Wine and Beer Makers Wait for Recovery
06 November 2020 - 9:59PM
Dow Jones News
By Amber Burton
Americans are reportedly drinking more at home as lockdowns
continue, but the shift has done little to buoy turbulent wine,
beer and spirits stocks.
Among the biggest players in the industry, U.K.-based Diageo PLC
is down about 16% so far this year. Constellation Brands Inc., a
U.S. wine, beer and spirits manufacturer, is down about 4%. Crimson
Wine Group Ltd., a smaller publicly traded vineyard in Napa,
Calif., is down 35%.
Without bar and restaurant sales, revenue in the wine industry
won't recover until a full reopening. Jon Moramarco, a wine analyst
and industry veteran, projects that this year, on-premise wine
sales in the U.S. will be about 50% to 60% of last year's
levels.
Sales to bars and restaurants make up a large portion of the
companies' sales as the establishments tend to buy large volumes of
alcohol on a recurring basis. In the U.S., about 20% of alcohol
sales are done via on-premise sales, said Brandy Rand, chief
operating officer for the Americas at IWSR Drinks Market Analysis.
Without that volume being sold regularly and the number of
restaurants and bars reduced for the long term, distributors are
taking a hit.
"The profit and overall value lost due to on-premise closures
will not be able to be offset by the increase in off-premise
purchases," she said.
As of September, one in six restaurants had closed long-term or
permanently in the U.S., according to an analysis by the National
Association of Restaurants. A survey by the organization also found
that 40% of restaurant operators believe they will have to shut
down permanently by early 2021 if they don't receive additional
relief from the federal government.
Until restaurants, bars and nightclubs are fully reopened, the
alcohol industry is "missing a leg of the stool with the leisure
space," and sales will remain down, said John Petrides, a portfolio
manager at Tocqueville Asset Management.
Alcohol falls in the consumer-staples sector of the S&P 500.
The sector is up 0.79% for the year through Nov. 5, while the
S&P 500 is up about 1.95%.
There is a rush to invest in consumer-staples stocks because of
their products' higher demand and margins in places such as grocery
stores during the pandemic. But a year from now, if people are
vaccinated against coronavirus, some wonder if consumer-staples
companies will be able to get full price for their products.
"I think you're going to have very difficult year-over-year
comparisons in the consumer-staples industry," said Mr. Petrides.
"So the [alcohol] industry itself for me isn't overly attractive
for that reason."
Despite the stocks' current performance, analysts believe the
beaten-down shares will eventually recover once a vaccine is
approved, because many people are itching to return to the normalcy
of going out to bars and restaurants. The trouble is that no one
knows exactly when that will be.
This has challenged alcohol companies globally. Diageo said its
pretax profit fell in the second half of fiscal 2020 because of the
coronavirus. The company reported in August that net sales fell
about 9% to GBP11.75 billion, equivalent to about $15.26 billion,
from GBP12.87 billion.
Constellation Brands, the largest beer manufacturer in the U.S.,
also experienced a slight dip in sales. The beverage company
reported net sales of $2.26 billion in its second fiscal quarter,
down slightly from $2.34 billion a year earlier. Constellation beat
expectations with earnings of $2.62 a share, versus a loss of $2.77
in the same period a year earlier. The improvement was in part
because of strong sales.
Mr. Moramarco projects that beer sales will be relatively flat,
wine sales will creep up by about 1% to 2%, slower than last year,
and spirits sales will be up 4% in the fourth quarter.
Even as the holiday season approaches, overall volume sales of
wine are expected to remain lower, although direct-to-consumer and
grocery-store sales are helping wine makers get through this tough
time.
In September, the total value of direct-to-consumer wine
shipments was nearly $312 million in the U.S., an increase of 17%
from a year earlier, said Andrew Adams, the editor of the Wine
Analytics Report, which tracks data within the industry.
Grocery-store sales tracked by Nielsen were up 16% in September
compared with the same period in 2019, according to Wines Vines
Analytics.
"Those have been the two channels that have really kept wine
going through this," Mr. Adams said.
(END) Dow Jones Newswires
November 06, 2020 05:44 ET (10:44 GMT)
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