsberg and Tuborg (acquired by Carlsberg in 1970),
have had interests in this industry since the beginning of their operations in
the nineteenth century.
In those cases where ¬rms™ strategies lack coherence, or where there are
no linkages, it is cost-ef¬cient for ¬rms to dispose of these businesses.41
Some studies argue, however, that such strategies may have been ¬nancially
motivated, either because the management of the ¬rm thought they had the
necessary knowledge to turn the business around and subsequently sell it for
a pro¬t, or because they envisaged stock market acceptance of the ¬rm.42 In
other cases conglomerate diversi¬cation may also be connected with man-
agerial incentives for diversi¬cation (such as managerial risk reduction, and
desire for increased compensation), and the lack of adequate corporate gov-
ernance mechanisms to minimize agency costs where managers are the agents
and shareholders the owners.43 However, evidence suggests that governance
structure mechanisms such as boards of directors, ownership monitoring,
executive compensation, and the market for corporate control may limit
managerial tendencies to overdiversify over the long term.44

40 Fortune Brands, Annual Report and Accounts (2000).
41 G. Dosi, David Teece, and S. Winter, “Toward a Theory of Corporate Coherence: Preliminary
Remarks,” in G. Dosi, R. Gianetti, and P. A. Toninelli (eds.), Technology and Enterprise in
an Historical Perspective (Oxford: Clarendon, 1992).
42 J. Ditrichsen, “The Development of Diversi¬ed and Conglomerate Firms in the U.S., 1920“
1970,” Business History Review, Vol. 46, No. 2 (1972): 202“19.
43 Michael Jensen and William H. Meckling, “Theory of the Firm: Managerial Behavior, Agency
Costs and Ownership Structure,” Journal of Financial Economics, Vol. 3 (1976): 305“60.
44 Hoskisson and Hitt, “Antecedents and Performance.”
122 Global Brands
The kind of businesses into which ¬rms diversi¬ed and the strength of the
linkages formed with the alcoholic beverages businesses are also related to the
country of origin and operation of those nonalcoholic beverages businesses.
As illustrated in Table 6.1, while diversi¬cation into food and beverages (in
the same SIC class as alcoholic beverages) may have a global scope, in the
other SIC classes the scope of diversi¬cation tends to be essentially domestic.
Food and drink are among the most highly branded sectors in the consumer
goods industry.
The evidence provided about the diversi¬cation strategies of the world™s
largest ¬rms in alcoholic beverages by the beginning of the twenty-¬rst cen-
tury points to the fact that the weaker the linkages between the ¬rm and
the businesses into which they chose to diversify, the more domestic these
investments tend to be. The presence of high transfer and communication
costs associated with risk and uncertainty helps explain such a pattern of

Cycles of Diversi¬cation Within Alcoholic Beverages
Despite the vast array of paths followed by the world™s largest ¬rms in alco-
holic beverages from 1960, it is possible to ¬nd common patterns and the
presence of cycles of diversi¬cation in their evolution. The origins of wines,
spirits, and beer leaders, their distinct cost structures and path-dependent
processes in the acquisition of marketing knowledge provide an important
base for understanding these cycles. Appendix 9 identi¬es the different paths
of diversi¬cation. In this table, the ¬rms are categorized into four groups
according to their overall diversi¬cation strategies at the beginning of the
twenty-¬rst century. In the case of leading ¬rms that did not survive, cate-
gorization was based on the type of diversi¬cation strategies at the time of
merger or acquisition. The four categories used are no diversi¬cation/low
diversi¬cation, medium diversi¬cation, high diversi¬cation, and conglomer-
ate or unrelated diversi¬cation.
For each ¬rm the table in Appendix 9 highlights the types of alcoholic bev-
erages (beer, spirits, and wines) they operated during the period of analysis.
The addition of new types of beverages to the portfolio of products appears
highlighted on a time line. Investments in production and distribution are
also distinguished from investments in distribution alone. While production
and distribution activities appear symbolized as wines, spirits, or beer, invest-
ments exclusively in distribution appear symbolized in the same way with
an added “(d)” for “distribution” after the type of beverage.
There were a relatively high number of brewers that by the beginning of the
twenty-¬rst century had not diversi¬ed or had a low level of diversi¬cation.
The ¬rms that originally operated in the spirits business tended to invest
in wines (see, e.g., R´ my Cointreau and Bacardi). A similar trend occurred
with wines ¬rms. Over time they invested in spirits, with the wines business
remaining the dominant activity.
Diversi¬cation Strategies
The brewers remained concentrated. This strategy is in part related to the
high level of vertical integration and to government regulations concerning
the different activities of the ¬rms (including regulations restricting what bev-
erages can be distributed and what channels of distribution can be used).45
The increasing government regulations of alcoholic beverages in the 1980s
and 1990s led the large brewers to make the decisive commitment to stay in
the beer industry and divest themselves of non-beer-related businesses. For
example, in the early 1990s Anheuser-Busch divested from businesses such
as the St. Louis Cardinals Baseball Team Inc., Eagle Snacks, and Campbell
The trend toward globalization of the industry enabled ¬rms to grow,
either by setting up green¬eld investments, forming alliances, or merging
and acquiring other ¬rms in foreign markets. Heineken, for example, moved
from beer production and distribution to include wines and spirits distribu-
tion in the 1970s when it acquired Bokma Distillery, the producer of one of
Holland™s most popular gins.47 Other examples are the Japanese ¬rms Kirin
and Asahi Breweries, companies that were traditionally brewers that diversi-
¬ed to spirits and wines. Kirin ¬rst entered the hard liquor business through
its joint venture with Seagram for the production of Japanese whiskey and
also distribution of Seagram™s spirits. In 1989, Kirin invested in the wine busi-
ness with the acquisition of Napa Valley Raymond Vineyards in California.
In the 1990s, it expanded its interests in the wine business with other acqui-
sitions such as that of Lion Nathan, an Australian brewer that had large
interests in the wines business, in 1998.
Allied is a particular case of a ¬rm that between 1960 and the beginning
of the twenty-¬rst century operated a full range of alcoholic beverages busi-
nesses. When formed in 1961, it was a vertically integrated British brewer.
During the 1960s, it moved into processed wines, with the acquisition of
Showerings in 1968 (which owned Babycham and Harveys Bristol Cream).
In 1976, Allied Breweries entered the spirits business with the acquisition of
Teacher™s, a scotch whisky producer. By the 1980s, the spirits business had
become so important in the total activity of the ¬rm that Allied started to
divest itself from the beer business; the last brewing interest sold was the
Carlsberg“Tetley joint venture in the United Kingdom, disposed of in 1996.
Firms with medium diversi¬cation include brewers that diversi¬ed into
the wines and spirits businesses, in some cases producing and distributing
the beverages, in others engaging in only one activity. The Brazilian ¬rm
Ambev, formed in 2000, concentrated on the beer business. However, it also
diversi¬ed into soft drinks. In 2004, this group merged with Interbrew to
form Inbev. The newly merged multinational adhered to a similar strategy.

