U.S. liquor sales are booming, with top-shelf brands particularly well placed.
French luxury distiller Rémy Cointreau REMYY -0.63% said Friday that revenue for the three months through March increased by 15%, stripping out currency moves. Strong U.S. sales were an important ingredient, although the company didn’t break out specific figures. Rémy’s Paris-listed peer Pernod Ricard also noted solid growth in the U.S., when it reported Thursday. Analysts covering the Absolut vodka owner estimated that its American business increased by 8% during the period.
As home drinking took off in the U.S. last year, investors bid up the stocks of major liquor companies. Now that bars and restaurants are reopening across states, one worry is that drinking patterns could normalize. Rémy thinks they won’t: Management said the pandemic has led to “structurally more buoyant” demand in the market.
During the pandemic, Americans have certainly been trading up to more expensive booze, which is the kind Rémy specializes in. Data from the Distilled Spirits Council of the United States shows that the amount of super premium alcohol sold last year increased by 9.7%, almost double the rate of the broader U.S. liquor market.
Americans also appear to be drinking more, particularly stronger stuff. Alcohol consumption per head increased by 1.8% in 2020, according to Bernstein estimates, the fastest in 14 years. And while liquor has been taking market share from beer for almost two decades, the trend sped up last year with more than double the usual gains.
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The benefits aren’t being shared equally. Tequila has been the fastest-growing liquor in the U.S. during the pandemic—good news for London-listed Diageo, which owns the top-end Casamigos brand. Cognac, which accounts for almost three-quarters of Rémy’s portfolio, comes next. Cointreau, also owned by Rémy, was in demand too as consumers tried their hand at DIY margaritas—one of the easier cocktails to replicate at home. Irish whiskey suffered as it is more exposed to bars and restaurants, a negative for Jameson’s owner Pernod Ricard, at least until normal nightlife resumes.
Rémy has an interest in talking up the all-important U.S. market. Last summer, the company set a punchy target to reach a 33% operating margin by the end of the decade, up from the low 20s today. The stock’s forward earnings multiple of 52 times, the highest of all European liquor companies, is vulnerable if growth slows or its pricing power flags.
Rémy’s theory that U.S. cognac demand has shifted permanently higher—rather than just enjoyed a tailwind from stimulus checks and limited options for consumer spending—will be put to the test over the coming year. For now, the company’s place in the U.S. drinks cabinet looks secure.
Write to Carol Ryan at [email protected]
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