Bouncing back: Drinks companies report return to growth in 2021
After 15 months of lockdowns and severely disrupted patterns of business, international drinks companies are reporting very positive numbers for the first three months of this year and pointing to better profits for 2021 as a whole.
Light at the end of the coronavirus tunnel? It’s more like the first carriages are emerging into sunshine.
First off the block with the encouraging news was LVMH whose wine and spirits arm, Möet Hennessy, recorded organic sales growth of 36% in the first quarter of the year compared with the same three months in 2020. Champagne volumes rose by 22% while Cognac sales soared by 28%.
Hardly surprising, you might think, given that the comparable period last year saw the global onset of Covid-19 and the consequent derailment of business patterns.
But significantly the surging performances in China and the US so far this year triggered first quarter sales at Möet Hennessy that outstripped the previous year of normality. They were 17% ahead of the uninterrupted 2019 level.
With understatement, LVMH said the first quarter was “a good start to the year” but declined to offer a profits forecast. Brokers were less cautious, suggesting the world’s largest luxury goods company will enjoy a bumper year as pent up spending is released and travel retail begins to reopen.
At Pernod Ricard, chairman and CEO Alexandre Ricard, did not hold back, saying: “Our Q3 was excellent, marking a return to organic sales growth” for the first nine months of the company’s financial year. Organic sales from Christmas to the end of March grew by 19% compared with last year.
He underlined “dynamism” in what he calls the “must win” markets of the USA and China, where sales since last July have grown by “mid-single digits” and 34% respectively. China, he said, had returned to double digit growth since Christmas.
Ricard went on to say that although global conditions remained “uncertain and volatile”, he expects sales to accelerate in the company’s final quarter until the end of June and predicted organic growth in profit from recurring operations of about 10%.
That will cover the period from July 2020 when companies such as Pernod Ricard had shown their flexibility and had begun to pick themselves up from the depth of the pandemic.
Diageo does not report figures quarterly (its next results are at the end of July) but investors are confident the world’s biggest premium alcohol producer has fared well since Christmas. Pernod Ricard’s numbers served to push Diageo’s share price to a 12-month high.
Last Friday Rémy Cointreau continued the positive news trend. It announced full year organic sales to the end of March up 1.8%, ahead of the company’s own expectations. Sales increased by 15.1% in the post-Christmas period.
Rémy said sales of Cognac grew 3.7% in the full year despite Covid-19 and noted that the China market, where it leads the category, generated 18.2% growth in the fourth quarter, suggesting that demand was back on fast-track growth.
Overall, demand for Rémy’s wines and spirits in the Americas grew by 18.6% “buoyed by excellent performance in the United States”.
The French group predicts that current organic operating profit will have grown by about 10% in the year to the end of March and said it expects a “very strong start” to its new financial year.
So all three Paris-based global groups have produced positive numbers despite the international travel market remaining virtually closed.
Once that starts to reopen there will be further adaptations to trading models in the same way as adjustments will follow any rebalancing of on-trade off-trade consumption patterns and the continued growth of ecommerce. But all look set to benefit.
What about business in Britain? Both Pernod Ricard and Rémy Cointreau specifically mentioned good sales performances in the UK in recent months despite the lockdowns.
It is too early to know how the recent reopening of al fresco hospitality has benefited UK pubs and restaurants, but anecdotal evidence from those outlets that have restarted trading is positive.
Further, figures from the Office for National Statistics show that shoppers flocked to the high street when non-essential retailers opened their doors earlier this month. Footfall in the week to April 17 was at 75% of its level two years earlier, up 31 points on the previous week. Restaurant bookings were at 60% of their average level two years ago despite many premises not being able to reopen until mid May because of lack of outside space.
What is more, economic activity is accelerating at its fastest pace in almost eight years, according to the closely watched IHS Markit “flash” composite purchasing managers’ index (PMI) which rose to 60 in April, up from 56.4 in March, its highest level since November 2013. A figure above 50 indicates expansion.
“Companies are reporting a surge in demand for both goods and services as the economy opens up from lockdowns and the encouraging vaccine rollout adds to a brighter outlook,” Chris Williamson, chief business economist at IHS Markit, told The Times.
“In more than 23 years of PMI history we have only seen one spell of faster growth than this, recorded between August and November 2013,” he said.
What is more, confidence among consumers has risen further as lockdown restrictions ease.
The GFK consumer confidence index for April was at its highest level since the start of the pandemic, climbing seven points on hopes that social distancing rules could be lifted by the summer.
Joe Staton, client strategy director at GFK, said: “There’s every chance that as the recovery gains momentum and the numbers get stronger, confident consumers will continue to spend and drive the wheels of UK finances into the summer and beyond.”
The Bank of England estimates that between £150 billion to £180 billion extra has been saved during the past year and that between 5% to 10% of that will be spent over the coming months.