45 Richard McGowan, Government Regulation of the Alcohol Industry: The Search for Rev-
enue and the Common Good (Westport, Conn: Quorum Books, 1997).
46 Business Week (4 March 1996).
47 Heineken, Annual Report and Accounts (1970, 1988).
124 Global Brands
Brown Forman, another medium-diversi¬ed ¬rm, moved from the produc-
tion and distribution of spirits, to the distribution of wines in the late 1960s
with the acquisition of the distribution rights for the California sparkling
wines Korbel and Bolla & Cella. It was only in 1991, with the acquisition
of premium California wine maker Jekel Vineyards and the alliance with
Fontanafredda, a producer of Italian wines that licensed the rights to market
and distribute their wines, that Brown Forman became a major player in the
wine industry.
The ¬rms classi¬ed as being highly diversi¬ed also tended to be those that
diversi¬ed the most within the alcoholic beverages industry. In some cases
they kept their original business as their core activity. In other cases, the
original alcoholic beverages business lost importance to another alcoholic
beverages business; for example, in the case of Grand Metropolitan the beer
business was discontinued in favor of wines and spirits.
The only brewer that by the end of the twentieth century was part of a con-
glomerate was Miller Brewing, which belonged to Philip Morris. However,
that situation changed in May 2002, when South African Breweries acquired
Miller. Figure 6.1 summarizes the alternative cycles of diversi¬cation within
alcoholic beverages followed by ¬rms originally producers of beer, wines,
and spirits from 1960.
Two main patterns emerge from the analysis of this ¬gure. First, while
beer ¬rms expanded into wines and spirits (in some cases even divesting from
beer), spirits ¬rms only invested in wines and wines ¬rms only invested in spir-
its. The exceptions are Diageo and Suntory, which operated simultaneously
in wines, spirits, and beer. For Diageo this exceptional cycle may be explained
by the characteristics of its beer business: Guinness relied essentially on mar-
keting knowledge linkages rather than physical linkages. For Suntory, the
linkages between the three businesses were also based on economies of scope
in distribution (in Japan, wines, beer, and spirits share the same channels of
distribution). However, having been a late entrant to the brewing industry,
it took a long time for this business to become pro¬table. The rationale for
keeping it initially was more related to the need for Japanese ¬rms to own
wide portfolios of brands, in order to obtain economies of scale and scope
in distribution, and also to avoid creating holes in the market that would
otherwise be ¬lled by competitors.48
Figure 6.1 illustrates another interesting feature in the sequences of diver-
si¬cation followed within the industry. The ¬rst ¬rms to diversify were the
brewers. They initially moved into processed wines such as port and cham-
pagne, then invested in spirits, and ¬nally in wines. One explanation for this

48 Interviews with Yoshi Kunimoto, Executive Vice President of Suntory Allied, and Kunimasa
Himeno, Manager of International Division of Suntory; both in Tokyo, 16 September 1999;
and interview with Kozo Chiji, Manager of the Corporate Planning Department, Tokyo, 16
September 1999.
Diversi¬cation Strategies

Wines Spirits

Processed wines
Processed wines


(Processed wines)

Still wines Still wines
Still wines

Beer, wines
Beer Spirits, wines

Fig. 6.1. Cycles of diversi¬cation in alcoholic beverages.
Notes: Wines “ includes investments in both still wines and in processed wines;
(Beer) and (Processed wines) “ mean divestments from beer and from processed
wines businesses.

