US spirits markets are beginning to normalize after the Covid-19 pandemic dramatically shifted the industry, according to analysts at Jefferies.
The long-term trend has been “drink better not more,” analysts said, as the pandemic led to a surge in people springing for higher-shelf stuff at home — where it's three times cheaper to drink than at a bar.
That trend is by no means over, but data from the four weeks ending February 25 showed that premiumization (that’s analyst-speak for a shift toward higher-quality products), is beginning to moderate as the market normalizes.
The bottom line: industry growth is normalizing after the Covid super cycle. Industry price/mix was -1% vs -0.7% in January and -0.3% in December, Jefferies said, with the material impact from spirits-based ready-to-drink (RTD) beverages, which carry a lower revenue per case.
Make way for tequila
Within the macro trends, tequila has been by far the biggest winner of the past few years. As of February 23, Tequila is more than 75% bigger than Feb 2020 levels in value terms, although some moderation may be setting in.
“Whilst, tequila continues to grow ahead of the industry with +5.9% value growth vs industry +2.4%, price/mix has moderated to +5.7% vs +6.0%,” analysts said. “Don Julio had a difficult month however premium brands such as Casamigos are continuing to outperform.”
Bourbon is another leading category, up 28% compared to February 2020, while gin is down 9% and rum has lost 5%.
Diageo PLC (LSE:DGE), which owns both Don Julio and Casamigos tequilas, as well as Johnnie Walker, Captain Morgan and others, saw its shares fall 2% in February from $173.04 to $169.85. It traded at $171 Friday morning in New York.
Brown Forman Corporation, which owns Jack Daniel's, Old Forester, Korbel, and Chambord, among others, had its stock fall 3% in February from $64.87 to $62.29. Shares have since climbed slightly to $62.47.
Contact Andrew Kessel at andrew.kessel@proactiveinvestors.com
Follow him on Twitter @andrew_kessel