Why You Should Know What Pisco Is
Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I was writing an article a little while ago and came across a company named Compania Cerveceria Unidas (NYSE: CCU) that makes something called pisco. At first, I just considered this a footnote to the brewing angle I was pursuing, no differently than how I appreciate Busch's (NYSE: BUD) Budweiser and Molson Coors's (NYSE: TAP) Coors brands to be valuable to marketing the companies. Since I'm name-dropping good companies, I could even mention Philip Morris International (NYSE: PM) and their wildly popular and highly carcinogenic Marlboro brand. But I think that CCU has something the other companies I've just mentioned don't: a lot of room to grow.
Being Big is Awesome
Philip Morris has the world's most successful brand of cigarette, and Busch has the world's best-selling beer brand. In fact, it has the top three (Bud, Bud Light, and Skol). Even the smaller Molson Coors has a host of huge brands. It's awesome when you've got a long history and a bunch of successful revenue generators because it's a sure thing.
It's like having a skill that nobody else in your area can do. You can command a high salary because people know you're awesome, and your employer has to pay the "wanting it tax" because you could always go elsewhere. The bigger companies I mentioned above all have this advantage. The problem is, as the Eagles would say, every form of refuge has its price.
Being Small is Equally Awesome
I like CCU for the usual reasons I harp on. I like that it pays a dividend but not a huge one, I like that it has a P/E ratio under 20 and is thus in the reasonable range, and I like that it carries a 10.8% profit margin. But it goes a lot further than that. And it isn't just because I love the growth prospects of Latin America, either.
CCU is a much smaller company than the others in the group, but it has a lot of additional areas to grow in. Candy, nectar, mineral water, soft drinks, and wine are all great. But I like CCU's pisco prospects for a simple reason: it's something different. As Jones Soda (NASDAQ: JSDA) can tell you, being different can help you carve out a very strong niche with serious growth potential. Jones has seen incredible success over the past few years by finding a unique market niche and becoming very popular in it. But pisco ain't soda, and if you haven't looked it up yet I'm going to finally spill it. Spill the beans, that is. Okay, bad joke.
So What is Pisco, and Why Should You Care?
Pisco actually has several different definitions depending on the area in which it's produced. In Peru, it's a generally grape-based liquor. But in Chile's winemaking regions, such as where CCU is based, pisco is a grape brandy made from distilling and concentrating wine up into the 120 proof range.
Just like with any kind of drink, each region in which it's made puts a unique spin on it. So pisco isn't the same as a French Brandy, and this difference could bring it a dramatic level of success if and when CCU decides to take its influence further into different markets like North America and Europe. You might choose a CCU-branded pisco instead of limiting yourself to Brunello or Malbec Bordeaux during an enjoyable nightcap.
But Brandy isn't just an after-dinner drink for successful Fools to swig between puffs on their cigars (or so I hear), but a flavoring that can be added to everything from apple dishes and onion soup. Brandy can even be used as a deglazer to keep your steaks tasting good. The different markets CCU can exploit is incredible, and I can't wait until they get into doing so aggressively.
It's Not All Amber-colored Roses
Of course, pisco can't do everything. Ultimately it's the marketing team's responsibility to ensure that it doesn't become a commodity. This is a tricky business, and it would be all too easy for CCU to step into new markets and trip over its numerous competitors. Since literally anyone can make wine, and distilling it can be done with some tubes and containers you can get almost anywhere, ultimately CCU is going to have an uphill fight to rock significant market share with the relatively low barriers to entry in the brewing and distillation business.
pongun has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Compania Cervecerias Unidas S.A. (ADR) and Molson Coors Brewing Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!