Barclays has undertaken a survey of wholesalers and retailers to explore industry views on the outlook for US spirits, with some surprising results.
The data shows that both retailers and wholesalers have a ‘generally good experience’ of the current spirit market, with retailers faring better than wholesalers therein.
The majority of respondents expect spirit sales to improve in the next quarter. In terms of portfolios, spirit giant Diageo was the favourite, and Campari the least, but Barclays was surprised to see no wholesaler select the Pernod Ricard portfolio as the favourite, despite its reasonably large market share.
The report indicates that category preferences seemed to generally track with industry market share, as tequila, American whiskey, and vodka were the top picks, with tequila continuing to have outsized momentum (as its preference was ahead of its market share). Retailers had a more favourable view of vodka, Scotch and rum, whereas wholesalers preferred tequila.
Across the board, expectations for tequila, vodka and gin are to fall, whereas respondents are more optimistic for both Scotch and US whiskey.
Barclays believes that if this holds true, then Brown-Forman’s US whiskey portfolio is set to outperform, perhaps at the expense of Diageo’s and Cuervo’s tequilas, but Diageo (and, to a lesser extent, Pernod) could benefit from a renewed interest in Scotch.
‘In US spirits, we prefer Brown-Forman, as we believe it is close to the end of a negative estimate revision cycle, and the spirits portfolio presents more of an “early-cycle” play in the event of a soft landing in the US,’ noted Barclays.
Premiumisation
The report noted a significant increase in pricing over the past few years, given the level of inflation globally, as well as in the US.
However, the data suggests that recent quarters have been somewhat tempered with price, and there have been specific mentions of ‘downtrading’.
‘We were therefore somewhat surprised to see such a clear belief of premiumisation, as well as the opinion that this would continue,’ according to Barclays. ‘Like much of what we have seen, the retailers were more optimistic here, but the effect was seen by both sets of respondents.’
One significant trend on which the survey picked up was that the destocking cycle could be coming to an end. Although, Barclays noted, it is still too early to formally call an end to industry-wide destocking, with retailer inventory levels still possibly screening high.
While wholesaler levels look somewhat healthier, Barclays sees room for the respondents’ range to narrow further, which suggests that the destocking cycle could persist for another quarter yet.
Million-Dollar Question
According to Barclays, the million-dollar question in the industry is, ‘When will spirits growth return to mid-single digits?’ Most of those surveyed believe that six to 12 months is reasonable, but retailers in isolation were more pessimistic, with a modal answer of 12-18 months. This is the only area in the survey where the retailers were more pessimistic.
‘More recently at our Global Consumer Staples conference in early September, Pernod Ricard suggested that the return to trendline growth is likely to happen, but was reluctant to put a time frame on it,’ noted Barclays.
‘Meanwhile, Brown-Forman suggested the market could turn at some point in the next 12 months. Similar comments were made by Cuervo in conversations at the Barclays Global Consumer Staples conference, highlighting short-term shipment/depletion issues, but expecting MSD [mid-single-digit] volume growth to be a possibility by the end of 2025.
‘Our conversations with Diageo are closer to Pernod’s view – that the return to MSD will happen at some unknown point in the future,’ Barclays concluded.
