Brown Forman Corporation Business Information, Profile, and History

Company Perspectives:

Our business philosophy is straightforward. We believe that by investing in our people and brands, and by always trying to improve the quality of our products while also controlling costs, we will succeed in providing premium brands to our consumers and superior returns for our shareholders.

We demonstrate this philosophy in a variety of ways across a broad spectrum of activities within our company, including employee training and development, investments in brand-building programs and production improvements, and carefully managing our assets. All of these activities, and many others, are like pieces of a puzzle that, when connected, reveal the entire picture of how our company succeeds.

History of Brown Forman Corporation

Brown-Forman Corporation is a diversified producer, marketer, and exporter of alcoholic beverage and consumer products. The full-line distiller markets Jack Daniel's whiskey, Southern Comfort liqueur, Canadian Mist Canadian whiskey, Early Times and Old Forester bourbon, Glenmorangie Scotch, Finlandia vodka, Korbel champagne and brandy, and Fetzer, Bolla, and Sonoma-Cutrer wines. Brown-Forman also produces and markets crystal, china, silverware, giftware, and collectibles under the Lenox, Gorham, Dansk, and Kirk Stieff brands; as well as Hartmann luggage and leather goods.

Early History

George Garvin Brown and John Forman founded the Brown-Forman Distillery in Louisville, Kentucky, in 1870. At the outset, Brown-Forman marketed Old Forester bourbon. Before Brown and Forman marketed their own brand, bourbon had been sold to taverns in barrels, and bartenders decanted the alcohol into special bottles with the name of the tavern on the label. Brown poured the bourbon into bottles at the distillery, corked and sealed the bottles, labeled them, and warned taverns not to buy the bourbon if the seals were broken. As an additional innovation, all of the labels were handwritten and included a guarantee on the quality of the bourbon. Old Forester sold well as a result of these innovations--but Forman was dubious: in 1902 he sold his interest in the Brown-Forman Distillery because he believed that Brown-Forman's success would diminish as soon as the novelty of packaging began to fade. The Brown family purchased all of Forman's interest in the company.

In 1905 Brown-Forman continued its packaging innovations by bottling Old Forester in pear-shaped bottles. Old Forester's tavern sales increased significantly as a result. These increased sales led to a certain amount of bitterness among other distillers in Kentucky. Some competitors went so far as to slip iron nails into barrels of Brown-Forman whiskey to make it turn black.

Brown-Forman's bourbon was aged in barrels in large warehouses. At that time, warehouses were not heated, and labels on bourbon bore the expression 'summers old,' a reference to the fact that bourbon can age only in a warm climate. As a result, during the early decades of the 20th century it took many years for the bourbon to be prepared for the market. Consequently, the word 'old' became a common prefix in any brand name of bourbon.

Old Forester, produced, marketed, and distributed by Brown-Forman, continued to be very successful under the private ownership of the Brown family, which had no plans to diversify. All the company's advertising concentrated on marketing Old Forester, which it promoted as a product that would restore health: 'Many, many times a day, eminent physicians say, Old Forester will life prolong and make old age hale and strong.' Although this advertising was effective, Prohibition threatened to close Brown-Forman. To prevent this from happening, Brown-Forman went public just prior to Prohibition (1920--33), but the Browns maintained control of the majority of shares.

The pre-Prohibition advertising had been valuable: the Brown-Forman company was one of four distillers permitted by the government to sell alcohol for medicinal purposes during Prohibition. The marketing of Old Forester had saved the company from the kind of downfall that other distillers suffered as a result of Prohibition.

