How Long Will Premium Spirits Hold Out?
Diageo’s North American president Ivan Menezes said the company’s premium spirits brands continue to do well, but not all analysts believe the category is headed for a rosy future. At an investor meeting hosted by Redburn, analyst Chris Pitcher said the tone was “cautiously optimistic” as Diageo expects the strength of its priority brands and the resilience of its portfolio to take share in a softening market. Data shows that value and margins continue to grow for the company, due in part to the strengthening U.S. dollar. As an importer of Scotch and Irish Cream Liqueur, the recent strength in the US dollar will be a benefit to its US business.
POST HOLIDAY SLOWDOWN. However, Redburn rated Diageo “Sell” because it believes consumer spending will soften as the recession continues, and Americans will trade down to less expensive spirits brands. Chris noted that data presented by Diageo seems to disprove his thesis but he thinks “it is too early to believe that the US spirits consumer will continue to prove so impervious to the economic pressures.”
“The risk of deterioration in these trends into Christmas and next year remains high. Consumers may not have cancelled Christmas but they are certainly becoming more value focused.”
Based on IRI data, Ivan said the premium tier remains the strongest within the spirits category with a 35.6% share (up 0.4 points) in the 12 weeks ending Nov. 2. In all, premium brands (which are the focus of Diageo’s portfolio) are benefiting from trading down from super and ultra premium brands. Value brands are also seeing a surge at the expense of mainstream brands. As a result, Chris thinks the growth for premium will start slowing soon.
Diageo argues that even if unemployment rates reach high levels, consumers will simply purchase less frequently rather than change their shopping habits. To back up its claims, the company presented data from California, a state with one of the highest unemployment rates, where both spirits and trading up momentum remained in positive territory to October.
WHOLESALER CONSOLIDATION. One area of potential risk is the continued consolidation of the second tier, said Chris. However, Diageo says it has been proactive it’s the distributor realignment process and sees opportunity in the Southern/Glazer’s joint-venture.
BEER TAKING BACK SHARE. In addition, Ivan said beer was starting to take back some share from spirits due to the economy, but still expects spirits volumes to hold up. Diageo is predicting volume growth of 2% this year and 2% next year. The company also expects a continuation of 2% to 3% price/mix growth because they claim they are not witnessing any major change in customer behavior with people still trading up within their portfolio, albeit at a slower rate.
CONSTELLATION REAPS BENEFITS FROM STRENGTHENING DOLLAR
Constellation announced yesterday that it’s run into a nice chunk of change that the company plans on using to pay down debt. It expects to realize about $50 million in after-tax cash proceeds from the settlement of foreign currency hedge transactions. Constellation opted to take advantage of the strengthening U.S. dollar by closing out certain foreign currency hedges and boosting cash flow. As a result, the company raised its free cash flow guidance to a range of $360 million to $390 million, from $310 million to $340 million. It also lowered its earnings per share guidance to a range of 63 cents to 71 cents in fiscal 2009 due to a charge of 20 cents a share because the company will pay taxes on hedge gains. In after-hours trading, when the proceeds from the hedges were announced, shares of Constellation Brands gained 19 cents to $12.36 after rising 37 cents, or 3.1 percent, in the regular session to $12.17. In morning trading, STZ shares grew 2.66%, or 32 cents.
BEAM GLOBAL APPOINTS CRUZAN MARKETING TEAM
Beam said today that Peter Wijk and David Turo are joining the U.S. brand marketing team managing its recently acquired Cruzan Rum. Peter has been appointed U.S. senior dire of lifestyle brands, which includes Cruzan, Sauza and El Tesoro. Prior to joining Beam, he served as the U.S. brand director for the Absolut Spirits Company.
David, meanwhile, is now the senior brand manager for Cruzan, moving from his former position in Beam as the marketing director for the west coast division. He will continue integrating into the company and lead 2009 planning to accelerate the growth of Cruzan in the U.S.
TESCO FEELS PAIN OF U.S. RECESSION
Tesco’s ceo Terry Leahy acknowledged Fresh & Easy has experienced a difficult first year in the United States due to the economy. As a result, the grocer is scaling back store openings. "The U.S. is in recession," he said in a question and answer session on the company's third quarter interim results. "The western United States, where we're opening, is in severe recession at the moment, so it makes sense to maintain our rate of opening rather than the planned acceleration in the rate of opening because you can't just buck a downtown of that magnitude. [Fresh & Easy] is very popular. It is well received by customers. The U.S. will bounce back, the western United States will bounce back. We'll be able to step up our rate of growth when that happens."
Until tomorrow, Megan
“The best way out is always through.”
Robert Frost
--------- Sell Day Calendar ----------
Today's Sell Day: 3
Sell days this month: 22
Sell days this month last year: 20
This month ends on a: Wed.
This month last year ended on a: Mon.
