Major drinks groups face ‘painful drop’ in US sales

With LVMH, Remy Cointreau and Jose Cuervo owner Becle all reporting slowing sales growth in North America, Diageo will come under scrutiny when it announces its annual results tomorrow.

North America contributes 37% of Diageo’s net sales and is the drinks group’s most profitable region.

Back in January the late Sir Ivan Menezes acknowledged that the pace of growth in the US had fallen but he expressed confidence about navigating ongoing volatility and uncertainty in the face of inflation and reiterated the group’s medium term guidance of annual organic net sales growth of 5% to 7% and organic operating profit rising between 6% and 9%.

Much of Diageo’s recent US growth has been in Tequilas but Becle, owner of the Jose Cuervo range, said its North American volumes sank by 5.6% between April and June after price increases, which, combined with the appreciation of the Mexican peso against the dollar, caused sales to drop nearly 13%.

On a currency-neutral basis, sales in the US and Canada would have dropped 1.4% it said.

While LVMH, the world’s leading luxury products group, recorded global revenues up 15% in the first six months of this year, its drinks business group saw organic revenue fall by 3% after a painful drop in US sales.

While the Champagne brands did well, Hennessy Cognac was under pressure.

The luxury goods giant’s CFO Jean-Jacques Guiony said aspirational customers in the US “are not shopping as much as they used to.”

Meanwhile, first quarter sales at Rémy Cointreau fell by 35% with cognac volumes hit by “normalisation” and destocking in the US.

It had predicted a poor first half year in the US because of strong comparative figures in 2022 some destocking.

But while the US is returning to more normal post pandemic growth patterns the big spirits groups have enjoyed excellent business in China so far this year.

Rémy, which has 35% of its sales in China, said it expected “major gains” there in the rest of this year now that consumer spending is booming in the People’s Republic.

LVMH does not issue separate figures for China but its Asia (excluding Japan) division recorded 23% growth, much of which came from China, and last month’s tour of major cities by chairman and CEO Bernard Arnault underlines the demand boom for luxury items.

At the other end of the size scale, New Zealand ultra premium mixers group East Imperial is also looking to China for expansion.

After going through a troubling period financially, it has secured the extra working capital it needs to expand its markets in both the Far East and America.

Under a deal which shareholders are expected to approve on Friday, East Imperial’s Chinese strategic investor and partner Wen Hua International, which distributes the company’s products in Macau and mainland China, is purchasing £2 million of convertible loan notes.

While the shares remain far below their initial listing level, the funding news has seen East Imperial’s London-quoted shares jump by more than 50% in the past 10 days as investors express confidence in its future.

The loan is potentially convertible into shares and is secured via a debenture over the company’s wholly owned Singapore-incorporated subsidiary and a charge over shares held by chief executive Tony Burt.

Wen Hua is the second largest distributor in the mainland China drinks sector and Burt said: “I’m extremely pleased to add such an important cornerstone investor to our investor group, who brings with them unparalleled experience and knowledge in a key strategic region for East Imperial.

“We have a huge opportunity ahead of us and I’m confident we will deliver significant progress this year and beyond.”

“We will use the funds raised particularly to accelerate our growth in the strategically important US and explore further opportunities with WHI in Asian markets with greater sales resources and some new exciting product innovations.”

WHI chief executive Jason Ieong said: “We believe East Imperial will be able to fast-track its global development in all strategic markets and capitalise on the premiumisation trend in the beverage category globally.”

The extra working capital will enable East Imperial to further expand its ultra-premium mixers especially in the US market, where it has been enjoying strong growth based on its focus on ultra deluxe on-trade outlets.

It will also be able to improve margins as the key bottling deal with Lion Brewery in Pennsylvania is coming on stream while shipping costs from New Zealand to other markets are returning towards pre-pandemic levels.

East Imperial has also secured a flagship partnership with Air New Zealand, which is launching signature cocktails onboard its flights to New York and Chicago.

Air New Zealand Chief Customer and Sales Officer Leanne Geraghty said: “We couldn’t be prouder to collaborate with East Imperial. Their top-notch products are made right here in New Zealand, with the finest, sustainably sourced, all-natural ingredients.”

Burt said: “This collaboration allows us to introduce East Imperial to a broader global audience, showcasing our craftsmanship.”

 

 

 

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