Jim Beam Brands Worldwide, Inc. Business Information, Profile, and History

Company Perspectives:

For more than 200 years, the Beam family has been dedicated to making the highest-quality bourbon using the family's world-renowned expertise. Hard work, dedication and vision have paved the way to make Jim Beam the standard for all bourbons in the world.

History of Jim Beam Brands Worldwide, Inc.

Jim Beam Brands Worldwide, Inc. is a holding company for the distilled spirits and wine operations of Fortune Brands Inc., accounting for some 20 percent of Fortune's annual sales. Jim Beam Brands manufactures and markets nearly 80 brands of distilled spirits and fine wines in 160 countries across the globe. With over 200 years of history under its belt, Jim Beam has long been the world's best selling bourbon; the company filled its nine-millionth barrel of bourbon in 2003. Some of the company's other brands include DeKuyper cordials, Windsor Canadian supreme whiskey, Kessler American blended whiskey, Kamora coffee liqueur, Knob Creek and Bookers small batch bourbons, Ronrico rum, and Vox vodka.

Origins

Shortly after the Revolutionary War, the newly formed U.S. government encouraged homesteaders to settle west of the Appalachian Mountains. Settlers were promised 60 acres of land in return for clearing the land and growing corn for at least two years. Among the homesteaders was Jacob Beam, a miller from Germany by way of Virginia, who in 1788 brought his family and his belongings--including a copper still--to Bourbon County, Kentucky. Beam and many other settlers found fertile lands, and clear, limestone-fed springs, and their corn grew well. Beam built a water mill to grind his and neighboring farmers' corn crops, taking a percentage of the grain in exchange. Because the grain did not keep long, and was difficult to transport, many farmers, including Beam, began to distill their surplus corn into whiskey. Whiskey, which did not spoil and was easy to transport, soon became an important part of the economy, and was often used as payment in place of the unstable currency of the day.

The whiskey these farmers made, with its high corn content and the amber color it drew from being stored in charred oak barrels, became known as bourbon, after Bourbon County. Jacob Beam's bourbon, made according to his own recipe, quickly achieved a wide reputation for its quality. In 1795 Beam sold a barrel of his bourbon in Washington County, Kentucky, taking cash for the first time. By then the word "distillery" had been coined, from the distilling process used for producing bourbon, and more and more farmers were establishing their own distilleries. By the start of the War of 1812, Kentucky alone boasted more than 2,000 distillers. After inheriting land from his wife's father, Beam moved his still and his family of twelve children to Washington County. Demand for Kentucky bourbon soon spread through the entire country.

Jacob Beam's son, David, took over the family's business in 1820, inheriting his father's recipe for bourbon. The United States was then entering the Industrial Age; the invention of the steam engine, the digging of the Erie Canal, and the construction of the first railroads made it easier to transport goods around the country. David Beam had ten children, who helped in running the family distillery. In 1850 David Beam's son David M. Beam took his father's place, distilling bourbon according to Jacob Beam's original recipe. Four years later, upon the death of his father, David M. Beam moved the distillery to Nelson County, Kentucky, close to the railroad, which had by then reached Kentucky. David M. Beam now called the distillery the Clear Spring Distillery. Beam continued to produce the family's bourbon throughout the Civil War. That bourbon would become most famous under the name of David M. Beam's son, James Beauregard Beam, born in 1864.

James B. Beam entered the family business at the age of 16, and took over the distillery and its bourbon recipe 14 years later. During the later 1800s and into the new century, distillers were faced with growing pressures from bootleggers, the temperance movement, and increasing government regulations. In an effort to stop the bootlegging, or counterfeiting of known whiskey brands, Congress passed legislation in 1897 creating "bonded whiskey," which would become defined as whiskey that had been aged at least four years in a government-bonded warehouse. Bonded whiskeys were sealed with a green paper stamp. The liquor industry was brought under the control of the Federal Food and Drug Act of 1906. Three years later, whiskey types were given their first legal definitions. These same years saw waves of new immigrants arriving in the United States, and the Clear Spring Distillery continued to prosper through the first two decades of the twentieth century.

Success After Prohibition

The rise of the temperance movement, in response to increasing problems associated with the abuse of alcoholic beverages, reached its peak in 1919, when Congress ratified the 18th Amendment. The following year, with the passage of the Volstead Act providing enforcement of the new law, the United States entered the Prohibition era. James Beam was forced to shut down his distillery. He turned instead to growing citrus in Florida and mining, but continued to guard the family's bourbon recipe.