cycle lies in the knowledge required for managing and branding beer, spirits,
and wines. Although branded wine beverages have existed since at least the
mid“nineteenth century,49 beer and cognac were among the ¬rst branded
and standardized alcoholic beverages. Bass, of England, was the ¬rst ¬rm
to use the Trade Mark Registration Act of 1875 to protect its red pyramid
trademark.50 Spirits are also easily branded beverages, since in most cases
the industrial processes of distillation make standardized products possible.
This was not easy with regionally produced wines. Hence, until recently, beer
and spirits ¬rms with their strong brands were able to diversify into wines
with relative ease, while wine ¬rms with their weaker brands were unable to
diversify into beer and spirits.
The marketing knowledge acquired in the management of beer brands
allowed brewers to move into other beverages businesses. In contrast, ¬rms
originally producing wines tended to remain focused on that business since
they had more dif¬culties in acquiring marketing knowledge that could
be transferred to the management of other types of beverages. Those that
diversi¬ed from wines into other alcoholic beverages entered into spirits
production or beer distribution, but wines remained their core business.
By the beginning of the twenty-¬rst century, as the practice of brand-
ing wines became more frequent, many large multinationals started making

49 Paul Duguid, “Developing the Brand: The Case of Alcohol, 1800“1880,” Enterprise &
Society, Vol. 4, No. 3 (2003): 405“41.
50 Janice Jorgensen (ed.), Encyclopedia of Consumer Brands (London: St James Press, 1994): 43.
126 Global Brands
signi¬cant investments in the wines business. This trend occurred not only
among brewers but also among large spirits ¬rms with excess resources to
be applied in new ventures. The Foster™s Group, for example, acquired pre-
mium wines companies in Australia (Mildara Blass and Rothbury Wines
in, respectively, 1995 and 1996), New Zealand (Montana Wines in 2001),
United States (Beringer Wine Estates in 2000), and Italy. Allied Domecq
made investments in wines and spirits, enlarging its portfolio of premium
brands. In table wines, it created a premium wine portfolio through the
acquisition of ¬rms such as Montana in New Zealand, Buena Vista Winery
in the United States, Graf¬gna in Argentina, and Kuemmerling in Germany.
Diageo continued pursuing a strategy of creating a restricted portfolio of suc-
cessful global brands, including table wines. The acquisition of The Chalone
Wine Group from the United States in 2004 enhanced the range of premium
brands of Diageo in the North American market.
The cycles of diversi¬cation in alcoholic beverages are to a certain extent
also visible in the level of globalization and concentration of the three drinks
sectors. While the spirits industry became global after the 1980s, the wine
industry only began to concentrate and globalize at the beginning of the
twenty-¬rst century. Owing to the high level of distribution costs that char-
acterized the physical handling of the product, the beer industry remained
until recently concentrated only at a regional level despite producing and
trading the most easily branded alcoholic beverage. As with wines, it was
only in the late 1990s that the brewing industry started to globalize and
concentrate on an international scale.
Another explanation for the cycles of diversi¬cation can be found in the
need for ¬rms to obtain economies of scale and scope in production and
distribution. These economies are not as relevant in wines and spirits as in
beer, where value addition generated in the production process is low. That is
why it is cost-ef¬cient for ¬rms to be in the beer business only if they are able
to obtain economies of scale and scope in production as well as marketing.
The major differences between the value-added chains of these three drinks
sectors helps to explain not only the cycles of diversi¬cation in the alcoholic
beverages industry, but also the timing in which they took place.51 From the
1960s, despite the major transformations in production and in R&D, it was
in marketing (in particular in the management of brands) and in distribution
that those changes were most signi¬cant.52

51 Even within the same sector there exist high differences in the cost structure of beverages.
For example, the production costs of a Bordeaux wine such as Chateau d™Yquem (one of the
world™s most expensive wines owned by Bernard Arnault who is also the major shareholder
of LVMH) are certainly much higher than those of a standard wine like Ernest & Julio Gallo.
Even within the same ¬rm it is possible to ¬nd great differences in terms of the cost structure
of the different beverages.
52 See Teresa da Silva Lopes, “Brands and the Evolution of Multinationals in Alcoholic
Beverages,” Business History, Vol. 44, No. 3 (2002): 1“30; James Espey, “A Multina-
tional Approach to New Product Development,” European Journal of Marketing, Vol. 19,
Diversi¬cation Strategies
Historically, beer traveled on average less than spirits or wines as transport
costs as a percentage of its unit value were substantial (due to its high level of
water content of over 90 percent), and also because it was easily perishable.53
Over time, as new technologies developed, transportation costs decreased
and ¬rms were able to achieve economies of scale and scope. There was
also a reduction in distribution costs in spirits and wines, but that depended
on the type of beverage.54 For example, in spirits such as gin that can be
produced anywhere and are not asset speci¬c (e.g., on soil or climate), it was
possible for ¬rms to lower their distribution costs by investing in production
facilities in foreign markets.
The revolution in distribution that took place during the late 1970s and
the globalization of markets led to a convergence of distribution systems
for beer, wines, and spirits. Many large multinationals created central ware-
houses from where they managed the logistics for distributing their products.
The acquisition of warehouses also created incentives to diversify into other
alcoholic beverages businesses. In sophisticated markets such as those in
western Europe, stockholding and distribution frequently appeared together
as the same function since ¬rms were able to send the beer to the outlets
straight away without any stockholding. Apart from the cost advantages,
these changes made it possible for ¬rms to get the beer to the ¬nal consumer
in fresher and better condition. Despite this trend toward convergence in
distribution systems for beer, wines, and spirits, in some countries like the
United States, regulations did not allow beer to be distributed through the
same channels as spirits and wine. For that reason there were no incentives
for brewers to diversify into the wines and spirits business.55

