WINE AND SPIRITS KEEP ON TRUCKIN’

Wine and spirits continue to jump leaps and bounds ahead of beer. As reported by Mark Swartzberg of Stifel Nicolaus, distillery and winery shares were up 24% in 2005 while brewer shares were down 14%. And while “small but meaningful annual increases in total per capita consumption are likely to sustain over the balance of this decade,” beer will likely continue to suffer. Mark attributed the rise in consumption to multiple components but thought the increase in marketing spending for the alcohol industry, especially wine and spirits, who have faster spending growth than beer, was “especially notable.” Wine’s volume increased 4.8%, while spirits grew 2.9% and beer decreased -0.1% in 2005. Price went up 1.6% for wine, 1.2% for spirits and 1% for beer.

Wine and spirits companies are obviously expected to profit from increased consumption and “will be challenged NOT to produce solid volumetric growth.” Consolidation might be the key. “We expect substantially stronger profit growth for selected majors, including Constellation and Diageo, due to share-taking, rate and mix-driven price realization, and cost leverage.”