Global spirit manufacturers face challenge cocktails

Global spirit manufacturers are looking at a cocktail of highlying challenges, since tariffs and brand boycots threaten to exacerbate the broadest changes in drinking habits.

French cognac manufacturer Rémy Cointreau Wednesday became the last creator of spirits, following Diageo and Pernod Ricardto withdraw your sales goals in greater economic and commercial uncertainty.

“Given the continuous lack of macroeconomic visibility, the geopolitical uncertainties surrounding US tariff policies and the absence until the date of a recovery in the US market … the conditions required to maintain [Remy Cointreau’s] Objectives 2029-2030 are no longer in place, “he said in a statement.

The measure occurred as sales of the whole year in the group’s cognac business, which includes its Remy Martin brand of homonym, fell 22% in an organic base in the deceleration of the consumption of the United States and the “complex market conditions” in China.

The popular variety of Brandy, which comes from the French region of Cognac, has been particularly trapped in the tensions of the ongoing American. LVMH Similarly, he saw a 17% drop in his Coñac Hennessy in the first quarter.

But the specialized drink is far from being alone since commercial barriers weaken the demand for already dry spirits. The wine and spirits of LVMH remains the division of worse performance of the French luxury group, while diageo spirits, including Tank, Gordon and Smirnoff, saw the most pronounced decreases in the first quarter when Guinness Irish Stout sales recovered.

“The distilled spirits in the United States are going through a correction, and American tariffs add another layer of uncertainty,” Jefferies said in a note last month.

The prestige, often the legal requirements, associated with the spirits and the wines mean that they depend largely on local production and, therefore, are very exposed to the import levies of the US. UU. The champagne must occur and bottled within the Champagne region, for example.

“With the spirits and wines you have terroir caches, and that means you are producing locally and exporting. Therefore, it is much more vulnerable to geopolitical tensions,” said Sanjeet Aujla, UBS analyst, CNBC through the video call.

Remy Cintreau estimated that tariffs as they are currently could fulfill a coup of 65 million euros ($ 55 million) to their business after mitigating the measures. Meanwhile, Diageo said approximately 25% of his business will be affected by tasks.

The same does not apply to beer, which depends on local production and has been marked as an unlikely winner of making commercial divisions. In particular, the largest brewer in the world, AB Inbev, as well as the Dutch and Danish Beermakers Heineken and Carlsberg Everyone maintained their guide all year in the first quarter.

As a result, wines and spirits are potentially exposed to brand boycots, since consumers are more likely to change a particular product for political reasons in favor of a local alternative.

The success of the rate occurs when the industry has slowed in recent years after a strong decade of growth, particularly during the Covid-19 pandemic. Blocked consumers disbursed more about alcohol in 2020 and 2021, feeding a simultaneous increase in premium brands.

“During the pandemic, people not only drank more, but rewarded more,” said Aujla.

Spirits are often seen as an affordable luxury, especially in good economic times. However, they tend to be an occasional purchase, with many reserves of the COVID era in liquor cabinets worldwide.

However, as economic conditions change, consumers may be less inclined to cough at $ 100 for a good bottle, instead of transferring or opting for alternatives to drink (RTD) of lower cost.

“Spirits -based RTDs are weighing the growth of distilled spirits along with the impact of accumulated inflation,” said Jefferies’ note, added that the hiring was more visible in vodka and rum products, while the demand for premium whiskey, Tequila and Gin remained more robust.

“That [premiumization] It is in pause today, given the winds against cyclicals that we have in the industry, “added Aujla.

The demand for drying occurs when health and well -being trends cause a change in consumer habits, and more people become “sober” and experience lower alcohol consumption. In fact, many beverage manufacturers have tried to adopt that change with new ranges of low and without alcohol products.

Meanwhile, the proliferation of drugs to lose weight, and early evidence of its role in the suppression of alcohol cravings, raises another potential challenge for the industry.

However, analysts remain divided on the severity and permanence of the recession.

“There is a considerable debate about the extent to which the anemic demand is currently cyclical or structural,” said James Edwardes Jones, an RBC Market Capital analyst, in comments sent by email.

Cyclic pressures refer to winds against and the economic hangover of the Covid era, while structural changes refer to the changing patterns of consumers.

“It’s a bit of both, and more cyclical than structural,” said Aujla. “But when the winds against cyclics dissipate, we believe that the growth of the American spirits industry will be 1-2% lower than the historical growth of 4-5%.”