Diversi¬cation and Branding
It is the combination of physical and knowledge linkages that explains the
diversi¬cation strategies of the leading multinational ¬rms in the alcoholic
beverages industry from the 1960s until the present day. This diversi¬ca-
tion included not only investments made by ¬rms in products similar to
those they were already operating, but also investments in new geographical
markets, in complementary activities (through vertical integration), and in

No. 3 (1985): 5“18; Tim Craig, “Achieving Innovation Through Bureaucracy: Lessons From
the Japanese Brewing Industry,” California Management Review, Vol. 38, No. 1 (1995):
53 Federal Trade Commission: Bureau of Economics, The Brewing Industry (Dec. 1978).
54 For examples of cost structures per bottle in spirits and wines, see: for spirits, ABN AMRO,
“The Sting Is in the Tail” (London, 1999): 23; for wines, Harper Trade Journals, The Harpers
Handbook to the Wine Trade (London: Harper Trade Journals, 1997); “Conseil Interpro-
fessionnel des Vins du Languedoc et Syndicat des Vins de Pays d™Oc, ˜R´ ¬‚exion sur la Valeur
Ajout´ e des Vins de Pays d™Oc et des A.O.C. du Languedoc” (Languedoc, 2001).
55 Interview with John de Lucca, President of the California Wine Institute, San Francisco,
20 March 2001.
128 Global Brands
businesses that though not sharing the same physical resources, required sim-
ilar knowledge, in particular, knowledge about the management of brands
and distribution channels.
In the 1960s, most ¬rms were focused on their core businesses. Diversi¬ca-
tion was most frequently based on linkages in physical assets such as similar
raw materials and means of production or distribution. As ¬rms grew in
size and acquired marketing knowledge, they often diversi¬ed into nonalco-
holic beverages businesses, taking advantage of ef¬ciencies related to those
knowledge linkages. By the beginning of the twenty-¬rst century, the high
number of low-diversi¬ed alcoholic beverages ¬rms re¬‚ected the importance
that both physical and knowledge linkages had in the ef¬cient operation of
¬rms and thus on their long-term survival.
Diversi¬cation strategies also included geographical expansion. Interna-
tionalization tended to take place essentially within alcoholic beverages. This
contrasted with diversi¬cation into nonalcoholic beverages businesses, which
tended to focus on the domestic markets of the investing ¬rms. The lack
of strong physical and knowledge linkages and the higher risk involved in
international investment explain why ¬rms did not combine strategies of
unrelated diversi¬cation with geographical diversi¬cation. Exceptions were
the investments in the food and soft drinks industry, which in some cases
were globalized.
Within the alcoholic beverages industry, the diversi¬cation strategies of
multinationals tended to evolve in cycles. While brewers expanded into wines
and spirits, spirits ¬rms only invested in wines, and wines ¬rms invested in
spirits but modestly. Another interesting feature of these cycles concerns the
sequences of diversi¬cation followed by ¬rms, where the last kind of beverage
to become the target of multinational investment was wine. There were also
some differences in terms of the timing in which these cycles took place in
different countries. British ¬rms started to diversify into other alcoholic bev-
erages businesses prior to ¬rms from continental Europe, the United States,
and Japan.
Overall, the origins of ¬rms in wines, spirits, and beer and their distinct
cost structures and path-dependent processes in the acquisition of marketing
knowledge provide an important base for understanding the diversi¬cation
cycles within alcoholic beverages. Again this re¬‚ects the importance that the
marketing knowledge acquired by multinationals in alcoholic beverages in
the management of brands and distribution channels has in their growth and

Acquiring Brands

There were four merger waves between the early 1960s and 2005. These
broadly paralleled the more general trends in the world economy during this
period.1 Whereas in industries such as those analyzed by Alfred Chandler
these waves tended to be related to the technological development of ¬rms,
¬‚uctuations in the stock market, and the search for economies of scale and
scope;2 however, in industries such as alcoholic beverages and cosmetics
other determinants played a predominant role. Firms domiciled in the United
Kingdom seem to have engaged in higher levels of mergers and acquisitions
at an earlier time than ¬rms from continental Europe, the United States,
and Japan, which for a long time had quite distinct systems of corporate
This chapter focuses on analyzing the impact of brands on ¬rm decisions
to merge with or acquire others, and how this in¬‚uenced the nature and
scope of the successive merger waves that have transformed the industry.
I provide a summary of the main mergers and acquisitions from 1960 to
2005 and analyze the different merger waves, providing empirical evidence
for each one. Finally, I highlight the increasing role of brands in shaping the
growth and survival strategies of multinationals in this industry.

Mergers and Acquisitions Waves
The mergers and acquisitions that took place beginning in the 1960s were
not a new phenomenon in the industry. While prior to this period, they
tended to be sporadic and involve small interests,3 they now became very

1 Appendix 10 provides a schematic representation of the process of growth of multinationals
in alcoholic beverages over time.
2 See, e.g., Alfred D. Chandler Jr., Scale and Scope (Cambridge, Mass: Harvard University
Press, 1990); M. Bishop and John Kay (eds.), European Mergers and Merger Policy (Oxford:
Oxford University Press, 1993).
3 There are some exceptions of large amalgamations before 1960s such as those that led to the
creation of Distillers in 1925. R. Weir, The History of the Distillers Company, 1877“1939
(Oxford: Oxford University Press, 1995).

