Friday, June 22, 2012

Tom Russo: Investing in Global Brands - Part II

A follow up to this post on Tom Russo and his investments in global brands.

In this Barron's interview, Russo talks about the market for spirits in China and explains the opportunity. Consider this:

The market for spirits in China is 550 million cases a year.

So how many cases of premium spirits are imported into China each year?

According to Russo, it's just 5 million cases or less than 1 percent.

The funds Russo manages has investments in the shares of companies like Pernod RicardBrown-Forman [BF-B], and Diageo [DEO].

Each, with their valuable spirits brands and other abilities, seem in a good position to chip away at the substantial opportunity China represents.

Some of the brands these companies own include:

Pernod Ricard: Absolut, Jameson, Seagram's, The Glenlivet
Brown-Forman: Jack Daniel's, Southern Comfort, Canadian Mist
Diageo: Johnnie Walker, Smirnoff, Captain Morgan, Guinness

Diageo is the largest producer of spirits and also has a major business in beer and wine.

Russo certainly seems to think they're positioned to participate in the transformation of Chinese consumption more toward premium imports.

He also says that some of the barriers (tariffs and duties) to importing spirits (more specifically, whiskey with a preference for scotch) into India are slowly disappearing. 150 million cases of whiskey are consumed in India each year.

Shares of these businesses can be thought of, at least in part, as investments in the conversion from unbranded to branded products (or maybe from non-premium to premium).

This will all take plenty of patience and persistent investment. Managers and owners have to be willing to withstand near or even intermediate term pain with an eye toward long run wealth creation effects.

In the article, Russo explains the substantial opportunity Africa represents for the beer industry.

Heineken and SABMiller [SBMRY] have already built substantial and profitable businesses there and are investing heavily in the region.

Not surprisingly, a large percentage of the portfolio Russo manages is in shares of businesses that produce consumer goods of various kinds.

Russo has also been a long-term owner of Berkshire Hathaway [BRKa]. In the interview, he says that eventually the company could pay quite a dividend because of all the cash it produces.

Check out the full interview.

Adam

Long-term positions in DEO and BRKb established at lower than recent prices. No intention to add to these positions or sell.
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