The Seagram Company, Ltd.

views updated

The Seagram Company, Ltd.

1430 Peel Street
Montreal, Quebec H3A 1S9
Canada
(514) 849-5271

Public Company
Incorporated: March 2, 1928 as Distillers Corporation
Employees: 14,000
Sales: C$3.309 billion (US$2.398 billion)
Market Value: C$8.219 billion (US$5.956 billion)
Stock Index: New York Paris Toronto Montreal
London Vancouver

In 1889 the Bronfman family fled Czarist anti-Semitic pogroms in Bessarabia to make their home in Canada. A wealthy family, they were accompanied by their rabbi and two servants. In the century since, the Bronfmans (whose name, ironically, means “liquor man” in Yiddish) experienced a brief period of poverty but then went on to build the world’s largest distilling business. The Seagram Company Ltd. and its subsidiaries sell more than $2 billion worth of liquor a year and market 600 brands in more than 175 countries. Almost a million and a half bottles of Seagram liquor are sold every day. On an international level, the Bronfmans operate one of the largest family-controlled capital pools in the non-Arab world.

Soon after the family’s arrival in Canada, patriarch Yechiel Bronfman learned that tobacco farming, which had made him a wealthy man in his homeland, was incompatible with the cold Canadian climate. The Bronfmans found themselves without a livelihood, and Yechiel was forced to leave his family to work as a laborer clearing the right-of-way for a line of the Canadian Northern Railway. He bought a shed for $12 for his family and after a short time moved to a better job in a sawmill. Yechiel Bronfman and his sons then started selling firewood, making a fairly good living, and began a trade in frozen whitefish to earn a winter income. Eventually they turned to trading horses, a venture through which they became involved in the hotel and bar business. On reaching adulthood, two of Yechiel Bronfman’s sons, Harry and Sam, took charge of the family’s business interests. Harry Bronfman owned his first hotel in 1903 when he was 17 years old.

When Prohibition came to Canada in 1916, the Bronfmans decided to leave the hotel business and enter the whiskey trade. Canada had implemented Prohibition only to appease foes of drinking; in reality, alcohol consumption remained high in Canada. The Bronfmans took advantage of the imprecise Canadian Prohibition laws to maximize their bottlegging profits. Sam Bronfman bought the Bonaventure Liquor Store Company, conveniently located near the downtown railway in Montreal, in 1916. People traveling to the “dry” west could stock up on liqour before boarding the train. Business was brisk until March 1918, when a law was passed that prohibited the manufacture or importation of alcohol containing more than 2.5% spirits.

The prohibition excluded alcohol intended for medicinal purposes, so Harry Bronfman promptly went into the drug business. He bought a Dewar’s whiskey sales contract from the Hudson Bay Company and began selling straight liquor through drugstores and to processors who made “medicinal” mixtures. One such concoction was known as a Dandy Bracer—Liver and Kidney Cure; it contained sugar, molasses, bluestone, 36% alcohol, and tobacco

When the Volstead Act instituted Prohibition in the U.S. in 1919, the Bronfmans imported 300,000 gallons of alcohol from the United States, enough to make 800,000 gallons of whiskey. They reduced 65-overproof white alcohol to the required bottling strength by mixing it with water, some real whiskey and a bit of burnt sugar to provide color. A shot of sulphuric acid brought on a quick simulated aging process. The Bronfmans’ mixing equipment could fill and label 1,000 bottles an hour. All the whiskey came out of the same vats, but it was bottled under several different labels to raise the liquor’s value. Materials cost of the whiskey mixture was no more than $5.25 per gallon. Bottled, the whiskey sold for the equivalent of $25 a gallon.

In 1924 the Bronfmans opened their first distillery in La Salle, across the St. Lawrence River from Montreal. In the same year they incorporated under the name Distillers Corporation Limited.

Two years later the family sold a 50% interest to Distillers Company, an amalgamation of British distillers that controlled more than half the world’s scotch market and from which the Bronfmans had been importing scotch in bulk. In exchange for a half share in Distillers Corp., the British Enterprise gave the Bronfmans Canadian distribution rights for its brands, which included Haig, Black & White, Dewar’s, and Vat 69.

At about the same time the Seagram family’s distilling business became a public company. The enterprise had begun in 1883 when Joseph Emm Seagram became sole proprietor of a distillery in Waterloo, Ontario where he had worked since the 1860’s. Seagram later turned to politics (he was a Conservative member of Parliament from 1896 to 1908), and also devoted much of his time to horse racing. His company was a leading Canadian rye producer with two popular brands, Seagram’s ’83 and V.O., which was introduced in 1909. (Joseph Seagram’s racing colors, black and gold, still appear on the labels of V.O. bottles.)

