Inventories Pile Up as Demand for Whisky and Cognac Falls
Major Publicly Listed Liquor Companies See Highest Stock Levels in a Decade
As demand for distilled spirits such as whisky, cognac, and tequila has plummeted, the distilled spirits market is facing an ice age.
According to the Financial Times (FT) on January 18 (local time), companies producing whisky, cognac, and tequila are being forced to halt distillery operations or drastically cut prices due to a historic decline in demand.
Financial reports from five major publicly listed liquor companies-Diageo, Pernod Ricard, Campari, Brown-Forman, and Remy Cointreau-show that their combined inventory of aged distilled spirits amounts to $22 billion, the highest level in over a decade.
According to the FT, Remy Cointreau, a French cognac producer, has inventory valued at 1.8 billion euros (about 3 trillion won), which is nearly twice its annual sales and close to its market capitalization. Diageo’s inventory as a percentage of annual sales also increased from 34% in fiscal year 2022 to 43% last year. As of June last year, the company’s inventory was valued at $8.6 billion. Trevor Stirling, an analyst at the investment firm Bernstein, stated that the current inventory levels of companies that have disclosed such information have surpassed those seen during the inventory buildup in the aftermath of the financial crisis.
The FT pointed out that the accumulation of inventory was caused by companies ramping up production to meet a surge in demand during the COVID-19 pandemic. In addition, as inflation has soared globally, disposable income has decreased, leading to a drop in demand for distilled spirits. Another reason for the decline in demand, according to some, is the spread of obesity treatments. The FT explained that the rapid adoption of obesity drugs such as Wegovy and Ozempic, along with increased interest in health and wellness, has led to reduced alcohol consumption.
Some companies have ultimately begun halting production. Japan’s Suntory has shut down the main distillery for ‘Jim Beam’ in Kentucky, USA, for at least one year, and Diageo will suspend whisky production at its facilities in Texas and Tennessee until this summer.
However, some experts have warned that cutting production could be a risky move. Edward Mundy, an analyst at investment bank Jefferies, explained, "If you reduce inventory during a downturn, it creates major problems when you try to meet future demand," adding, "Over the past five years, booms and busts in the distilled spirits market have been almost impossible to predict."
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