YTD sell days Over/Under: +1
BEER SUMMIT 2009 - The Four Seasons, Austin, Texas - Join us for great speakers, intelligent discourse, good food, and of course great beer at the next Beer Summit on March 1 - 2, 2009. Click here: http://tinyurl.com/beersummit
WINE & SPIRITS DAILY
Subscribe or check back issues at: www.winespiritsdaily.com
Send news and comments in confidence to: megan@winespiritsdaily.com
© 2008 Wine & Spirits Daily, all rights reserved. May quote with attribution.
POST HOLIDAY SLOWDOWN. However, Redburn rated Diageo “Sell” because it believes consumer spending will soften as the recession continues, and Americans will trade down to less expensive spirits brands. Chris noted that data presented by Diageo seems to disprove his thesis but he thinks “it is too early to believe that the US spirits consumer will continue to prove so impervious to the economic pressures.”
“The risk of deterioration in these trends into Christmas and next year remains high. Consumers may not have cancelled Christmas but they are certainly becoming more value focused.”
Based on IRI data, Ivan said the premium tier remains the strongest within the spirits category with a 35.6% share (up 0.4 points) in the 12 weeks ending Nov. 2. In all, premium brands (which are the focus of Diageo’s portfolio) are benefiting from trading down from super and ultra premium brands. Value brands are also seeing a surge at the expense of mainstream brands. As a result, Chris thinks the growth for premium will start slowing soon.
Diageo argues that even if unemployment rates reach high levels, consumers will simply purchase less frequently rather than change their shopping habits. To back up its claims, the company presented data from California, a state with one of the highest unemployment rates, where both spirits and trading up momentum remained in positive territory to October.
WHOLESALER CONSOLIDATION. One area of potential risk is the continued consolidation of the second tier, said Chris. However, Diageo says it has been proactive it’s the distributor realignment process and sees opportunity in the Southern/Glazer’s joint-venture.
BEER TAKING BACK SHARE. In addition, Ivan said beer was starting to take back some share from spirits due to the economy, but still expects spirits volumes to hold up. Diageo is predicting volume growth of 2% this year and 2% next year. The company also expects a continuation of 2% to 3% price/mix growth because they claim they are not witnessing any major change in customer behavior with people still trading up within their portfolio, albeit at a slower rate.
CONSTELLATION REAPS BENEFITS FROM STRENGTHENING DOLLAR
Constellation announced yesterday that it’s run into a nice chunk of change that the company plans on using to pay down debt. It expects to realize about $50 million in after-tax cash proceeds from the settlement of foreign currency hedge transactions. Constellation opted to take advantage of the strengthening U.S. dollar by closing out certain foreign currency hedges and boosting cash flow. As a result, the company raised its free cash flow guidance to a range of $360 million to $390 million, from $310 million to $340 million. It also lowered its earnings per share guidance to a range of 63 cents to 71 cents in fiscal 2009 due to a charge of 20 cents a share because the company will pay taxes on hedge gains. In after-hours trading, when the proceeds from the hedges were announced, shares of Constellation Brands gained 19 cents to $12.36 after rising 37 cents, or 3.1 percent, in the regular session to $12.17. In morning trading, STZ shares grew 2.66%, or 32 cents.
BEAM GLOBAL APPOINTS CRUZAN MARKETING TEAM
Beam said today that Peter Wijk and David Turo are joining the U.S. brand marketing team managing its recently acquired Cruzan Rum. Peter has been appointed U.S. senior dire of lifestyle brands, which includes Cruzan, Sauza and El Tesoro. Prior to joining Beam, he served as the U.S. brand director for the Absolut Spirits Company.
David, meanwhile, is now the senior brand manager for Cruzan, moving from his former position in Beam as the marketing director for the west coast division. He will continue integrating into the company and lead 2009 planning to accelerate the growth of Cruzan in the U.S.
TESCO FEELS PAIN OF U.S. RECESSION
Tesco’s ceo Terry Leahy acknowledged Fresh & Easy has experienced a difficult first year in the United States due to the economy. As a result, the grocer is scaling back store openings. "The U.S. is in recession," he said in a question and answer session on the company's third quarter interim results. "The western United States, where we're opening, is in severe recession at the moment, so it makes sense to maintain our rate of opening rather than the planned acceleration in the rate of opening because you can't just buck a downtown of that magnitude. [Fresh & Easy] is very popular. It is well received by customers. The U.S. will bounce back, the western United States will bounce back. We'll be able to step up our rate of growth when that happens."
Until tomorrow, Megan
“The best way out is always through.”
Robert Frost
--------- Sell Day Calendar ----------
Today's Sell Day: 3
Sell days this month: 22
Sell days this month last year: 20
This month ends on a: Wed.
This month last year ended on a: Mon.
YTD sell days Over/Under: +1
BEER SUMMIT 2009 - The Four Seasons, Austin, Texas - Join us for great speakers, intelligent discourse, good food, and of course great beer at the next Beer Summit on March 1 - 2, 2009. Click here: http://tinyurl.com/beersummit
WINE & SPIRITS DAILY
Subscribe or check back issues at: www.winespiritsdaily.com
Send news and comments in confidence to: megan@winespiritsdaily.com
© 2008 Wine & Spirits Daily, all rights reserved. May quote with attribution.
posted at 1:41 PM
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