The Diageo PLC (LSE:DGE) whisky brand Crown Royal, the company's largest in the US, has experienced a recent slowdown and it could be a worrying "inflection point" for the group.
Analysts at Jefferies noted that NielsenIQ data indicates fading demand for Crown Royal as the influence of its blackberry variant launched in March dissipates.
Crown Royal is Diageo's largest brand in the US, accounting for around a fifth of US sales, analysts pointed out, while the US market is key for the FTSE 100 group, accounting for approximately 45% of its profits.
Diageo's overall US performance slowed to -2.5% for the four weeks to 15 June, following an almost flat previous period of 0.3% growth, down from 3.9% and 6.1%, with the Crown Royal franchise slowing to 3.9% from 7.8%, 17.2% and 28.7%.
"It is too early to assess whether this represents an inflection point for the brand franchise," Jefferies analysts said. "However, as the largest brand for Diageo in the US, it is critical for market share momentum as we exit a difficult F24."
The company has been "reliant" on innovations for Crown Royal's growth, they observed, with flavours like apple and peach contributing significantly in past years.
"One of our main concerns regarding flavour innovations is that they can exacerbate the consumer desire for variation and new flavours and tend to shorten the product life cycle," the analysts said.
Looking at the wider spirits market, the Jefferies team noted that EU spirits makers have been "amongst the hardest hit" in the global consumer staples sector given the combination of slowing growth and de-rating.
With spirits share prices appearing "washed out" and in some instances below Covid levels, "this represents an attractive environment for bargain hunting" for investors who can take a longer-term view, the analysts said.
"The key catalyst for spirits stocks to work is the start of an upgrade cycle, which would put to bed the d/grade cycle and increase investor confidence in long-term prospects. This is likely geared more to 2025 vs 2H24 so some patience is required."