130 Global Brands
frequent, and involved large investments and leading alcoholic beverages
¬rms from different geographical regions. Mergers and acquisitions became
much more important than green¬eld investments during this period because
¬rms wanted to enlarge their portfolios of beverages by adding brands that
had proven successful in speci¬c markets and that had the potential to
become global. Apart from providing the possibility of quicker growth, these
mergers and acquisitions involved less risk since established brands already
had portfolios of customers.
Even though brands have always played an important role in determining
mergers and acquisitions in this industry, there were other factors involved
in those decisions, especially in the ¬rst merger waves. Moreover, distinct
countries and alcoholic beverages businesses were affected by these factors
at different time periods. This time lag in part re¬‚ects the structure of the
alcoholic beverages industry in those countries as well as the legal and cor-
porate governance systems.
In the last wave from 1997, ¬rms from emerging markets were also drawn
into the process, either as acquirers or acquired ¬rms. Although this merger
wave also concerned global brands, ¬rms now aimed at rationalizing costs,
leading to a major consolidation of the global industry.
The group of giant multinationals that emerged from this evolutionary
process, Diageo, LVMH, Inbev, Fortune Brands, SabMiller, and Pernod
Ricard, now look very different from their initial pro¬le as small, locally
focused companies. The new ¬rms hold portfolios of multiple global brands
involving different types of alcoholic beverages. As a consequence of both
horizontal and vertical integration, their activities reach around the world.
Table 7.1 identi¬es some of the major mergers and acquisitions that, from the
late 1950s, marked the waves of concentration in this industry.4 The amounts
stated in Table 7.1 include all the business activities of the companies that
were merged or acquired. Often, these include other activities besides alco-
holic beverages. Caution, therefore, needs to be exercised regarding the anal-
ysis of the ¬nancial data. Nevertheless, in the absence of satisfactory quanti-
tative means of measuring concentration in the alcoholic beverages industry,
the increase in the volume of the transactions in real terms using 2000 prices
provides a reasonable proxy.5
Mergers and acquisitions gave ¬rms fast market access and increased their
probability of success, whereas creating new brands was a slower process

4 See, e.g., for the acquisition of Showerings: Allied Breweries Limited, Annual Report and
Accounts (1968), 7; for the acquisition of Martell: Seagram, Annual Report and Accounts
(1987); and for the acquisition of Hiram Walker, Allied Lyons, Annual Report and Accounts
(1986). “Domecq Adds Spanish Winemaker to Its Stock,” Financial Times (8/9 September
5 Robert D. Pearce, “Concentration, Diversi¬cation and Penetration: Some Dimensions of
Industry Structure and Interaction,” The University of Reading: Discussion Papers in Indus-
trial Economics, No. 13 (1989).
Acquiring Brands

Table 7.1. Major mergers and acquisitions in the alcoholic beverages
industry, 1958“2005

(2000 =
(current) in
Wave Year Companies Involved

1958“ 1958 n/a n/a
Watney Mann “ merger between
1962 Watney Combe Reid and Mann
(UK), Crossman (UK) & Paulin
1961 Allied Breweries “ merger between n/a n/a
Ind Coope (UK), Tetley Walker
(UK), and Ansells Brewery (UK)
1961 Showerings “ merger of n/a n/a
Showerings (UK), Vine Products
(UK), Whiteways (UK)
1962 n/a n/a
International Distillers and
Vintners “ merger between
Gilbey (UK) and United Wine
Traders (UK)
1968“ 1968 239 860
Allied Breweries (UK) acquires
1975 Showerings (UK)
1968 Heineken (NL) acquires Amstel n/a n/a
1970 Carlsberg “ merger between n/a n/a
Carlsberg (DEN) and Tuborg
1971 95 310
Grand Metropolitan (UK) acquires
Truman (UK)
1971 Mo¨ t-Hennessy “ merger between
e n/a n/a
Mo¨ t & Chandon (FR) and
Hennessy (FR)
1972 193 578
Watney Mann (UK) acquires
International Distillers and
Vintners (UK)
1972 946 2.834
Grand Metropolitan (UK) acquires
Watney Mann (UK)
1975 Pernod Ricard “ merger between n/a n/a
Pernod (FR) and Ricard (FR)
1985“ 1985 430 443
Guinness (UK) acquires Arthur
1988 Bells (UK)
1985 63 81
Miller Brewing (US) acquires Pabst
Brewing (US)
1986 2.148 2.432
Guinness (UK) acquires Distillers
Company (UK)
132 Global Brands

Table 7.1 (Continued)

(2000 =
(current) in
Wave Year Companies Involved

1986 1.760 1.992
Allied Lyons (UK) acquires Hiram
Walker (CAN)
1986 663 751
American Brands (US) acquires
National Distillers (US)
1987 LVMH “ merger between n/a n/a
Mo¨ t-Hennessy (FR) and Louis
Vuitton (FR)
1987 1.616 1.643
Grand Metropolitan (UK) acquires
Heublein (US)
1987 787 800
Guinness (UK) acquires Schenley
1988 36 41
Seagram (CAN) acquires Martell
1988 Interbrew “ Artois (BEL) merges n/a n/a
with Piedboueuf Interbrew
1997“ 1997 Diageo “ merger between Guinness n/a n/a
2005 (UK) and Grand Metropolitan
2000 400 400
Interbrew (BEL) acquires
Whitbread (UK)
2000 2.300 2300
Interbrew (BEL) acquires Bass
2000 5.500 5.500
Diageo (UK) and Pernod Ricard
(FR) acquire Seagram™s (CAN)
alcoholic beverages business
2000 3.550 3.550
Scottish & Newcastle (UK)
acquires Kronenbourg (FRA)
2000 n/a n/a
Ambev “ merger between
Companhia Antarctica Paulista
(BRA) and Companhia
Cervejeira Brahma (BRA)
2001 523 537
Allied Domecq (UK) acquired
Montana (NZ)
2001 1.570 1.612
Interbrew (BEL) acquires Brauerei
Beck (GER)
2001 1.700 1.745
Aldolph Coors (USA) acquires
Carling (UK)
2002 5.600 5.697
SABMiller “ South African
Breweries (SA) acquires Miller
2003 2.130 1.940
Heineken (NL) acquired BBAG
Acquiring Brands