Prohibition proved unenforceable, and was finally repealed by the 21st Amendment in 1933. James Beam built a new, modern distillery and, aided by his son T. Jeremiah Beam, returned to making bourbon. In that year, the James B. Beam Distilling Co. was incorporated in Clermont, Kentucky. Following his great-grandfather's recipe, Beam cultivated a new strain of yeast to replace the culture lost during Prohibition. Beam, then 70 years old, continued to run the company until 1946, when T. Jeremiah Beam was named president and treasurer. Upon James Beam's death the following year, T. Jeremiah became the Beam company's master distiller. The company's corporate offices were moved to Chicago in 1949, while its distilling operations were maintain in Clermont. With no children of his own, T. Jeremiah brought his nephew, Booker Noe, into the company in 1950. By 1954 the company had built a second distillery to meet the demand for its bourbon, which by then had occupied the country's number one selling position for nearly two decades.

Booker Noe became Jim Beam's master distiller in 1960. In 1964 bourbon was declared "a distinctive product of the United States" by congressional resolution. This meant that, by law, bourbon was required to be made from at least 51 percent corn, to be aged for a minimum of two years in charred white oak barrels, and to be produced in the United States. Three years later, American Brands bought the James B. Beam Distilling Co. from the Beam family, and acquired Jacob Beam's bourbon recipe. Booker Noe remained on as master distiller, using the yeast strain cultivated by James B. Beam. By then, the Beam family's business had grown to $113 million in annual sales.

Throughout its history, the company had maintained a single product. As a subsidiary of American Brands, however, the James B. Beam Distilling Co. began to expand its product line, adding brands in other categories during the 1970s and 1980s. New pressures had arisen for the liquor industry. Concerns over alcohol's effect on health led to legislation requiring warning labels on each bottle sold. Bans on television advertising were introduced, restricting liquor companies to print ads. At the same time, alcoholism became officially recognized as a disease, and programs such as Alcoholics Anonymous were created to help people stop drinking. So-called "white" liquors, such as vodka and gin, were becoming more popular. People were becoming increasingly more conscious of their health, further depressing alcohol consumption. At the same time, more and more states were leveling so-called "sin taxes" on alcoholic and tobacco products. Domestic sales of alcoholic beverages peaked in 1979, with nearly 200 million cases sold; ten years later, the figure had dropped to less than 160 million cases. Nevertheless, Jim Beam bourbon sales continued to rise; by 1983 it was the fifth-largest-selling whiskey brand, with sales of $125 million.

Expansion in the 1980s and Early 1990s

Jim Beam Distilling's product portfolio grew through a combination of new product development and acquisition of existing brands. The company introduced products such as Kamora decaffeinated coffee liqueur and mixes such as Jim Beam and Cola--geared to add younger drinkers to Beam's traditionally older customer base--and acquired brands such as Peter Heering cherry liqueur and Aalbord Akvavit vodka. By 1984, the company posted $246 million in revenues. Jim Beam bourbon sold more than four million cases, accounting for roughly one-fourth of all bourbon sales. Two years later, sales had slipped slightly, to 3.8 million cases; by then, however, Jim Beam was the third-largest-selling liquor in the United States, behind Bacardi rum and Smirnoff vodka.

In 1987 Jim Beam Distilling tripled in size with American Brands' $545 million cash purchase of National Distillers & Chemical Corp.'s distilling division, which had sales of $580 million in 1986. Among the labels now included in Jim Beam Distilling's catalog were Windsor Canadian, DeKuyper cordials, and Gilbey's gin and vodka; also acquired were the bourbons Old Grand Dad, Old Crow, and Old Taylor. Together, the new labels added nearly nine million cases to the company's annual sales. To reflect its growing portfolio, the company changed its name to Jim Beam Brands Co. in 1988; its corporate headquarters were moved to a new location outside of Chicago. Through 1989, the company weathered a lawsuit (alleging that a pregnant woman's consumption of Jim Beam bourbon had caused birth defects in her child) that threatened the entire liquor industry. Beam was found not liable in May 1989.

Beam's acquisitions continued into the 1990s, with the $272 million purchase of the United Kingdom-based Whyte & Mackay Distillers, bringing that company's best-selling scotch whiskeys into its product line. In 1990, Beam's volume topped 15 million cases. The following year, Beam Brands paid Seagram $372.5 million for seven of its brand trademarks, including the strong sellers Ronrico rum and Wolfschmidt vodka. Jim Beam Brands, with annual sales of nearly 21 million cases, was now the second-largest distiller, behind the 27.5 million cases of leader IDV/Grand Met.

