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Who’s winning the first-half race?

26 June 2023 By Ron Emler

The Summer Solstice has passed and the first half of 2023 is over with both Diageo and Pernod Ricard about to draw lines this week under their latest six month figures.

While much will depend on sales in North America, where everyone agrees that the pace of growth is slowing to more pedestrian levels than over the past couple of years as the consumer confronts growing inflation.

Of the global giants Diageo has seen its share price slide by 9% since Christmas, largely on the back of concerns about growth in its largest and most profitable market.

Rémy Cointreau has warned that it expects to see American sales decline in the next six months, sending its shares 11% lower than at the end of 2022.

But at the other end of the share price spectrum, LVMH has soared by 22%, largely on the reopening of China and the fact that it became Europe’s biggest company, worth €500 billion at the time (although that figure has slid since then).

Hopes are high for the world’s premier luxury goods group that a recently-announced partnership with Epic Games, creator of the Fortnite and Unreal Engine computer games, will transform LVMH’s creative pipeline and bring customers new types of immersive product discovery experiences.

It also expects to cash in on its sponsorship of next year’s Paris Olympic Games, a deal set to be announced any day now.

Pernod Ricard, despite closing its operations in Russia and losing its licence in Delhi, has put on 6.5% and Campari, which saw first quarter sales soar by almost 20%, has seen its shares rise by almost 3%.

Since Christmas much has been going on to shape the industry’s giants for the next few years.

Events at Diageo have been overshadowed by the sudden death of outgoing chief executive, Sir Ivan Menezes. He had already set the group’s goals until 2030 and several steps forward have been taken this year.

Diageo streamlined its financial cost structure by delisting its shares in Dublin and on the Euronext exchange in Paris

Diageo partly reorganised its beer division by completing the sale of Guinness Cameroon to Castel, who will continue to produce the brand, but at the same time it upped its controlling stake in the more profitable East African Breweries through a tender offer.

A new showpiece plant is to be opened in London’s Covent Garden and an application for a €200 brewery in County Kildare is going through the planning process.

Diageo also unveiled a five-year programme in its biggest ever investment in technology and services by partnering with SAP and IBM to standardise its business operations in the 180 countries in which it operates. It also plans to invest in a new UK plant to create a circular economy for the aluminium it uses.

Arch rival Pernod Ricard has been streamlining its portfolio to meet strategic and margin objectives.

At the weekend it announced the sale for an undisclosed sum of Clan Campbell scotch to Stock spirits, which majors in Eastern European markets.

It is taking a controlling stake in Ace Beverage, the market leader in Canada’s RTD sector and has announced a minority share in ecoSPIRITS, a circular economy technology start-up focusing on low carbon, low waste distribution systems for the premium wine and spirits industry.

In addition, the French giant is buying a majority stake in Skrewball, a super-premium peanut butter flavoured American whiskey, to add to the doubling in size of its premium American whiskey portfolio announced at the very end of December.

Pernod Ricard has committed to a €238 million investment over five years to build a state-of-the-art, carbon neutral distillery and ageing warehouses in Kentucky for its fast-growing Jefferson’s Bourbon brand.

French rival Rémy Cointreau has joined with Verallia France in a programme to reduce its environmental impact by using lighter bottles and more recycled glass.

This, it says, is already showing benefits through three trials with Mount Gay rum, St-Rémy brandy and Belle de Brillet liqueur. They are generating initial reductions of between 2% and 11% of the glass weight of the bottles plus lower the carbon emissions linked both to producing the glass and transporting the bottles.

Over the Atlantic Constellation Brands saw its Modelo brand became America’s best selling beer on back of AB InBev’s Bud Light marketing controversy, partially sending Constellation’s shares up by 10% so far this year.

Investors will be watching how the company explains in its results due on Friday why its foray into craft beer over the past decade turned sour, with the quiet resale of brands to their founders at a minimum cost of about US$70m to Constellation’s shareholders.

Since it went upmarket in wines Constellation has enjoyed improved margins and hopes to add to that record through acquiring Napa Valley wine brand, Domaine Curry from Coup De Foudre.

Constellation-owned Ruffino also acquired of 15 hectares of Bolgheri vineyards across two sub regions, with four hectares in Bolgherese and 11 hectares in Sondraie.

Looking to the future, Constellation has also taken a minority stake in TÖST –an alcohol-free sparkling drink brand.

Possibly the biggest move over the past six months has been Brown-Forman’s agreement to sell Finlandia vodka to Coca-Cola for $220 million.

The two are already in close cooperation through the launch of the Jack (Daniels) and Coke RTD which is being rolled out globally and few doubt that a vodka and Coke offering will be far behind.

Coke already distributes part of the Brown-Forman portfolio around the world and

Brown-Forman will retain the Finlandia distributorship in the US.

Part of the Finlandia proceeds will go to the US$200m expansion of the Herradura Tequila distillery in Mexico, where construction is due to start within days.

Meanwhile, Brown-Forman is taking control of its own distribution in Japan from 1 January 2024 after a long collaboration with Asahi and it is incorporating last autumn’s purchase of Diplomatico rum to compete in the fast-growing super premium rum category.

Davide Campari-Milano is formally on record as searching for a significant acquisition to boost its portfolio in North America in addition to expanding capacity for Wild Turkey Bourbon.

So far this year it has bought Italian vermouth and gin brand Del Professore for an undisclosed amount.

Beam Suntory has made its first foray into mezcal through a distribution partnership with the Amarás brand. Beam will import the ‘sustainability-focused’ Amarás and distribute its products in a number of US states.

The group is driving hard into the RTD market but at the same time it is reported to be ready to sell both Pinnacle vodka and Cruzan rum.

Treasury Wine Estates is pursuing asset sales in a broad cost-cutting and restructuring of its commercial wines business where sales have slipped faster than expected because of cost-of-living pressures on households.

Chief executive Tim Ford says a major overhaul of the affordable Treasury Premium Brands business was accelerating, with the market dynamics only likely to worsen over the next year for wines priced at less than US$15 per bottle. That division includes brands such as Wolf Blass, Lindemans, Squealing Pig, Pepperjack, Wynns, Seppelt and 19 Crimes.

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