By Diane Bartz
WASHINGTON (Reuters) - If anyone should find it odd that a Japanese distillery was planning to merge with a U.S. bourbon brand steeped in the history of the American South, the answer could be found on a cocktail menu.
Suntory Pacific Ltd
Prices for bourbon, a type of whiskey distilled from at least 51 percent corn, have risen faster than inflation in the United States for years. Analysts believe prices will increase from 3 percent to 10 percent annually over the next three to five years.
This is partially because bourbon, which by law must be produced in the United States, must be aged typically for two to nine years but sometimes for longer. That makes a sudden ramping up of production impossible even if demand rises.
Higher corn prices in recent years raised production costs, although the impact varied depending on how companies sourced their supplies. Jim Beam's website says its bourbon is made of "at least 51 percent" corn, mixed with yeast and smaller amounts of barley, malt and rye.
Beverage industry analysts said Suntory's $16 billion deal for Beam Inc.
American consumers have lately regained interest in cocktails, translating to sales for spirits such as bourbon.
Bourbon makers sold 6.8 percent more in 2013 than in 2012 in the United States, with revenue jumping 10.2 percent to $2.4 billion, according to the Distilled Spirits Council of the United States. About 18 million 9-liter cases of bourbon were sold in 2013.
Premium and super-premium spirits saw the biggest increases. The most expensive bourbon, also the hardest to find, was Pappy Van Winkle's Family Reserve from Sazerac Co Inc. A 70-centiliter bottle of the 23-year-old Kentucky whiskey goes for $500 or more, and prices are higher on the secondary market.
Sales of cheaper spirits fell in 2013 but sales of high-end brands rose by 7.2 percent and sales of super-premium products rose by 6.3 percent, said the council.
CRAFT LEADS TO CACHET
Just as interest and sales of craft beer rose even when major breweries consolidated over the past decade, craft bourbon took off despite the rise of behemoth spirits distributors.
Though the term craft is associated with an artisanal touch, no legal definition exists and some bigger companies disagree that small whiskey makers take more care with their products. The American Craft Distillers Association, however, limits membership to distilleries that sell about 42,000 cases or fewer each year.
Craft bourbons, while maybe 1 percent of the market, give the drink a cachet that touches even a brand name like Jim Beam. Some of the better-known craft distilleries include Garrison Brothers in Texas; Prichard's in Tennessee, and Willett in Bardstown, Kentucky.
Beam's stable includes small-batch labels such as Knob Creek, Booker's and Basil Hayden's.
The growth in the number of distilleries came after years of little interest in whiskeys and bourbons that led dozens of producers to shut down, said Tom Fischer, host of an online television show and website, Bourbonblog.com.
"There about 400 to 500 craft distilleries that are on the map right now. We just see them popping up everywhere," said Fischer. "We're seeing it more and more with the cocktail culture. When I started this blog about 10 years ago, people were a little into bourbon and now they're crazy into bourbon. It's just going to grow."
WHEN CONGLOMERATES COLLIDE
Jim Beam as a brand began when corn farmer Jacob Beam distilled his first whiskey in 1795 in Bullitt County, Kentucky, where it is still made.
Beam Inc, its holding company, was part of Fortune Brands until 2011. The global vodka, tequila and whiskey powerhouse is headquartered near Chicago and is the second-biggest in sales in the United States.
Like Suntory, Beam grew largely by acquisition. In 2005, it bought Mexico's Sauza tequila company; Laphroaig single malt Scotch whisky; premium Kentucky bourbon Maker's Mark, and other liquor labels.
Suntory was founded in 1899 when store owner Shinjiro Torii decided to make wine. It has a large stable of alcoholic brands, among them the vivid-green, melon-flavored liqueur Midori.
Acquiring Beam would make Suntory the third-largest distiller globally, after Diageo Plc
Suntory, which won U.S. approval for the deal on March 5, is awaiting approval from the European Union. The merger was expected to close in April.
(Editing by Ros Krasny and Amanda Kwan)