Brown-Forman spent the decade between the end of Prohibition and World War II readjusting to the fact that it could now legally sell Old Forester as bourbon. The bourbon now needed to be advertised as an alcoholic beverage rather than as a health tonic, in order to change the image it had acquired during Prohibition. The extensive advertising of the late 1930s and early 1940s, however, was largely futile; the production of alcoholic beverages was once again severely curtailed during World War II. This time Old Forester could not be advertised as a health tonic since even this type of alcohol was now illegal. In spite of this development, the Brown family was not pessimistic about the future of their distillery. They investigated ways in which their alcohol could be used to help the war effort, and during the war Brown-Forman produced alcohol that was used in making both gunpowder and rubber. The Browns also continued to plan for the end of World War II and the future of the Brown-Forman company. They wanted their bourbon to have a head start in the postwar market.

During World War II Brown-Forman's executive committee considered the fact that it took at least four years to age a marketable bourbon. They attempted to predict when the war would end and correctly decided on 1945. By starting the aging in 1941, they could have Old Forester ready for sale immediately following the war. As the competition's bourbon would not be marketable until 1949, Brown-Forman could monopolize the bourbon market for the first four postwar years.

Because the executive committee's predictions were correct and resulted in impressive sales, Brown-Forman management decided to create a committee system of management. Finance, marketing, and production committees were created, in addition to the executive committee, to discuss and implement policies that could lead to the future success of the company.

In 1945 the management at Brown-Forman implemented an annual training course for ten to 20 selected individuals from outside the firm. These individuals worked in all areas of the company, from the lowest to the highest positions. Approximately half of them were then hired by other companies, and half continued with Brown-Forman in management positions. In this way, Brown-Forman created for itself an adequate supply of employees for management positions from outside the company itself. The remaining other employees, however, were hired according to a policy of 'planned nepotism.'

Since George Garvin Brown founded Brown-Forman in 1870, the Browns supported this type of company nepotism. In 1945 the executives at Brown-Forman publicly stated that nepotism was good for their business and would be encouraged. They believed that if a father enjoyed working at Brown-Forman, his son would feel just as comfortable working there. Brown-Forman executives, as a policy, encouraged the children and grandchildren of good employees to work for the company.

Postwar Diversification

One of the effects of the limited production of alcohol during World War II was that postwar consumers favored whiskey blends that did not have a strong alcohol taste. The executives at Brown-Forman, however, did not pay attention to this new trend. They continued to sell bourbon with high alcohol content. In 1956 Brown-Forman diversified into the premium rye whiskey business by purchasing the Jack Daniel Distillery in Lynchburg, Tennessee. Jack Daniel's had been founded in 1866 and enjoyed a popular, 'down-home' image. The label of the 'Tennessee sipping whiskey' featured men in overalls, coonhounds, and scenes from Lynchburg. Brown-Forman's confidence in the value of the Jack Daniel's franchise was evinced by the fact that the acquisition cost $20 million, a debt that exceeded the company's net worth. The deal also confirmed Brown-Forman's movement away from being a company that produced only bourbon.

At the beginning of the 1960s, Brown-Forman continued its diversification program by purchasing the Joseph Garneau Co., an importer of scotch whiskeys and European wines. Although Brown-Forman had not followed consumer trends after World War II when blends were popular, the company succumbed to the high demand for scotch in the 1960s. By 1962 scotch held nine percent of the liquor market, and the popularity of wine was increasing steadily.

Despite the diversifications, Brown-Forman portrayed itself as a medium-sized company. This stance worked in favor of the company during the 1960s. Before 1963, 80 percent of all hard liquor in the United States was sold by the four largest distilling companies, and the remaining 20 percent was sold by Brown-Forman, Heublein, James B. Beam Distilling Co., and the American Distilling Co. In 1963, however, these smaller companies increased their sales by 70 percent while the larger companies did not increase their sales at all. Consumer tastes during the 1960s favored the small, independent distilling companies. One reason for this change was that consumers in increasing numbers were switching from blended whiskey, popular after World War II, to straight whiskey.