Amount Amount
(2000 =
(current) in
Wave Year Companies Involved

2003 5.600 5.100
South African Breweries (SA)
acquires Peroni (ITA)
2004 Inbev “ Merger between Interbrew n/a n/a
(BEL) and Ambev (BRA)
2004 1.370 1.202
Carlsberg (DEN) acquires Holsten
2005 7.800 6.724
SABMiller (SA) acquires Grupo
Empresarial Bavaria (COL)
2005 14.200 12.241
Pernod Ricard (FR) acquires Allied
Domecq (UK)
2005 5.300 4.569
Fortune Brands (US) acquires
Allied Domecq™s brands (UK)
from Pernod Ricard (FR)

Note: Amounts stated in millions of current and constant U.S. dollars for 2000. n/a “ not
available or not applicable.
Sources: The Times 1000 (various issues); other secondary sources. For the exchange rates and
U.S. price index for 2000, see Export Unit Values “ Industrial Countries, International Statistics
Yearbook CD ROM (Washington, D.C.: International Monetary Fund, 2005).

and the costs involved were high.6 Consequently, brands with the potential
to become global made the ¬rms that owned them attractive targets for
mergers and acquisitions and led to both the survival of some ¬rms and
the disappearance of many others. Those ¬rms that moved decisively from
familiar to geographically and culturally distant markets were able to achieve
continuous growth and long-term survival.

Consolidation in the United Kingdom
The ¬rst merger wave, from 1958 to 1962, included distillers and brewers
from the United Kingdom who fought over tied houses in an effort to obtain
national coverage with their brands. Factors such as shifts in consumption,
legislation, distribution systems, and competition also had a major in¬‚uence
on merger activity. Mergers primarily involved brewers who sought relief
from a scarcity of resources available to re-equip their plants and refurbish
their outlets; they were concerned as well about stagnation in per capita
consumption of draught beer despite a general increase in consumption of

6 P. Barwise and T. Robertson, “Brand Portfolios,” European Management Journal, Vol. 10,
No. 3 (1992): 277“85.
134 Global Brands
alcoholic beverages in the Western world. Firms sought to diversify their
portfolios of brands available in each market, expand sales to new geo-
graphical regions, and reach distinct types of customers (with different ages,
genders, and levels of income). The mergers involved a large number of
regional leaders, although many companies were left out.7
One of the most important creations of this period was Allied Breweries,
which became Britain™s second largest brewer. Allied Breweries operated at
a national level and managed a wide portfolio of successful regional brands
such as Double Diamond, Skol, and Long Life. This allowed the ¬rm to
acquire marketing knowledge and obtain economies of scale and scope. Its
major competitors at the time were other British brewers that produced a
limited range of beverages (beer, wines, or spirits) such as Bass, Scottish &
Newcastle, Whitbread, and Watney Mann.8
Other alcoholic beverages were also involved in this ¬rst merger wave.
International Distillers and Vintners (IDV) was another important creation
during this period. Formed in 1962 as a result of a merger between the
spirits and wine merchants United Wine Traders Limited and the vodka and
gin distiller Gilbey™s Limited, IDV became a major U.K.-based wines and
spirits company, producer and distributor of brands with long history such
as Gilbey™s Black Velvet gin, J&B rare scotch whisky and Croft port.9
Although this merger wave was mainly a British phenomenon, there were
echoes in other countries such as the Netherlands. There, too, concentration
was associated with rising production costs, resulting from (among other
things) increases in wages and the desire among a variety of ¬rms to diversify
their activities.10

Domestic Leaders
A second period of consolidation followed in 1968“1975. Then, ¬rms
beyond the United Kingdom, in particular from other European countries,
were involved. The worldwide growth in spirits consumption, related in part
to the liberalization of retail prices in a number of countries and changes in
consumer tastes, affected mergers and acquisitions in this era as did brands.
In the United Kingdom, Allied Breweries acquired several wines and spir-
its ¬rms that owned successful brands. Nonetheless, despite its size, Allied

