Can the families hold their drink?

As Bulmer sells out, Abigail Townsend asks if the great alcohol clans are still thirsty for success

Families and alcohol rarely mix – just ask anyone nursing a post-Christmas hangover. But the drinks industry is dominated by family-owned or controlled businesses.

Encompassing brewing and spirits, they range from market giants such as Bacardi and Brown-Forman through to specialist brewers like the UK's Young & Co. Yet changes are afoot as consolidation reshapes the sector. With a raft of big-name brands still in private hands, sibling rivalry is set to turn into the battle of the booze tycoons as families decide whether to cash in their liquid assets.

On Tuesday the Bacardi clan will gather in Bermuda to vote on a proposal to increase the capital structure. This would require issuing a heap of extra shares beyond the 23.5 million currently in existence. If the family – known for its squabbling – agrees, a second vote will be needed before any new shares can be sold.

There are no guarantees the vote will go to plan: the family, which owns 98 per cent of Bacardi but does not run the company, unanimously vetoed board proposals in 1999 to take the company public. Yet outgoing chief executive Ruben Rodriguez says the group needs increased flexibility if it is to compete and participate in the global consolidation of the drinks industry – hence Tuesday's vote. Bacardi is a giant of a brand, and any move away from family control would be significant for the industry as a whole.

Another reason why consolidation of family businesses is on the cards is that many are now extremely old and running out of energy as control passes down through the dynasty. As one analyst explains: "You have got to be wary of the third generation in family companies. The first generation worked their fingers to the bone, making their money and building the empire. The second generation grew up knowing how hard their parents worked. But the third generation have always been wealthy. Plus there's the playboys who just want to drive their Porsches, and the junkies and fashionistas who have no interest and want out."

Conditions, too, for some at least, are tough. In Germany, where they drink more beer per head than anywhere else, sales slid 9.1 per cent in the first quarter of this year. In the UK, cider-maker HP Bulmer, which is 51 per cent owned by around 140 members of the Bulmer family, has agreed to be bought by brewing giant Scottish & Newcastle after an abysmal period notable for six profit warnings. S&N is offering 310p a share in cash, which if accepted could make the Bulmer family around £140m richer.

Southcorp, where the Oatley family has 19 per cent of the Australian wine group, is widely touted as the next takeover target, hit by oversupply problems across the wine industry and in the US, Adolph Coors recently saw first-quarter earnings dive 97 per cent after its UK business – it owns Carling – reported a loss for the period.

But that isn't to say family firms are sitting back, waiting to be picked off by public rivals. For a start, many are performing well and have no plans to change their current structure. The Heine- ken family still owns a big stake in a group that continues to grow. It has a strategy of buying smaller brewers in markets such as eastern Europe, as well as launching extensive marketing campaigns. Only last week, it agreed to spend €1.9bn (£1.3bn) buying BBAG, Austria's biggest beer firm.

Nor do these thriving enterprises follow the traditional model of small family firms. Most are multinationals that dominate markets and pose as much of a threat to public companies as vice-versa. One much-touted possibility is that US group Brown-Forman, 76 per cent owned by the Brown family, will join with Bacardi to create a serious rival to market leader Diageo. It would still be smaller, and would not be able to match the UK group's extensive portfolio of premium brands. But it would still have the likes of Bacardi and Jack Daniels in its drinks cabinet.

Such a tie-up would also pose a serious threat to Allied Domecq, which has spent around £1.8bn building up its portfolio since 2000, most of it on developing its presence in New World wines. Yet it remains undervalued on the stock market and many believe a takeover is a possibility. Indeed, only last week, Brown-Forman was being rumoured as a possible bidder.

S&N could also be under threat. As well as striking the deal to buy Bulmer, the maker of Courage is aiming to raise at least £2.3bn by selling its pubs arm. It is, in other words, clearing the decks ready to build up its brewing interests. But some think it could also be a target, with Anheuser-Busch, the world's largest brewer and owner of Budweiser, a likely bidder. One analyst says: "I think A-B must be looking at S&N; it would love to have Heineken but that's not going to happen."

Anheuser-Busch is listed on the New York Stock Exchange but chairman August Busch III, the great grandson of the company's founder, is the fourth generation of the Busch family to head the group. Until last year he was also chief executive, but stepped down in favour of Patrick Stokes, the first non-family member to lead the business.

Ultimately, despite Bulmer's sale, there is every incentive for these families to stay put. As an industry insider says: "The one group of people who know this business are the families because they know how long-standing their brands can be."

Indeed, the family link is often a selling point. Californian wine producer E&J Gallo makes a point in its marketing campaigns of highlighting the three generations who still work in the business.

Yet consolidation in the drinks sector is unavoidable. For ex- ample, SABMiller has emerged as the frontrunner to get its hands on family-owned Italian beer firm Peroni in a €600m (£420m) deal, while Bacardi continues to mull over its future. Expect a good few family scrapes yet.