In 1928, two years after Seagram went public, the Bronfmans’ Distillers Corp. acquired all stock in the distillery and itself became a public company. The merged company took the name Distillers Corp-Seagram Limited. W.H. Ross was president and Sam Bronfman was vice president. In its first year the company netted $2.2 million in profits, most of it from the Bronfman’s busy bootlegging work. In 1929 Sam Bronfman prepared a $4.2 share offering to finance expansion in the highly successful export business. By 1930, however, company profits were declining, and the share offering had to be postponed.

By that time the border between Canada and the United States was extremely dangerous for illegal alcohol transport, so most trading was done by sea. The Bronfmans had established warehouses on the coast and subsidiaries called Atlantic Import and Atlas Shipping. Schooners shipped the contraband goods into the U.S. in the dead of night. Prohibition ended in the U.S. in 1933. The next year a conservative lawyer, Richard Bedford Bennett, was chosen to head the Canadian Conservative Party and immediately launched an investigation into the liquor smuggling industry. The Bronfmans were arrested, and a year later they were tried. The judge threw the case out of court.

In 1928 Sam Bronfman had anticipated the end of Prohibition and begun to stockpile and age whiskey. Now the company owned the largest private stock of properly mellowed whiskey. This lucrative position enabled it in 1933 to acquire 20% of Schenley, whose product line included the well-known Golden Wedding brand of rye whiskey. When Sam Bronfman informed the Distillers Company board in Scotland of the move and requested an increase in whiskey prices, he was told at an acrimonious board meeting that Distillers would not agree to either proposal. In response, the Bronfman brothers raised $4 million and bought out the Distillers Company’s holding in Distillers Corporation-Seagrams Limited. W.H. Ross resigned after the split, and Sam Bronfman became president.

The company then purchased the Rossville Union Distillery in Lawrenceburg, Indiana, and set up Joseph E. Seagram and Sons Inc. to operate the U.S. venture. Schenley’s board of directors suggested an equal partnership in the American operation, but when Sam Bronfman found out that Golden Wedding was not aged before it was sold, he immediately rejected the plan. Soon afterward, Seagram and Schenley parted company. Schenley held the top position in the whiskey market until 1937, lost it to Seagram until 1944, regained it until 1947, then lost it to Seagram for good.

Blending and aging became Seagram’s hallmark. Sam Bronfman wanted to quash the somewhat dubious image of drinking whiskey that had developed in the bootlegging era and replace it with a more respectable and refined one. In promoting his products he would use one of three descriptions of the blending process: a formal outline of the details of the process; a short definition (“Distilling is a science; blending is an art”); and an informal explanation (“Look, when a man goes into a store for a bottle of Coca-Cola, he expects it to be the same today as it will be tomorrow.... The great products don’t change. Well, our product’s not going to change either”). Seagram still has “blending libraries” at its offices in New York, Montreal, and Paisley, near Glasgow, where samples of the company’s different types of straight whiskies are continually catalogued and tested.

The company purchased Maryland Distillers, Inc and its Calvert affiliate in Relay, Maryland in 1934 and imported its own aged Canadian stock to blend with its new American distillates. The resulting product came out under the Five Crown and Seven Crown labels. A few years later the company built a new distillery in Louisville, Kentucky. By 1938 Distillers-Seagram had approximately 60 million gallons of whiskey aging in its three American plants.

The Bronfman brothers revolutionized liquor marketing by selling their products to distributors already bottled. Other distillers sold liquor to local rectifiers in barrel consignments, thereby losing control over the final product. The Bronfmans’ method allowed Seagram to maintain the kind of quality control that builds brand loyalty. The practice is now industry standard. By the end of 1936 Seagram sales were up to $60 million in the United States, with another $10 million in Canada. By 1948 total sales exceeded $438 million, and the company posted an aftertax profit of $53.7 million.

Sam Bronfman had always been impressed with British aristocracy. When George VI and Queen Elizabeth visited Canada in 1939, Bronfman blended 600 samples of whiskey before creating the prestigious Crown Royal brand in their honor. He also purchased the Chivas distillery in Aberdeen, Scotland because its operators owned a grocery store that served the royal family when they were in Scotland. Chivas Regal is now the best-selling deluxe scotch whiskey in the world.

In the 1940’s Seagram expanded from the whiskey business into the larger liquor industry. Its entry into the wine markets began with a 1942 partnership with German vintners Fromm & Sichel to purchase the Paul Masson vineyards in California. (Seagram sold its 96% interest in Paul Masson in the mid-1980’s). Eight years later the company bought a majority interest in Fromm & Sichel. During World War II Seagram imported rum from Puerto Rico and Jamaica and acquired several West Indies distilleries which would later introduce the Captain Morgan, Myers’s, Woods, and Trelawny labels. Seagram also purchased Mumm’s Champagne, Perrior-Jouet Champagne, Barton & Guestier, and Augier Frères.