7 In 1960, there existed 358 breweries registered in Britain. T. R. Gourvish and R. G. Wilson,
The British Brewing Industry 1830“1980 (Cambridge: Cambridge University Press, 1994),
Table 11.1.
8 Ind Coope Tetley Ansell Limited, Annual Report and Accounts (1961).
9 International Distillers and Vintners Limited, Annual Report and Accounts (1962).
10 K. E. Sluyterman and H. H. Vleesenbeek, Three Centuries of De Kuyper 1695“1995
(Shiedam: Prepress Center Assen, 1995): 63; Commission of the European Communities,
“A Study of the Evolution of Concentration in the Dutch Beverages Industry” (1976).
Acquiring Brands
remained a vertically integrated ¬rm selling essentially in the domestic market
until the 1970s. Its international activity was limited to targeting the pro-
duction and sourcing of beverages that could be sold in the domestic market.
The stagnation of beer sales and the expansion of consumption in wines
and spirits in the United Kingdom led Allied Breweries to acquire Shower-
ings in 1968 (which brought with it three very successful domestic brands:
Harveys Bristol Cream, Babycham, and Cockburn™s port). Harveys Bristol
Cream, a brand that goes back at least to 1882 (even if not in its present form)
was, by the early 1960s, a very successful brand of sherry consumed in Britain
before meals on special occasions. After Showerings acquired Harveys in
1966, an aggressive marketing strategy successfully positioned the brand as
something to be drunk by younger people in pubs. This proved a temporary
phenomenon. The age pro¬le of the population had changed as the “baby
boomers” reached drinking age and sought to sample new products, different
from those associated with their parents. After acquiring the brand, Allied
Breweries reduced investment, focusing instead on brands such as Cock-
burn™s port and Babycham. This also contributed to the decline of Harveys
Bristol Cream. Yet, Showerings™ sherry (Harveys Bristol Cream) and port
wine (Cockburn) brands brought considerable cash ¬‚ow to Allied Breweries
for a long time.11
Babycham, a cider brand created in 1953,12 became the popular new
drink of the 1950s due to television advertising and to the way the prod-
uct was positioned as “mill girls™ champagne.” Alcohol consumption by
women in Western countries such as the United Kingdom had increased
signi¬cantly during this period as growing numbers of women pursued
careers outside their homes and consequently had greater spending power.
While traditionally only men (or, at least, no respectable “ladies”) had
gone to pubs or bars, from the late 1950s, it became normal for women
to be seen socializing in pubs. But women didn™t buy the same drinks as
men. This was crucial to the development of branding strategies of bev-
erages such as Babycham,13 which was distributed in the domestic mar-
ket and sold in pubs to young women. Showerings even provided special
glasses that looked like champagne glasses for drinking Babycham, mak-
ing women feel very distinct. However, its consumption decreased sharply
in the 1970s due to changes in tastes and fashions and to the competition

11 Interview with Michael Jackaman, former Chairman of Allied Domecq, Somerset, 19 June
2000; Thomas Henry, Harveys of Bristol (London: Good Books, 1986), 10; Tim Unwin, The
Wine and the Vine (London: Routledge, 1991), 330; Allied Breweries, Annual Report and
Accounts (1968, 1969).
12 Asa Briggs, Wine for Sale (London: Bastford, 1985): 130“32.
13 James Espey, “A Multinational Approach to New Product Development,” European Journal
of Marketing, Vol. 19, No. 3 (1985): 12.
136 Global Brands
of other drinks brands targeting women, such as Martini and beer with
Grand Metropolitan, formerly a hotel and leisure services ¬rm, was
another company that developed very rapidly in the alcoholic beverages
business during this period. In 1971, it acquired a small regional brewer “
Truman, followed one year later by Watney Mann, which had just acquired
IDV. At the time of the acquisition, IDV was drifting: direction from top man-
agement was often lacking, there was no marketing strategy, no investments
in innovation, and practically no coordination of activities. IDV was noth-
ing more than a collection of different operating companies bound together
essentially by history and brands.15
With its acquisitions, Grand Metropolitan aimed at expanding in real
estate, catering businesses, management of pubs, and at developing retail
and distribution networks. Grand Metropolitan had initially hoped to dis-
pose of IDV after completing the acquisition of Watney Mann. After some
failed attempts to sell the business, in the beginning of the 1970s Grand
Metropolitan realized that the wines and spirits businesses had promising
prospects. The company also responded to the problems created by the col-
lapse of the property market and the lagging hotel and tourism industry.16
This acquisition changed the nature of Grand Metropolitan™s business for-
ever. Until its merger with Guinness in 1997, Grand Metropolitan continued
to diversify into many different businesses, ranging from consumer services
to foods, and even to betting and gaming.17
In the Netherlands, the growth of the beer market had attracted foreign
direct investment. Foreign ¬rms such as Allied Breweries and Artois from
Belgium entered the Dutch market by acquiring local brewers.18 This com-
petition from abroad and the threat of foreign takeover of Amstel led to the
merger in 1968 of the two leading Dutch brewers Heineken and Amstel.19
In Denmark, the two leading brewers also merged in 1970 to form United
Breweries (renamed Carlsberg in 1987). This merger followed many years of
collaboration between Carlsberg and Tuborg, which in the years after World

