"If You Want to Lose Weight, Quit Drinking First"... $32 Billion in Inventory as Distilled Spirits Market Enters an Ice Age

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 dropped significantly, the distilled spirits market is entering an ice age.

According to the Financial Times (FT) on January 18 (local time), historic declines in demand have forced whisky, cognac, and tequila companies to either halt distillery operations or drastically cut prices.

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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 dollars (approximately 32 trillion won), the highest level in more than a decade.

For Remy Cointreau, a French cognac producer, inventory has reached 1.8 billion euros (about 3 trillion won), which is nearly twice its annual sales and close to its market capitalization, according to the FT. 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 dollars. Trevor Stirling, an analyst at investment firm Bernstein, noted that the current inventory levels disclosed by these companies have surpassed those seen during the buildup following the financial crisis.

The FT pointed out that the accumulation of inventory was caused by companies ramping up production to meet the surge in demand during the COVID-19 pandemic. In addition, as inflation soared globally, disposable income declined, leading to reduced demand for distilled spirits. Another reason for the decrease in demand cited by some is the widespread adoption of obesity treatments. The FT explained that the rapid spread of obesity drugs such as Wegovy and Ozempic, along with growing interest in health and wellness, has led to a decline in alcohol consumption.

As a result, some companies have begun to halt production. Japan’s Suntory has closed the main distillery for Jim Beam in Kentucky, USA, for at least a year, while Diageo has decided to suspend whisky production at its Texas and Tennessee facilities until this summer.

However, some experts have warned that reducing production could be a risky move. Edward Mundy, an analyst at investment bank Jefferies, explained, "If you cut inventory during a downturn, you face major problems when trying to meet future demand," adding that "the booms and busts in the distilled spirits market over the past five years have been almost impossible to predict."