In 1964, in order to continue its expansion in the broader market for alcoholic beverages, Brown-Forman purchased all outstanding stock of the Oertel Brewing Co., a small Louisville brewery. This company produced beer that was distributed in Kentucky, Tennessee, Indiana, Ohio, and Alabama. The brewery later became unprofitable, and Brown-Forman sold its interest in the company during the late 1960s. Yet the purchase of Oertel was proof of Brown-Forman's willingness to diversify into new areas of the alcohol market.

In 1966 Daniel L. Street was appointed president of Brown-Forman, the first time that a man outside the Brown family had been president of the company. Street joined Brown-Forman as a lawyer in 1938 and advanced to the position of executive vice-president in 1953. He continued Brown-Forman's program of diversification while president. In 1967 he authorized a merger with Quality Importers, which provided Brown-Forman with a 'top scotch and good gin,' according to Street. Quality Importers produced Ambassador scotch, Ambassador gin, and Old Bushmills Irish whiskey. By 1968 sales had risen to $180 million as Brown-Forman continued to expand under the direction of Street.

Although Street effectively diversified Brown-Forman, William F. Lucas replaced him as president in 1969. Lucas was also not part of the Brown family. He had joined Brown-Forman as an engineer in 1935 and advanced through the ranks. Lucas concentrated on marketing Brown-Forman's premium-priced products--President's Choice, Jack Daniel's, Old Forester, and Early Times. Lucas did not spend large sums advertising Brown-Forman's low profit brands, because he felt that, as higher quality whiskey could be made for pennies more per fifth, and could be sold at a much higher price, only the expensive brands merited increased advertising expenditures.

Adding Canadian Mist and Southern Comfort in the 1970s

In 1969 Lucas purchased the Bols line of liqueurs and Korbel champagne and brandy. These purchases expanded Brown-Forman's premium product line. In the early 1970s, as the demand for wine soared, Lucas initiated the purchase of Bolla and Cella Italian wines. This purchase was followed by the company's development of another product called Gold Pennant Canadian Whiskey. This whiskey was marketed specifically to women. Each bottle sold was accompanied by a horoscope pamphlet with 'love potion' recipes for each astrological sign.

Lucas then bought six-year-old barrel-stored whiskey from Publicker Industries Inc. In the 1960s Publicker had decided to make light whiskey but had later, when it was unsuccessful, reversed this decision. Lucas used Publicker's misfortune to Brown-Forman's advantage by purchasing their light whiskey, triple filtering it, and marketing the clear 80 proof product. Light whiskey is a clear beverage because it is aged in used barrels that have already given color to the whiskey previously stored in them. The clear whiskey is then distilled at a higher proof so it is lighter in taste. The term 'light whiskey' actually refers to the type or body of the whiskey and not to its color.

In December 1970 Schenley Industries, National Distillers and Chemical Corporation, and American Distilling Co. filed an injunction against Brown-Forman to bar introduction and further distribution of Brown-Forman's light whiskey called Frost 8/80. Under government restrictions light whiskey was not permitted to be marketed until July 1972. Although Brown-Forman's light whiskey was distributed before it was allowed to be, Brown-Forman's competition dropped its suit because Frost 8/80 was already on the market. As a result, Brown-Forman was free to advertise its new product as a 'dry, white whiskey' with which 'the possibilities are endless.' By advertising the whiskey as easily combining with any mixers, Brown-Forman tried to capture a share of the vodka and lighter Canadian whiskey market. The difficulty was that consumers did not buy Frost 8/80; they were used to drinking whiskey with color and, moreover, they could not associate Frost 8/80 with identically colored vodka: the flavors were different.

By 1973, $6 million had been invested in Frost 8/80 without a profitable return. Brown-Forman had extensively researched the popularity of a white whiskey and had received positive consumer response in various areas of the United States. Consumers, however, were confused by the company's advertising promotions and did not purchase the product. The extensive market research that Lucas had consulted before distributing Frost 8/80 had been incorrect.

