Brown-Forman's fortunes hinge on Jack Daniel's, which accounts for some two-thirds of profits.

The brand is
benefiting from a ​growing consumer preference for liquor over beer​, and a ​predilection among younger
drinkers worldwide for bourbon​. ​The easing of restrictions on liquor advertising in the U.S.​ have helped
Jack Daniel's, which became a Nascar sponsor in 2004. The bourbon -- technically, Tennessee whiskey -- was a
favorite of Frank Sinatra's, who was buried with a bottle of it. Legend is, Sinatra was introduced to Jack Daniel's by
Jackie Gleason. In Animal House, John Belushi's character, Bluto Blutarsky, empties a bottle in about eight
seconds.

The global liquor industry has undergone significant consolidation since 2000​. ​Diageo​, the maker of
Smirnoff vodka and Johnnie Walker scotch, is No. 1, followed by Pernod Ricard, which bought Allied Domecq in
2005 and owns Chivas Regal and Stolichnaya.

At a time when valuable liquor brands command rich prices, ​Brown-Forman would be a prize acquisition. The
company, valued at a digestible $8 billion, would fit nicely with Diageo, which lacks a strong bourbon
brand.​ But the Brown family seems uninterested in selling out. In his shareholder letter in Brown-Forman's 2006
annual report, chief executive officer Paul Varga said: "Our intent is to continue to be a strong, growing and
independent company for generations to come."

Varga, 43, added Friday, "We take a long view. We invest in our brands looking out a generation. Everywhere in
the world is a growth market for us."

Some say Brown-Forman might consider merging with Bacardi, a family-owned rum maker. That would let Bacardi
go public and broaden Brown-Forman's line-up. Ultimately, the Brown family must decide if the company has the
global scale to compete with ​Diageo​ and Pernod.

Brown-Forman might not exist today, save for its purchase of Jack Daniel's for $18 million in 1956. It has
maintained a consistent, tradition-oriented marketing campaign, spent heavily on advertising, invested in overseas
distribution and maintained a premium price, now averaging about $20 for a three-quarter-liter bottle in the U.S.

Diageo - Scotch

Diageo​'s decision to spend Pounds 40m on building the first large malt whisky distillery in
Scotland for a generation is testament to the rising appeal of Scotch overseas. The drinks group
is to invest a total of Pounds 100m in expanding its whisky operations in Scotland to meet
demand from expanding markets such as Brazil, Russia, India, China and Mexico. Global
demand for whisky continues to increase strongly, according to the Scotch Whisky Association.
All the signs are that we are seeing a renaissance for Scotch whisky in its international markets.
The industry is rising to the challenge of broadening the appeal of Scotch whisky to new
consumers in new markets."
However, whisky producers continue to face an uphill struggle in their traditional markets of
Europe and North America as ​middle-aged drinkers reduce their consumption in response to
concerns about health and increasing taxation​. "The ageing of the European population is
resulting in a clear market polarisation in the whisky industry. (This included) ​increased
demand for both premium products​('since I go out less, let's enjoy a quality spirit at home')
and lower-priced products as the proportion of spirits through the on-trade (such as pubs)
declines and consumers have come to expect good deals from their food retailers​."
The Scotch Whisky Association said sales to China had leapt from Pounds 1m in 2000 to
Pounds 46m in 2005. "The economy is growing and aspiring consumers are keen to try premium
international products such as whisky,"India's failure to reform its discriminatory tax treatment
of imported spirits and wines.
A recent EU investigation into the Indian regime found "blatant violations" of WTO rules.
Scotch whisky and other imported spirits face much higher tax burdens than faced by Indian
distillers. The EU's determination to ensure a level playing field for spirits and wines in India
will be warmly welcomed by Scotch whisky distillers. It is time for India to implement its
international commitments and allow fair access for Scotch whisky, just as Indian spirit drinks
have free access to the European market."

An influx of vodkas made from everything from apples to milk has traditionalists up in arms.
Critics of the proposal claim it's merely to counter the success of the French grape-based vodka
Ciroc, owned by global drinks giant ​Diageo​.

Main competitor: Pernod Ricard

Diageo has ceased production of its Bushmills Irish cream liqueur due to the dwindling
popularity for the brand.

Analyst Reports:
US is the group’s largest source of profits, representing 40% of total profits. Therefore the share price would be
vulnerable to a material slowdown in
consumer confidence in the US, any weakness in the dollar or an increase in Federal Excise Tax.
Europe: The problem in Europe is that the group faces major structural
problems in its three leading markets – the demise of the RTD
(ready-to-drink) segment in the UK, the decline of Guinness in Ireland and
the contraction of the ontrade in general and scotch in particular in Spain.

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