Forget trading down. Premium brands continue to march forward as Diageo and LVMH say ‘what cost-of-living crisis?’
Diageo, an FTSE100 alcohol drinks giant reported net sales of £9.4bn in the six months to 31 December, an 18.4% uplift from the same period a year earlier.
Johnnie Walker whisky and Guinness stout were particularly popular brands, although sales of gins Tanqueray and Gordon’s either retreated or stagnated.
LVMH, the luxury conglomerate behind brands such as Louis Vuitton and Tag Heuer sang a tune from a similar sheet.
The group, whose chief executive Bernard Arnault recently toppled Elon Musk as the world’s richest person, reported a second straight record year with revenue and profits, despite taking a hit in the Chinese market due to Covid lockdowns.
The solid performance of these two high-end giants signals that spending on premium products shows no signs of slowing down.
“Premium and super-premium brands are doing particularly well in all regions, there is no sign of long-term premiumisation trends abating,” said Charlie Huggins, head of equities at Wealth Club, speaking on Diageo.
“People are willing to spend more on what they perceive to be higher quality alcohol and this clearly benefits Diageo, because 57% of its sales come from premium plus tiers.”
Clearly, the thirst for premium products doesn’t just end with drinks, as LVMH proved.
Analysts at US bank Jefferies note that the slightly weaker fourth quarter for LVMH tells “less than you think” and that Europe’s most valuable company will outperform the sector from here on.
Specifically, the fourth quarter results were weighed by lockdowns and volatility in China.
Although Jefferies believes it is too early to predict how the Chinese market will respond, LVMH is optimistic.
“January is volatile but has already shown a marked trend reversal vs December and some areas are buzzing,” said Jefferies.
While Jefferies forecasts it will take some time for Chinese travel into Europe to reach pre-pandemic levels, the numbers are expected to increase in the first half of the fiscal year 2024, which is good news for LVMH as travellers stock up on luxury clothing.