Although light whiskey was not successful, Lucas still believed that American tastes were turning to lighter alcoholic drinks. For this reason, in 1971, Lucas contacted Lester Abdson and Oscar Getz who owned Barton Brands of Canada. Barton Brands bottled Canadian Mist, a blended whiskey. Brown-Forman could not purchase the entire company because of strict antitrust laws, so Lucas negotiated an agreement with Getz and Abdson to buy Canadian Mist and its distillery without buying the entire company. (This was the first time that a major brand of liquor was sold separately from the remainder of the company.) Lucas's determination to satisfy the American taste for lighter drinks was not diminished by the strict antitrust laws or the failure of Frost 8/80. By 1973 sales of such products had significantly increased.

Brown-Forman's success dwindled in the late 1970s as the bourbon market declined. Lucas moved aggressively to concentrate on faster growing segments of the alcoholic beverage market. In 1979 Brown-Forman spent $35 million to advertise its full line of alcoholic products. Lucas significantly increased Brown-Forman's wine and liqueur revenue to 22 percent of total sales. Most importantly, in 1979 Lucas purchased privately held Southern Comfort for $90 million. This purchase provided Brown-Forman with greater access to foreign markets since one-fifth of Southern Comfort sales were overseas.

The acquisitions of Southern Comfort and Jack Daniel's were similar because both companies were small and privately held. Also, each company had developed a distinctive character for their single product. Unlike Jack Daniel's, Southern Comfort is a liqueur and does not need to be aged. It can be produced and sold at a much faster rate. Before the Brown-Forman acquisition, Southern Comfort was already the number one selling liqueur. Brown-Forman simply enhanced its success. The company was equally successful with Jack Daniel's: from 1970 to 1979 Brown-Forman tripled Jack Daniel's sales to 1.7 million cases by popularizing the image of a quaint distillery nestled in a Tennessee hollow.

In 1979, W.L. Lyons Brown, Jr., was appointed president of Brown-Forman. He was the great grandson of George Garvin Brown who founded Brown-Forman in 1870. After two presidents who were not related to the Brown family, W.L. Lyons Brown, Jr., reestablished the tradition of a Brown at the head of the business. The restoration of the family was a good omen: Brown-Forman advanced to sixth in the alcohol industry and became the fastest growing full-line distiller.

Expanding Beyond Alcoholic Beverages in the 1980s and Early 1990s

Despite overall growth, the company experienced a setback with Southern Comfort in 1982; as competition increased, the share held by Southern Comfort in the market decreased. Brown-Forman responded to this weakening market share with another innovative idea, one and three-quarter liter plastic bottles to replace the one-half gallon glass bottles. After petitioning the Bureau of Alcohol, Tobacco, and Firearms, the company was granted permission to begin using the plastic bottle in 1983. However, later tests indicated that a loose molecule of plastic could contaminate the alcohol, and the container was soon prohibited.

In 1983, Brown-Forman acquired Lenox Inc., even though Lenox fervently fought the acquisition. Lenox made crystal, china, and giftware, and Hartmann luggage, products that presented special problems for Brown-Forman. Drastically different methods of distribution were needed to market the Lenox products. Yet management at Brown-Forman understood the need for a transition. This was apparent in the name change from Brown-Forman Distillers Corp., under which it had been known for decades, to Brown-Forman Corporation in 1984.

Subsidiary shuffling continued in the late 1980s and early 1990s, as the company worked to solidify its position in giftware. Brown-Forman sold Lenox's ArtCarved jewelry division to SGI Acquisition Corporation for $120 million cash in 1989, and sold the related Lenox Awards division to Jostens in 1990. The Lenox subsidiary acquired the Kirk-Stieff Co., a manufacturer and marketer of silver tableware, and Wings Luggage, Inc., in 1990 and 1991, respectively. Brown-Forman purchased Denver's Athalon Products Ltd., a manufacturer of travel and leisure products, in 1989, and supplemented its Lenox operations with the $70 million acquisition of premium giftware maker Dansk International Designs Ltd. in 1991.

