Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Drinks makers target high-end spirits for post-COVID growth

CoronavirusAug 05, 2021 09:06AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
5/5 © Reuters. FILE PHOTO: A barman is seen near bottles of spirits at the Camparino bar in Milan, Italy July 12, 2021. REUTERS/Flavio Lo Scalzo/File Photo 2/5

(Corrects name of group in paragraph 6 to IWSR Drinks Market Analysis)

By Siddharth Cavale and Francesca Landini

BENGALURU/MILAN (Reuters) -Major drinks companies are making deals and reaching joint ventures to boost their offerings of spirits priced at $200-a-bottle and up, the fastest-growing segment in the $1 trillion global market for alcoholic drinks.

Louis Vuitton's wines and spirits division Moët Hennessy and rival Campari last month announced an alliance to sell premium beverages online as they jostle for a piece of the $50 billion global high-end spirits market.

Pernod Ricard (PA:PERP), which makes Martell cognac, over the past two years has invested in a number of "super‐premium" and "ultra‐premium brands," including a "significant investment" in Japan's Kyoto Distillery, the producer of ultra‐premium gin Ki No Bi. That was followed by the buyout of ultra‐premium German brand Monkey 47 gin early last year.

Drinks companies are seeking M&A opportunities because sales of higher-priced drinks are expected to grow more than moderately priced beverages in the next five years.

"Luxury is and will remain a key driver of our strategy," Pernod Ricard's Portfolio Strategy Director Yves Schladenhaufen said in July.

Sales of 750 ml bottles of premium drinks priced at $200 and up are expected to grow 9.3% annually until 2025, outpacing lower-priced drinks,  according to  the IWSR Drinks Market Analysis.  In contrast, sales of $10-per-bottle products - so-called value brands - are forecast to  grow just  0.8% annually  over the same period. 

"Lockdowns created a renewed interest in cocktails as people experimented with their mixology skills at home," said Tony Latham, CFO for Bacardi Limited.

"We believe this will translate into people being more adventurous and seeking out premium, quality drinks when they return to the bar."

Bowmore whiskey maker Beam Suntory, which is privately owned, has committed to achieving more than half its revenue from premium drinks by 2030.

Siddharth Banerji, the head of Kyndal Group, a distributor of Macallan Scotch whisky and other high-end spirits brands in India, said the pandemic reminded some consumers that life is short, leading to a live-for-the-moment attitude.

"There is a philosophical attitude towards alcohol, whereby people are thinking they could die any time and have the realization that money is not going to save your life," he said.

Andy  Sung, a  Houston-based  whisky collector who  reviews rare and limited-edition whiskies on Instagram  for his 10,000 followers,  said he sees more people showing interest in investing and collecting high-end whisky than he did a few years ago. Prices  for rare, small-batch and limited-edition whiskies during the past year  reached  "absolutely insane" levels, he said.

For example, when the GlenAllachie Distillers Company released just 2,000 bottles of its 30-year old GlenAllachie whisky in May, the scotch that retails for 475 pounds ($662) a bottle sold out instantly and is now going for double that price at auctions, Sung said.

Historically, consumer preference tends to swing from favouring brown spirits, such as whisky and bourbon, to white spirits, such as vodka and gin, every 15 or so years, as young adults tend to reject the brands and categories favored by their parents.

Because brown spirits have been in favour for the past 14 years, some companies now are betting on high-end white spirits - such as tequila and mezcal, a smokier version of tequila - said Ken Harris of Cadent Consulting Group, who represents several spirits companies on deals.

Harris said companies on the hunt for high-end products to add to their portfolios are willing to pay premiums of as much as five times a brand's value.

LUXURY SPIRITS

In June, Campari also launched a dedicated division focused on luxury spirits in the United States, with its Chief Executive Bob Kunze-Concewitz telling Reuters this strategy would likely give the group the opportunity to buy new "niche and precious brands."

The Italian drinks group, whose premium portfolio includes aged Glen Grant whisky and special editions of Grand Marnier liqueur, is now looking at tequila.

"We continue to look at the super-premium-and-up part of tequila as an area of opportunity ... for M&A," Kunze-Concewitz said on a post-earnings call in July.

Bacardi Limited said 2021 would be the "year  of innovation" with  plans  to launch  many "new expressions,"  and limited-editions for some of its bestselling brands including Grey Goose vodka and Bombay Sapphire gin.

In Europe, the pandemic has accelerated consumers' interest in purchasing high-end spirits online, said Alberto Gennarini, a partner with Vitale & Co consultancy, who advised Campari on past deals.

Campari and Moët Hennessy, which entered a joint venture in July, may seek to expand e-commerce platforms Tannico and Ventealapropriete.com beyond France and Italy, according to industry sources.

The return of customers to luxury restaurants and five-star hotels due to vaccination-induced confidence is expected to also boost demand of higher-end drinks. In the United States, nearly 85% of bars and restaurants are open despite a spike in coronavirus cases, a sign that vaccinated people are showing more confidence in dining outside.  

Despite rising Delta variant cases, the appetite for dealmaking has not slowed and valuations of premium spirits brands have not fallen, Harris said.

"The Delta variant has not affected anything. It shows that there is a resiliency and a longer-term view on where this category is going," he said.

Harris also noted that while there are limited independent spirits companies making ultra-premium liquors, their valuations have increased even more as they discovered e-commerce as an avenue to sell their products, instead of banking on big companies for expanding their distribution earlier.

Diageo (LON:DGE)'s Chief Executive Ivan Menezes said last week that the company is picky when it comes to deals but it also hasn't been easy to find acquisition targets as there are limited purveyors of ultra-premium spirits.

For such brands, acquisition price would not necessarily inhibit a deal as long as the brand fits within Diageo's "disciplined" growth ambitions, he added, which is to grow the super-premium end of its portfolio in fast growing categories, including US whiskey, tequila, and gin.

Spirits sales, as measured in dollars, in the United States rose 1.3% in 2020  despite pandemic-induced lockdowns,  according to the Distilled Spirits Council of the United States, a trade group. Spirits priced within the $115-$170 range grew by 7.3%,  while those priced at $179-and-above grew by 12.7%, and sales of $10-and-below bottles declined, it said.

($1 = 0.7173 pounds)

Drinks makers target high-end spirits for post-COVID growth
 

Related Articles

Costco Continues to Beat S&P 500
Costco Continues to Beat S&P 500 By TipRanks - Sep 26, 2021

JP Morgan has upped its Costco Wholesale (NASDAQ:COST) price target to $502 from $475, while keeping its overweight rating. JP Morgan is one of several investment firms that raised...

Nike: Growth Company with Big Market Opportunity
Nike: Growth Company with Big Market Opportunity By TipRanks - Sep 26, 2021

Nike (NYSE:NKE) is still a growth company with plenty of market opportunities ahead, according to its Executive Vice President and Chief Financial Officer Matt Friend. Friend...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email