This article was initially published in the December/January issue of Global Drinks Intel magazine. For details on how to subscribe, click here.
Last year, Heaven Hill Brands underwent a change of leadership as Max Shapira made way for his daughter, Kate Latts, and her husband, Allan. Global Drinks Intel caught up with the new co-presidents to find out what they have in mind for the family-owned spirits group.
Global Drinks Intel: Which career paths have brought you to this point?
Kate Latts: Allan and I met in business school, after which we both went to Procter & Gamble in Cincinnati for five years; I was in brand management and Allan was in finance. When we wanted to join my family’s business, we came in to departments that leveraged our experience. I’ve spent my 21 years at Heaven Hill on the marketing side, rising to chief marketing officer. Allan started in a strategy role as director of corporate finance and became COO. We’re a great combination, having had responsibility for all the company’s functions in one way or another.
Allan Latts: Kate and I have both served on the leadership team, helping to develop where we are as a company today. It’s not like we haven’t been involved before; it’s more a transition that’s been happening over many years.
GDI: How big is Heaven Hill today?
KL: We’re the largest privately-owned and -operated spirits company in the US, the fifth-largest by volume and about the ninth-largest by revenue. The majority of our business is here in the US, but we see so much opportunity internationally.
AL: We have several 1m-plus-case brands, including Evan Williams Bourbon and Deep Eddy Vodka, while Lunazul Tequila is almost at that level. We’re predominantly a US-centred company, because there’s so much opportunity to capitalise on here.
International is growing for us, particularly in American whiskey, but also in Tequila. Our sales outside the US are less than 10% of our total. As well as Europe – the UK and Germany especially – we have teams in Central and Latin America, Asia and Australia. There’s growth available to us around the world. The dominant success of our competitors, like Jim Beam and Jack Daniel’s, in American whiskey outside the US gives us confidence in the opportunities we can see.
With Lunazul, we started the brand from scratch around ten years ago and it’s growing all over the country. With our recent Samson & Surrey acquisition [in February], we have Ocho Tequila as well. In cordials, our important brands are Hpnotiq and Pama Pomegranate Liqueur, which we also created.
While vodka might not be the most vibrant category in the US today, Deep Eddy is an exception that has a strong base. We feel really good about all those brands; it’s important to us that we’re not just an American whiskey company.
GDI: Much is made of the advantage of being able to look longer term when you’re privately owned.
KL: One other advantage is our leadership evolution – we 100% can have a long-term view of things. We’re here to continue to steward Heaven Hill for generations to come. That’s massively dissimilar to our publicly-owned peers: when they have a change of leadership, they might make more short-term decisions to show an impact. There’s nothing about our company that makes our management lead in that way.
The long-term view of our brands is at the heart of what we do. In American whiskey, you have to look at things like that. We’re making decisions today about spirits that’ll be on shelves in five, ten and 15 years from now. Heaven Hill is at the scale where we can do so many different things. We can invest not only in our brands but also in our infrastructure: we have a US$150m project on the go at the moment to build a second distillery in Bardstown, Kentucky. So, we can do what our publicly-owned competitors can do.
AL: Some family-owned companies risk having the personality of the family dominate. We’ve tried really hard; Heaven Hill has always been much more than the handful of family members who work here. Indeed, Max, Kate and I are the only family members actively working for Heaven Hill. It’s important to have earned the positions we fill.
GDI: How does a privately-owned company deal with external disruption? How does tradition sit with making difficult decisions?
KL: Because we don’t have the bureaucracy or hierarchy that larger companies have, we can act much more nimbly. When we created [pomegranate liqueur] Pama, that was because we identified a trend quickly – we could see that pomegranate was becoming as popular as apples or bananas. Because our scale and influence with distributors is that much deeper, we can stay on top of the trends while also being competitive in the marketplace.
When it comes to change, we like to leverage our stability and tradition in a forward-focused way. Most of our workforce today are Millennials and we’ve evolved our culture to increase their empowerment, but still be rooted in accessibility and collaboration.