Nevertheless, the company's realignment did not exclude the rearrangement of other alcoholic products; Brown-Forman bought California Cooler Inc. in 1985 for $63 million, and sold Cella Italian Wines to Cosorzio Interprovinciale Vini, an Italian firm, at the end of the decade.

Unfortunately, a recession in the late 1980s--in combination with price and tax hikes--brought a halt to a burgeoning trend toward premium liquors, as consumers traded down to cheaper brands. Unit sales in the liquor industry fell 5.6 percent in 1991, which was widely characterized as 'one of the worst years since Prohibition.' The decline continued in 1992, when total sales dropped about three percent.

Brown-Forman launched several ready-to-serve cocktails as extensions of its primary brands in the early 1990s. Jack Daniel's Country Cocktails, which were introduced nationally in 1992, soon became one of America's top 20 spirit brands. Southern Comfort Cocktails and Pepe Lopez Margaritas were introduced soon afterward. It was hoped that these products would serve as an alternative to beer, rather than erode or cannibalize their parent brands. In August 1992, Brown-Forman acquired Fetzer Vineyards, an important producer of premium California wines, for about $80 million. In the process, Brown-Forman became the fifth largest player in the U.S. wine market.

W.L. Lyons Brown, Jr., retired as CEO in 1993 and younger brother Owsley Brown II assumed the position. The new leader helped boost his company's stock through a Dutch auction wherein the company repurchased over 4.5 million shares.

Expanding Internationally in the Mid-to-Late 1990s

In the mid-to-late 1990s, Brown-Forman made a concerted effort to bolster its non-U.S. sales. In 1994, Brown-Forman Beverages Worldwide was created through a reorganization that combined the previously separate U.S. and overseas divisions. Among the subsequent overseas initiatives was the 1995 formation of a joint venture with Jagatijit Industries, Limited of India to distribute Brown-Forman alcoholic products in India. Southern Comfort was introduced into that country the following year. In South Africa, a blended whiskey called BlueGrass Kentucky Whiskey was successfully introduced. Worldwide sales of Jack Daniel's increased rapidly, with the brand becoming the world's seventh best-selling spirits brand by decade's end. During this period, Brown-Forman also gained a presence in the hot super-premium vodka category through a 1996 agreement whereby it became the exclusive U.S. importer of the Finlandia brand. Brown-Forman helped increase U.S. sales of Finlandia by nearly 50 percent by 1999, and in August 2000 the company acquired a 45 percent stake in Finlandia Vodka Worldwide Ltd., with the balance of the ownership remaining with Altia Group Ltd., a distiller and marketer owned by the government of Finland. Also in 2000, Brown-Forman expanded its distribution of Glenmorangie Scotch, which the company had been marketing in the United States since 1991. Brown-Forman agreed to take over sales and marketing of the brand in continental Europe, the Far East, Australia, and South America. On the wine front, meantime, Brown-Forman acquired an 80 percent interest in Sonoma-Cutrer Vineyards, Inc. in April 1999, then one year later acquired most of the remaining stake. Sonoma-Cutrer was one of the leading U.S. makers of premium Chardonnay.

While the spirits and wine operations were being steadily expanded, Brown-Forman's consumer durables business--the Lenox, Gorham, Dansk, Kirk Stieff, and Hartmann brands--were not performing as well. At the turn of the millennium, durables accounted for more than one-quarter of overall sales but only ten percent of the profits. A number of analysts called for the divestment of these brands but Brown-Forman resisted such pleas and company officials pointed instead to such positives as the cash flow generated by the brands. The company also attempted to revive the brands' flagging fortunes through a number of initiatives. Lenox, known for its fine china, began selling lines of casual dinnerware. The same brand also found success with a number of millennium-themed products and, in a departure from its traditional department store sales, garnered increasing revenue from catalog, direct mail, and Internet channels. Dansk, meantime, was successfully reintroduced into department stores.