14 Interview with Michael Jackaman, former Chairman of Allied Domecq, Somerset, 19 June
15 This is discussed in detail in James Espey, “The Development of a Worldwide Strategy
for International Distillers and Vintners Limited” (Unpublished Ph.D. thesis, Kensington
University, 1981).
16 Interview with Sir George Bull, former CEO of Grand Metropolitan and Diageo, London,
19 November 2003; William J. Reader and Judy Slinn, “Grand Metropolitan” (unpublished
manuscript, 1992): 51, 62, 73, 76.
17 Reader and Slinn, “Grand Metropolitan”: 62, 73, 76; Grand Metropolitan, Annual Reports
and Accounts (1960“1995).
18 Allied Breweries, Annual Reports and Accounts (1969); M. G. P. A. Jacobs and W. H. G.
Mass, Heineken History (Amsterdam: De Bussy Ellerman Harms bv., 1992).
19 Interview with Jan Beijerinck, former Worldwide Client Service Director of Heineken,
Utrecht, 10 March 2000.
Acquiring Brands
War II had worked as a cartel.20 By the time of the merger, Tuborg was not
doing so well, due to its focus on the domestic market.21
In France, the merger between Mo¨ t & Chandon and Hennessy in 1971
united France™s biggest exporters of champagne and cognac, respectively,
allowing the two companies to take advantage of the similarities in the “per-
sonalities” of their brands and their geographical scope of operations, as
well as to economize on distribution costs.22 At the time of the merger, their
main competitors were other champagne houses like Perrier Jou¨ t and G. H.
Mumm, and cognac houses like Martell and Courvoisier, all of which were
later merged or acquired by ¬rms that became leaders in the global industry.
In 1975, another major French merger formed Pernod Ricard, bringing
together the family ¬rms Pernod and Ricard. These ¬rms had already made
some unsuccessful attempts to diversify into other business such as tea and
coffee. The merger was a natural outgrowth of the alliances they had formed
in distribution. The aim was to become a large national company and to
diversify within alcoholic beverages, developing an international business.23
Another striking merger attempt in 1968 involved Allied Breweries and
Unilever, Europe™s largest consumer goods company. Unilever had made
large investments in brewing in West Africa since 1945 through its joint
venture (United Africa Company) with Heineken and Guinness.24 When it
was approached by Allied Breweries, which was seeking access to its wide
international distribution network, it responded positively as this proposal
¬tted with its efforts at that time to develop branded wines.25 Because of its
size and potential impact on industrial concentration, this merger proposal
was referred to Britain™s Monopolies Commission. Few saw the logic of such
a merger, including Allied Breweries™ own merchant bankers and other advi-
sors. If the merger between Allied Breweries and Unilever had gone ahead, it
would have certainly changed the structure of the industry in the late 1960s.
Even though the two companies were related functionally at the production

20 Kristof Glamann, Jacobsen of Carlsberg “ Brewer and Philanthropist (Copenhagen: Gylden-
dal, 1991).
21 United Breweries, Annual Reports and Accounts (1971); Kristof Glamann, “Voresool “ Og
Hele Verdens” (Copenhagen: Carlsberg, 1997); Keetie E. Sluyterman, Dutch Enterprise in
the Twentieth Century “ Business Strategies in a Small Open Economy (London: Routledge,
2005): 157“58.
22 Interview with Colin Campbell, Director of Mo¨ t-Hennessy, Paris, 22 November 1999;
Mo¨ t-Hennessy, Annual Report and Accounts (1971); M. Refait, Mo¨ t Chandon: De Claude
e e
Mo¨ t a Bernard Arnault (Saints Geosmes: Dominique Gu´ niot, 1998): 172.
e` e
23 Interview with Thierry Jacquillat, former CEO of Pernod Ricard, London, 22 October 2003.
24 Geoffrey Jones, Merchants to Multinationals (Oxford: Oxford University Press, 2000), 316;
Jacobs and Mass, Heineken History: 231“42.
25 Unilever made several investments in branding and marketing standard wines for mass con-
sumption from 1963 to 1975, but it never succeeded in achieving signi¬cant pro¬ts. Geoffrey
Jones, Renewing Unilever: Transformation and Tradition (Oxford: Oxford University Press,
138 Global Brands
and the marketing level, the main purpose of the merger, which was to dis-
tribute wines, had lost its attractiveness because of the rapid developments
in distribution that were taking place in the 1960s. Large hypermarkets had
emerged in developed countries, and the distribution channels used for food
were quite distinct from those used in alcoholic beverages in many mar-
kets. By the time regulatory approval was gained, Unilever™s share price
was too low for the merger to be considered viable.26 In 1994, Unilever
sold most of its residual stake in United Africa Company in Nigeria, but
retained its holdings in some West African businesses. In 1996, Unilever sold
its 25 percent stake in Kumasi Brewery of Ghana and its 15 percent stake
in Nigerian Breweries.27 The evidence provided by one of Unilever™s com-
petitors, Danone, which held a brewing business until 2000 (Kronenbourg),
when it was sold to Scottish & Newcastle, illustrates that in the long run
there were no real synergies for food companies in alcoholic beverages.

Acquiring Brands with the Potential to Become Global
The third stage, between 1985 and 1988, was the most signi¬cant in terms
of the effect on the structure of the global industry. It involved cross-border
mergers and acquisitions of ¬rms that owned leading domestic brands with
the potential to become global. European ¬rms also bought U.S. companies
and brands, although of signi¬cantly smaller size, especially when compared
with other industries. In contrast to previous decades, where the strategies
of the leading ¬rms in alcoholic beverages were distinct and their scale of
operations was essentially regional, beginning in the 1970s and 1980s strate-
gies of leading ¬rms from different countries converged. This did not entail
a unique best strategy, but rather re¬‚ected the changes that were occurring
in the industry: multimarket competition between a small group of large
multinational ¬rms with high levels of marketing knowledge that were now
striving to obtain ef¬ciencies in the various areas of their business.
In the Western world, consumption slowed down in the 1980s as a conse-
quence of recessions in the previous decade, harmonization of taxes among
countries, and new concerns about the health consequences of excessive
drinking. These issues prompted ¬rms to seek to acquire existing brands
that would enable them to rapidly obtain market share while maintaining
high levels of control over implementation in terms of costs and time. How-
ever, this route of expansion had both advantages and disadvantages. On
the one hand, ¬rms acquired large portfolios of complementary brands. On
the other hand, problems of brand rationalization arose due to the acquisi-
tion of brands that competed with the ones already in the existing portfolios.


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