The recession of the 1990s, coupled with increases in taxes, the Middle East War, and the continued growth of the health and fitness movement, brought further declines in annual liquor consumption. Throughout the 1980s and the early 1990s, bourbon sales, for example, had dropped an average of 5 percent each year. This trend began to reverse in 1993, when only a 2 percent drop in sales was posted. Part of this reverse came from the growing popularity of small-batch and boutique bourbons. Maker's Mark had been producing a small-batch bourbon since the 1960s. Beginning in 1987 Jim Beam Brands began to market its own small-batch bourbons, under the names Basil Hayden's, Knob Creek, Baker's, and Booker's, the latter by Booker Noe. Small-batch bourbons were produced in lots of less than one thousand barrels, in contrast to the one million or more barrels of other brands. Single-barrel bourbons, as the name implied, remained unblended, and were aged up to eight years. With prices ranging up to $50 per bottle, these bourbons borrowed the more sophisticated image of single-malt scotches, and in turn stimulated interest in the bourbon category as a whole.

Success Continues in the Mid-1990s and Beyond

By 1995, Jim Beam Brands' portfolio had grown to encompass nearly every category of distilled spirits. Its products were grouped under three divisions--Core Group; Imports and Specialties; and Value Brands Group--offering a brand for every taste and budget. Jim Beam bourbon, with five million cases sold in 1994, continued to be the company's flagship brand.

The company continued to strategically position itself among the leading distilled spirit manufacturers into the late 1990s. In 1996, it strengthened its relationship with Destileria Serralles Inc. to distribute the Palo Viejo and Don Q brands of Puerto Rican rums in the United States; the company had partnered with Destileria Serralles in the early 1990s to distribute the Ronrico rum brand in the United States. The Geyser Peak Winery was acquired in 1998, adding wines to Jim Beam's growing product line. The company launched a new advertising campaign in 1999, marking the first time that the Jim Beam brand was marketed on a global level.

Meanwhile, the company's parent underwent a series of restructuring moves. In 1997, American Brands spun off its tobacco holdings and changed its name to Fortune Brands Inc. in order to better reflect its growing portfolio of leading consumer products. Fortune's distilled spirits business fell under control of Jim Beam Brands Worldwide Inc., which acted as a holding company for Jim Beam Brands Co. In 1999, Jim Beam Brands Worldwide created Maxxium Worldwide B.V. to distribute and market wines and spirits outside of the United States.

The company's next big move came in 2001, when it partnered with Vin & Sprit AB in a $645 million deal that created a joint distribution company, Fortune Brands LLC. The new unit was created to distribute both Jim Beam's brands and Vin & Sprit brands--including Absolut vodka--and also significantly reduced the company's distribution costs. That year the firm also sold its U.K.-based scotch whiskey business.

During the early years of the new millennium, Jim Beam was well positioned for growth. According to a 2001 Beverage Industry article, studies had shown there would be 1.5 percent more people in the legal drinking age every year for the next ten years. The article pointed out that this was, "a bright point in the future for all beer and spirits manufacturers." Indeed, by 2003 Jim Beam had filled its nine-millionth barrel of bourbon. Jim Beam stood as not only the top selling bourbon in the world, but the leading American whiskey in Eastern Europe, Germany, and Australia.

The company's strategy during this time period focused on boosting its hold over the super-premium portion of the industry. This included launching marketing campaigns aimed at capturing new customers including women and Hispanics. Jim Beam also continually worked to expand its distribution network. With over 200 years of experience behind it, Jim Beam appeared to be on track for success in the years to come.

Principal Competitors: Brown-Forman Corporation; Diageo plc; Pernod Ricard.

Chronology

• Key Dates:
• 1795: Jacob Beam sells his first barrel of bourbon.
• 1920: The United States enters the Prohibition era.
• 1933: The 21st amendment repeals Prohibition; the James B. Beam Distilling Co. is incorporated.
• 1967: The company is acquired by American Brands.
• 1987: Jim Beam triples in size with American Brand's purchase of National Distillers & Chemical Corp.'s distilling division.
• 1991: Seven of Seagram's brand trademarks are added to Jim Beam's arsenal.
• 1997: American Brands changes its name to Fortune Brands.
• 1998: Geyser Peak Winery joins Fortune Brands' distilled spirits division.
• 2001: Jim Beam and Vin & Sprit AB partner to form Future Brands LLC.