Sam Bronfman took the company in a dramatically new direction in 1950 when he invested in the Alberta oil company Royalite. He later sold his interest in Gulf and purchased the Frankfort Oil Company. In 1963 Seagram acquired the Texas Pacific Coal and Oil Company for $276 million.

In 1957 Edgar Bronfman, Sam Bronfman’s son, became the company’s president. He resurrected Calvert Reserve by remarketing it as Calvert Extra and promoting it with a personal tour. He also expanded Seagram’s brands of rum, scotch, and bottled cocktails (manhattans, daiquiris, whiskey sours, and martinis), and began to import wine on a large scale. By the end of 1965 the company was operating in 119 countries and had surpassed $1 billion in sales.

Between 1961 and 1971, sales of blended whiskey by all makers dropped from 60% to 20% of the total hard liquor market, but Seven Crown, V.O., Chivas, and Crown Royal continued to capture an increasing share of their shrinking markets and Seagram revenues and profits maintained their growth. In 1975, however—a year after the company name was changed to The Seagram Company, Ltd.—Seagram’s earnings slipped 9% to $74 million. Seven Crown sales dropped by 600,000 cases, and V.O. was down 300,000 cases. Edgar Bronfman decided to reorganize the company’s board of directors and management. A new executive committee was formed with another Bronfman brother, Charles, at its head. In 1977 Seagram recorded a net income of $84 million on sales of $2.2 billion.

In the late 1960’s Edgar Bronfman decided to get involved in the film industry. He bought $40 million of MGM stock, and in 1969 replaced Robert O’Brien as the studio’s chairman. MGM lost $25 million in the next year, and Bronfman resigned from the studio. Seagram lost about $10 million in the short-lived venture. He found some success in the entertainment industry later when his Sagittarius Productions Inc. staged several Broadway successes.

The fabulously wealthy Bronfman family received extensive media attention in the 1970’s. Details of Edgar’s private life, exposed in divorce proceedings, were eagerly reported in the tabloids; and in 1975, the family had to contend with the alleged kidnapping of Edgar’s 23-year-old son, Samuel II. The incident and subsequent trial became headline news in many countries. Mel Patrick Lynch, the defendant (a fireman from Brooklyn, New York) was acquitted of kidnapping charges but convicted of extortion. Throughout the trial, Lynch maintained that Sam II was his lover and that the kidnapping was a hoax cooked up by Bronfman in order to lay his hands on some of the family cash. Sam II was reunited with his father; both of them hotly denied Lynch’s version of events.

In 1980 Seagram sold Texas Pacific to the Sun Company for $3 billion, but when Edgar wanted to reinvest the money in St. Joe Minerals, he was turned down even though he offered $45 a share for stock that had been selling at $28 a share. Conoco also rejected Seagram’s advances. Du Pont, Seagram’s third choice, accepted a bid on 19% of the company’s stock. Seagram remains the single largest shareholder in Du Pont.

Seagram has continued to diversify in the 1980’s. In 1981 the company formed Westmount Enterprises to finance its beverage ventures and market its new gourmet frozen dinners. Seagram also manufactures and markets premium mixers jointly with the Coca-Cola Bottling Company of New York. In addition, the company has purchased 11.6% of Biotechnica International and has ventured increasingly into the wine industry through its Seagram’s Vinters division.

In 1985 Seagram underwent a thorough reorganization of its companies, brands, and personnel. It also launched a new advertising campaign aimed at upgrading the image of liquor consumption, and Edgar Bronfman asked the television networks to suspend their ban on advertising for distilled spirits. The three major broadcasters all refused to air a commercial comparing the alcohol content of whiskey, wine, and beer.

At any one time, four million barrels of spirits and 42 million gallons of wine are aging in Seagram warehouses. The Bronfmans, wealthier than the Rockefellers, own real estate, shopping malls, office complexes, and the Club Mediterranée, among their many other assets. Most labels owned by the family make no reference to their Seagram connection, and many apparently independent producers are nothing more than Seagram subsidiaries.

Principal Subsidiaries

Centenary Distillers, Ltd.; Seagram International BV; Seagold Vineyards Holding Corp.; Gold Seal Vineyards, Inc.; Joseph E. Seagram & Sons, Inc.; Distillers Products Sales Corp.; General Beverage Co.; Gonzales & Co., Inc.; The Taylor Wine Company, Inc.; Jerome Distributors, Inc.; JES Developments, Inc.; Vintners Associates, Inc.; Brandy Associates of California, Inc.; Vie-Del Co. (87%); Seagram Investments, Inc. The company also lists subsidiaries in the following countries: Argentina, Australia, Austria, Bahamas, Belgium, Bermuda, Costa Rica, France, Israel, Italy, Japan, Mexico, Portugal, Spain, Thailand, the United Kingdom, Venezuela and West Germany.