An HSBC note on Pernod Ricard forecast that weakness would continue into 2024

Consumers are likely to trade down into cheaper alcohol in 2024 to add further pressure to premium drinks brands, according to a report from Bloomberg Intelligence.

Bloomberg forecasts that fragile consumer confidence, weak growth and the fear of rising unemployment will exacerbate the slowing post-lockdown urge to socialise.

“Premium spirit sales will be pressured for three reasons: excess US inventory, the end of ‘revenge conviviality’ and fragile economic expansion,” said Duncan Fox, senior industry analyst at Bloomberg Intelligence.

In particular, he forecasts that US market growth will struggle in the first half of this year given brittle consumer confidence, with spirit companies such as Diageo and Remy Cointreau unlikely to cut prices to quickly dispose of inventory as that may set a precedent for weaker industry pricing.

“Revenge conviviality is also over, with normal consumer behaviour returning after lockdowns, but global volume remains 4% below its 2018 peak due to a slow Asian recovery,” Fox added.

Volume is forecast to grow by an annually compounded 1.9% through 2027 (based on Euromonitor data) as customers switch from low-priced local spirits to either premium local or global brands, but the continuation of that trend requires robust consumer confidence, Fox noted.

Separately, a broker note on French spirits giant Pernod Ricard by HSBC forecast that weakness would continue into 2024.

The bank noted pressures across global markets, with the group facing tough comparisons in China with India’s growth still set to be below trend, ongoing softness in the US and Latin America and its exit from Russia dragging on European performance.

“Even though we see the spirits category and Pernod’s portfolio as having long-term structural attractions, we think that pressure on consensus estimates over the coming months will affect the shares,” HSBC stated.

Bloomberg Intelligence also suggested beer producers would not be unaffected by premium headwinds in 2024.

It argued that moribund economic growth and the hangover from inflation may see consumers continue the trend that started in September 2023 of buying more mainstream beer.

BI suggested that premium price points had hit a maximum for now and it would require a significant upturn in consumer confidence for companies to expand pricing further.

Volume growth would be dependent on an emerging-markets recovery, yet inflation may hamper any short-term revival, it added.

Fox noted that innovation was “key to beverage companies broadening their appeal to new drinkers and increasing price points”.

He pointed to further opportunities in low or no-alcohol beers and spirits and ready-to-drink products.

“Non-alcoholic spirit alternatives are still in their infancy and need development… [but] offers huge potential to switch consumers from beer or wine, and along with ready-to-serve initiatives, taps into the convenience trend, which may be popular if customers choose to drink at home.”

“Low or no-alcohol beer and ready-to-drink volume have doubled since 2008 due to the plethora of new offerings. RTDs and LoNo aid company margins despite only accounting for 7% of volume. More initiatives are needed to boost long-term growth.”