Drinkers, smokers seek respite from gloom by trading up
By Richa Naidu
LONDON, July 28 (Reuters) - Soaring inflation has made life harder for most of the world - but some people are still smoking expensive cigarettes and doing shots of fancy tequila.
From British American Tobacco BATS.L to Tanqueray gin maker Diageo DGE.L , cigarette and alcohol companies cited strong demand for high-end products people can't seem to shake when they reported results this week. Far from buying cheaper alcohol and tobacco, shoppers are instead trading up.
"In hard times, I think people just want that little moment to celebrate, you know, to unwind with family, with friends with colleagues," Diageo's finance chief Lavanya Chandrashekar told Reuters.
The trend contributes to a pattern of affluent consumers spending big on luxury items following the COVID-19 pandemic. Lockdowns resulted in average bank balances rising and record stock markets boosted wealthy people's investment portfolios.
Diageo, the world's biggest spirits maker, on Thursday beat full-year sales forecasts, helped by demand for "super premium" brands such as Don Julio tequila, Johnnie Walker Blue Label and Bulleit Bourbon.
Food and personal goods companies such as Procter & Gamble PG.N and Kraft Heinz KHC.O have seen increased competition from cheaper private label brands as consumers trade down in the face of a cost of living crisis.
People who smoke cigarettes, buy luxury products and drink alcohol, however, tend to stay loyal to their brands even if they're more expensive.
"There's a fundamental difference in how consumers think about something like baked beans versus a cocktail when you're celebrating a special occasion," Chandrashekar said.
Diageo doesn't have much competition from supermarket-owned brands, she said, highlighting the United States where private label represents less than 2% of the spirits market.
STICKING BY THEIR BRANDS
Alcohol consumption increased worldwide during the pandemic as people stuck at home had limited options for entertainment.
Many are now trying to drink less, but better, said Tineke Frikkee, fund manager at BAT and Diageo investor Waverton Investment Management. But the cost of living crisis and rising energy bills this winter mean that trading up may not last.
"As consumer budgets come under pressure, we may see some downtrading, so still buying a bottle of spirits, but maybe the next price tier down. Diageo is seeing some of this in cognac for example, but not in tequila," Frikkee said.
AB InBev, the world's biggest brewer and maker of Stella Artois and Budweiser, on Thursday reported higher-than-expected profits, helped by many drinkers switching to premium beers.
Since the start of the Russia-Ukraine war, U.S. sales of premium spirits have risen nearly 3% to $3.76 billion, according to NielsenIQ. Globally, sales of fine wines, champagne and spirits are expected to rise about 6% to $155.2 billion in 2022, according to Euromonitor.
Meanwhile, sales of luxury tobacco products - cigars, cigarillos and smoking tobacco - are expected to rise 7.5% to over $95 billion, according to Euromonitor.
British American Tobacco (BAT) has raised prices more than its competitors in some categories and is investing more in its high-end New Port and American Spirit brands, chief executive Jack Bowles said in an interview. He highlighted growth in BAT's American Spirit organic range.
Price hikes and luxury brands helped BAT beat first-half revenue and margin forecasts on Wednesday.
"Consumers are sticking much more with their (cigarette) brands and that's why we didn't see downtrading. We see premium growing in a lot of places," Bowles said.
Outside of alcohol and tobacco, earnings on Thursday continued a pattern of affluent consumers trading up.
Stellantis STLA.MI said strong pricing power and sales of high-margin cars including electric ones helped it top profit forecasts in the first half, despite rising energy and raw material costs, and semiconductor shortages.
While production problems hampered Volkswagen's VOWG_p.DE mass-market businesses, premium brands boosted the carmaker's finances, with Audi seeing a 51% jump in operating profit and Porsche up 22%.
Reporting by Richa Naidu Editing by Matt Scuffham and Mark Potter
Mga Kaugnay na Asset
Disclaimer: Ang mga kabilang sa XM Group ay nagbibigay lang ng serbisyo sa pagpapatupad at pag-access sa aming Online Trading Facility, kung saan pinapahintulutan nito ang pagtingin at/o paggamit sa nilalaman na makikita sa website o sa pamamagitan nito, at walang layuning palitan o palawigin ito, at hindi din ito papalitan o papalawigin. Ang naturang pag-access at paggamit ay palaging alinsunod sa: (i) Mga Tuntunin at Kundisyon; (ii) Mga Babala sa Risk; at (iii) Kabuuang Disclaimer. Kaya naman ang naturang nilalaman ay ituturing na pangkalahatang impormasyon lamang. Mangyaring isaalang-alang na ang mga nilalaman ng aming Online Trading Facility ay hindi paglikom, o alok, para magsagawa ng anumang transaksyon sa mga pinansyal na market. Ang pag-trade sa alinmang pinansyal na market ay nagtataglay ng mataas na lebel ng risk sa iyong kapital.
Lahat ng materyales na nakalathala sa aming Online Trading Facility ay nakalaan para sa layuning edukasyonal/pang-impormasyon lamang at hindi naglalaman – at hindi dapat ituring bilang naglalaman – ng payo at rekomendasyon na pangpinansyal, tungkol sa buwis sa pag-i-invest, o pang-trade, o tala ng aming presyo sa pag-trade, o alok para sa, o paglikom ng, transaksyon sa alinmang pinansyal na instrument o hindi ginustong pinansyal na promosyon.
Sa anumang nilalaman na galing sa ikatlong partido, pati na ang mga nilalaman na inihanda ng XM, ang mga naturang opinyon, balita, pananaliksik, pag-analisa, presyo, ibang impormasyon o link sa ibang mga site na makikita sa website na ito ay ibibigay tulad ng nandoon, bilang pangkalahatang komentaryo sa market at hindi ito nagtataglay ng payo sa pag-i-invest. Kung ang alinmang nilalaman nito ay itinuring bilang pananaliksik sa pag-i-invest, kailangan mong isaalang-alang at tanggapin na hindi ito inilaan at inihanda alinsunod sa mga legal na pangangailangan na idinisenyo para maisulong ang pagsasarili ng pananaliksik sa pag-i-invest, at dahil dito ituturing ito na komunikasyon sa marketing sa ilalim ng mga kaugnay na batas at regulasyon. Mangyaring siguruhin na nabasa at naintindihan mo ang aming Notipikasyon sa Hindi Independyenteng Pananaliksik sa Pag-i-invest at Babala sa Risk na may kinalaman sa impormasyong nakalagay sa itaas, na maa-access dito.