AL: More than anything else, as co-presidents, we’re responsible for shaping the company’s culture. Through Covid, we changed how we work and where we work. We don’t want to be backwards-looking, we want to be forward-looking – that’s really important. We can still run the business for the long term, even during as difficult an economic environment as today. That long-term view will create stronger brands.
GDI: Given that recessions tend to squeeze the mid- to premium-priced tier in spirits, how is Heaven Hill’s American whiskey portfolio bearing up in the US?
KL: We have a huge American whiskey portfolio. We have 1.9m barrels of whiskey, yet that’s still not enough to allow us to do the things we want to do – that’s why we’re building our second distillery. Our flagship brand is Evan Williams, which is a mid-priced, accessible Bourbon that competes with Jim Beam and Jack Daniel’s. Over the past ten years, as premiumisation has taken hold across the category, we’ve evolved our portfolio to take advantage of that trend. Innovation is very much happening at the super-premium end, where we haven’t seen any pullback in US consumer demand. There’s even a sense of ‘gamification’ in Bourbon – there are so many different things that consumers can try. Even in the current economic climate, we’re still an affordable luxury for people.
AL: Evan Williams is the second-largest Kentucky Bourbon and it’s growing fast. Maybe it’ll capture some trade-down if it happens, but there’s still so much opportunity in premium and super-premium. Widow Jane, which came with the Samson & Surrey acquisition, is in the ultra-premium segment, at US$80-plus per bottle. Ultimately, we didn’t make enough whiskey way back when to sell as much as we could today.
Bourbon has exploded beyond our expectations over the last ten to 15 years and we’ve had to make difficult decisions to discontinue brands along the way, so we can capitalise at the more premium end. Our confidence in the Bourbon industry is exemplified in the construction of the Bardstown distillery.
GDI: How far did the tariff row between the US and the EU/UK set American whiskey back outside its domestic market?
AL: For us, it was more of a delay in the growth plans that we had in mind. The tariffs happened at the same time as Covid, so we bided our time. Now the tariffs have gone, we can supercharge our international efforts.
GDI: What have the likes of Deep Eddy and Tito’s Handmade Vodka done right in vodka, which has long been a stagnant spirits segment in the US?
KL: When we came into vodka around 20 years ago, it was all about imported brands and premiumisation. The big deal was to spend $30 on a bottle of vodka. Then came the flavours, which were led by both domestic and international vodka brands. Around the time of the last recession, there was greater consumer interest in more authenticity in the things they bought. Deep Eddy and Tito’s deliver on that – they’re both Texas vodkas and about being real; they’re not about pretence.
AL: More than anything, Deep Eddy and Tito’s sold Americana. Americans were yearning to drink American-made products. Americana has been a core part of both brands’ successes.
GDI: Meanwhile, over in Tequila, we’re seeing a crowded marketplace in the US, yet you inherited the Ocho brand through the Samson & Surrey purchase.
KL: We always look to have a point of difference in our brands. Lunazul is at a more accessible price point in Tequila, but over-delivers on quality. Ocho was also launched with authenticity as part of its offer. You could charge much more for that type of product, but it’s still at an approachable price point. We don’t have brands that are the bare minimum with a high price. That’s our point of differentiation.
GDI: How satisfied are you with Heaven Hill’s presence across the spirits categories?
AL: We want to have major brands with major growth opportunities in the categories that consumers are consuming. We want enough scale and diversity to diversify our risk, but we’re moving more towards power brands in power categories. At the end of the day, we’re in the categories that will be around forever.
GDI: You’re missing a trick at the higher end of gin, though, no?
KL: Certainly, gin’s a category that we didn’t have a presence in. Bluecoat, as part of the Samson & Surrey acquisition, is a lovely entry into that space for us. It delivers on quality while, like Deep Eddy, it’s made here in the US, doubling down on the Americana angle.
AL: While we have seen growth in super-premium gin in the US, it hasn’t lived up to the hype yet. There’s been a lot of talk about the coming growth of gin in the US, but…
KL: …it’s still coming!
This article was initially published in the December/January issue of Global Drinks Intel magazine. For details on how to subscribe, click here.
