Brown-Forman has started the year in consolidatory form, confirming the intention this week to reduce its headcount of 5,400 by almost 650. Understandably, the move, one of a brace of what the brand owner described as “strategic initiatives for growth”, has been linked by some observers to not only the group’s performances of late but also more generally to the state of the spirits industry in the US – Brown-Forman’s biggest (and home) market.
First things first; there’s a human element to this decision that should not be overlooked. While there’s never a good time to be told one’s about to lose one’s job, coming so soon after the festive period feels particularly harsh. That said, credit should go to Brown-Forman for being up-front about the matter.
On a purely mathematical basis, however, the announcement has garnered an optimistic consensus among industry analysts.
Looking at the Jack Daniel’s owner’s recent results, the reduction appears to be somewhat drastic – flatlining sales from the six months to the end of October isn’t actually that bad a showing for a spirits brand owner. Indeed, Brown-Forman is by no means as deeply mired in the doldrums as some of its peers; Moët Hennessy, for example, was down 7% in sales terms from both the second and third quarters of calendar 2024, while Rémy Cointreau slumped by 16% in the six months to the end of September.
Underlining the ‘drastic’ claim yet further is the fact that, over the last ten quarters, Brown-Forman’s average sales performance sits at +4%. Then, there’s the company’s claim, made alongside its latest results last month, that the longstanding pressure felt from overstocking by US distributors finally appears to be drawing to a close.
Evidence for the prosecution, however, is starting to build up, from the industry’s recognition that today’s consumer is more sensitive than usual to price, to the US Surgeon General joining the phalanx of ever-louder anti-alcohol voices just two weeks ago. Throw in both the threat of import tariffs by Donald Trump and the disinterest in alcohol exhibited by younger LDA consumers, and spirits in the US could be entering ‘perfect storm’ territory in 2025.
Beverage analyst Nadine Sarwat at Bernstein acknowledged the downbeat mood music for spirits in the US. “The pessimist would argue that (Brown-Forman’s) announcement might imply … that some challenges the spirits industry faces today are permanent, and is adjusting the business accordingly,” she wrote in a subsequent client note. Indeed, speaking to Global Drinks Intel this month, company CEO Lawson Whiting sounded for a fleeting moment, at least, like one of those pessimists. “These are definitely some of the most challenging conditions that I have seen in my career,” he admitted.
That said, Sarwat also offered a counter to the view: “The optimist would argue that cost savings programmes are a normal (and healthy) part of doing business for staples,” she added, “and that the announcement shows welcome proactivity by management.
“We lean slightly more positive on this news,” she concluded. “One thing is for sure though – regardless of today’s news – Brown-Forman faces a long road ahead.”
Also banging the upbeat drum was investment bank Citi, whose analysts view the restructuring actions “favourably, as a way to respond to the difficult external environment and protect profitability and earnings”. Elsewhere, Barclays’ analysts, led by Lauren Lieberman, credited Brown-Forman with making “thoughtful, long-term oriented decisions … to support the growth profile of the evolved portfolio – not a knee jerk reaction to any recent, short-term industry trends”.
They also noted that the job cuts are “only the second large-scale RIF [reduction in force] in the company’s history”, the first round landing in 2009.
Another way to consider the move is reflected in Brown-Forman’s divestment of the Finlandia vodka brand – and subsequent exit from the volume-driven vodka category – 19 months ago; just as consumers are choosing to drink less but drink better, are there grounds for brand owners to take the same approach with their employees?
It is clear that, in the near term at least, the future for spirits in the US doesn’t look great. Based on the investment community’s reactions, however, Brown-Forman’s bold decision this week may not be one to cause alarm bells to ring, but rather a sign of a sensible decision-making process, centred around kickstarting growth again.