After net sales surpassed the $2 billion mark for the first time in fiscal 1999, the following year marked Brown-Forman's 55th consecutive year of paying regular dividends, a testament to a consistently successful company. Prospects for the early 21st century appeared bright as it was anticipated that the echo boomers--the children of baby boomers--would reach their prime drinking ages (21 to 34 years of age) between 2000 and 2014 and that aging baby boomers would at the same time be reaching their prime wine-consuming years, age 50 and beyond. Brown-Forman's strength in both liquor and wine positioned the company to benefit from both of these demographic trends.

Principal Subsidiaries: Brown-Forman Beverages Australia Pty. Ltd.; Brown-Forman Beverages North Asia, L.L.C.; Brown-Forman International FSC, Ltd. (U.S. Virgin Islands); B-F Korea, L.L.C. (U.S.A.); Brown-Forman Beverages Poland; Brown-Forman Relocation Corp.; Brown-Forman Travel, Inc.; Canadian Mist Distillers, Limited (Canada); Early Times Distillers Company; Fetzer Vineyards; Fratelli Bolla International Wines, Inc.; Hartmann Incorporated; Heddon's Gate Investments, L.L.C.; Jack Daniel's Properties, Inc.; Lenox, Incorporated; Mt. Eagle Corporation; Sonoma-Cutrer Vineyards, Inc.; Southern Comfort Properties, Inc.; Washington Investments, L.L.C.; West Main Interactive, L.L.C.; Longnorth Limited (Ireland); Chissick Limited (Ireland); Clintock Limited (Ireland); Brooks & Bentley Limited (U.K.); Dansk International Designs Ltd.; Norfolk Investments, Inc.; Voldgade Investment Holdings A/S (Denmark); Brown-Forman Mauritius Limited; Pitts Bay Trading Limited (Bermuda; 75%); BFC Tequila Limited (Ireland; 67%); Ireland Drake Investments, Inc.; Jack Daniel Distillery, Lem Motlow, Prop., Inc.; Brown-Forman Korea Ltd.; Fratelli Bolla, S.p.A. (Italy); Brown-Forman Beverages Worldwide, Comercio de Bebidas Ltda. (Brazil); Brown-Forman Worldwide, L.L.C.; JDPI Investments, L.L.C.; Amercain Investments C.V. (Netherlands); Brown-Forman Beverages Africa, Ltd. (Bermuda).

Principal Competitors: Allied Domecq PLC; Bacardi Limited; Beringer Wine Estates Holdings, Inc.; Constellation Brands, Inc.; Diageo plc; Fortune Brands, Inc.; E. & J. Gallo Winery; Kendall-Jackson Wine Estates, Ltd.; LVMH Moet Hennessy Louis Vuitton SA; The Robert Mondavi Corporation; The Seagram Company Ltd.; Tattinger S.A.

Chronology

• Key Dates:

• 1870: George Garvin Brown and John Forman found the Brown-Forman Distillery, marketing Old Forester bourbon.
• 1920: Prohibition is adopted; Brown-Forman receives a license to sell alcohol for medicinal purposes.
• 1933: Prohibition is repealed.
• 1956: Company purchases the Jack Daniel Distillery.
• 1971: The Canadian Mist brand is acquired.
• 1979: Company purchases Southern Comfort.
• 1983: Company acquires Lenox, maker of crystal, china, and giftware, as well as Hartmann luggage.
• 1984: The company's name is changed to Brown-Forman Corporation.
• 1991: Dansk International, maker of premium giftware, is acquired.
• 1992: Fetzer Vineyards is acquired.
• 1994: Company creates Brown-Forman Beverages Worldwide, a combination of previously separate U.S. and overseas divisions.
• 1999: An 80 percent interest in Sonoma-Cutrer Vineyards is acquired.
• 2000: A 45 percent stake in Finlandia Vodka Worldwide is acquired.