Moody's has revised its outlook for the global beverages industry from stable to positive, saying that beverage firms' are likely to see a 'healthy' increase in operating profits in the next 12 to 18 months, with 'stronger growth in some markets offsetting weaker growth in others'.
The group said that European beverage firms are likely to benefit from efficiency initiatives despite modest inflation, with the Western European euro area economy likely to expand in single digits.
'Beverage companies will continue to report mid-single-digit earnings increases in the region, driven by stronger product mix and efficiency initiatives, as well as modest volume increases, while price inflation will remain low,' Moody's said.
Tariff Pressures
At the same time, however, the beverage industry remains vulnerable to rising trade tensions, tariffs and taxes, Moody's said.
In the US, for example, while the value of American whiskey imports grew 28% in the first half of 2018, they fell 8.2% in the second half, following the implementation of tariffs on American whiskey by several countries and trading blocks.
'These tariffs will likely continue to slow volume growth or pressure margins, especially affecting companies like Brown-Forman and Beam Suntory. Tariffs on foreign aluminium will continue to pressure costs for US beer and soft beverage companies,' said Moody's.
Trading Up
What is proving beneficial for the trade, however, is that consumers are 'trading up' to premium spirits around the world, with strong growth in most beverage firms' premium portfolios, increasingly in emerging markets.
For example, cognac is performing well in China among a fast-growing upper middle class, which is likely to boost prospects for companies such as Remy Cointreau and Pernod Ricard, Moody's said.
Whiskey is also starting to show signs of recovery in China, while India is expected to grow ahead of other markets, albeit with lower profit contribution, due to a challenging regulatory environment.
"The positive outlook for the global beverage industry reflects operating profit growth of just over 6% in the next year or so due to improvement in some developing markets and beverage categories, as well as ongoing cost cutting, successful pricing initiatives and customers across the globe trading up to premium products such as craft beers and high-end spirits," said Linda Montag, a Moody's senior vice president.
© 2019 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: European Supermarket Magazine.
