Recession watch: alcoholic drinks

08 July 2009

LONDON/WASHINGTON: Sales of alcoholic drinks have proved comparatively resilient in previous recessions, but the unique character of the current downturn has seen consumers adopt a variety of different strategies towards discretionary spending, meaning it could prove more challenging for the sector.

Diageo, the world's biggest spirits company by revenue, said in its most recent interim management report that total sales for the nine months ending in March this year were essentially "flat".

Within this period, however, it witnessed a 7% decline on an annual basis during the final reporting quarter, effectively offsetting previous gains.

This slowdown was mainly a result of "planned stock reductions" among its US spirits and wine distributors, while total sales in Russia also showed a "significant decline," according to the company.

Paul Walsh, Diageo's ceo, said "trading in markets around the world … weakened in the second half of the fiscal year," and predicted organic sales growth for the full year would be in the 4% to 6% range.

In order to "emerge from this global downturn as an even stronger business," the spirits group is reducing stock levels, implementing a restructuring programme and focusing on greater "marketing efficiency."

As previously reported, Andy Fennell, its chief marketing officer, has argued this latter process will involve reining in total advertising expenditure.

Pernod Ricard, the number two spirits manufacturer behind Diageo, reported that its consolidated net sales for the three quarters ending in March rose by 9% on an annual basis, to €5.6 billion ($7.8bn; £4.8bn) overall.

However, organic revenues rose by just 0.3%, with the final three months in this period delivering a 2% slide in revenues, to €1.3bn, while like-for-like sales decreased by 12%.

More positively, the company predicted that organic sales growth for the full fiscal year would reach at least 5%, and could potentially rise above this figure.

Pierre Pringuet, Pernod's ceo, said that despite the "difficult environment", the French firm is still aiming "for a record Group share of net profit from recurring operations" this year.

In the beer category, Anheuser-Busch InBev, the sector's largest brewer, reported that sales before interest, tax, depreciation and amortisation increased by 25.9% on a like-for-like basis, to $2.79bn, in Q1 this year.

This included an upturn in revenues of 31.7% in the US market, which accounts for 40% of the company's business, while total volumes also rose by 0.9% in all.

However, the recently-merged conglomerate warned that the "remaining quarters of the year should not show similar organic EBITDA growth due to more difficult comparisons."

SABMiller, in second place in this sector in terms of revenue, posted a decline in pre-tax profits of 9%, to $3.0bn, for the year to March, hindered by high commodity costs, as revenues rose by 6%, to $25.3bn.

As a result of the slowing level expansion, the company "re-evaluated spending in light of the changing consumer environment" during the second half of the financial year.

One consequence of this process is that the US giant is now "selectively maintaining investment behind its brands and operations to support future growth."

However, it also warned that "global economic co

Data sourced from Just Drinks/company reports; additional content by WARC staff