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Luxury alcohol investment on the rise across the globe

There is a widespread perception that in times of economic hardship or general turbulence, sales of luxury goods will be among the first to decline. Not so with top-end alcoholic beverages….

The logic is clear: If times are tough, people will typically stop buying the things they don’t need – or, in other words, luxuries. Where alcohol sales are concerned, however, the norm can be upended.

Indeed, as noted in this alcoholic beverage trends report just last year, alcohol has proven to be one of the “most crisis-proof consumer goods categories” around the world.

In spite of the Covid-19 pandemic and the resulting, worldwide economic struggles and inflation, there are numerous pieces of data to suggest that people are still buying the drinks they don’t need, but still want.

Perhaps even more interesting, though, is what some of that data says about the types of alcohol keeping sales afloat even in troubling economic times.

For instance, the same trend overview noted that some 39% of affluent Chinese drinkers said they’d spent at least $79 on a bottle of something in the first half of 2021. It also pointed out that emerging, “niche status categories” such as agave-based spirits or US, Irish, or Japanese-specific whiskey had registered “absolute growth” in the year 2020, during the height of the pandemic.

Other factors, too, were identified as drivers of alcohol sales’ resilience; no- and low-alcohol alternative beverages, for instance, and ecommerce certainly helps. It is clear, however, that the desire for luxury brands and beverages is at the core of the category’s strength.

This information coincides with some trends, both globally and in South Africa, indicating that emphasis on and investment in luxury alcohol is on the rise.

This global report on drink company investment made clear that some of the largest brands in the industry are specifically targeting growth in their luxury categories. The report identified spirits priced at $200 and up as the “fastest-growing segment” within the $1-trillion worldwide alcoholic beverage market.

Specifically, it suggested that these sales are expected to grow 9.3% annually through 2025, “outpacing lower-price drinks”.

These expectations are already impacting how major beverage brands are shaping their businesses, with the same report noting that Moet Hennessey and Campari have both angled to sell more of their premium, high-priced spirits online; while Pernod Ricard, owner of Martell cognac, has invested in high-end gin brands from Kyoto to Germany.

Even before the pandemic, a 2019 write-up suggesting that global alcohol consumption was in decline almost inadvertently made the case that luxury brands were proving to be resilient.

Correctly pointing out that whiskey, bourbon, tequila, and cognac consumption were up (while wine was “stable”), the piece identified high-end brands owned by the likes of LVMH, Diageo, and Distell (now Heineken Beverages) as strong performers.

This suggests that, while pandemic conditions may have led more consumers to indulge in high-end alcohol and/or shop online, where it is becoming more readily available, the potential of luxury adult beverage investment was evident even before Covid-19.

All things considered, two things are crystal clear at this point. The first is that the luxury alcohol market has been showing signs of strength for years, and has been resilient even amidst severe economic turmoil, both in South Africa and around the world.

The second is that the brands behind this corner of the alcohol market are well aware of where their strength lies and are continuing to invest in related products and opportunities.

What will be interesting to assess moving forward, however, is not just how the luxury alcohol market affects companies and consumers, but what impact it has among private investors, as well.

In the past few years, these products and companies have at times looked like market outliers – luxury goods performing well when other luxuries have not. This is bound to intrigue private investors, particularly given that it’s happened at a time when more South Africans are gaining access to private investment in the first place.

Indeed, there is now little doubt that online trading has risen significantly during and following the pandemic. Trading platforms have simplified processes and provided easy access to a range of different investing opportunities.

As a result, many South Africans who are spending more time at home and more time on mobile devices – and who in some cases are in need of new streams of revenue due to economic hardship – are setting up their own investment accounts.

What this means is that countless South Africans who have newly opened trading accounts now have the ability to tap into fast-growing and/or resilient markets such as the luxury alcohol market.

Even where there is not such a direct opportunity, however, South Africans with mobile trading apps also now have easy access to indices trading that can indirectly align their portfolios with luxury alcohol brands from around the world.

When trading indices, investors buy into bundles of shares, assets, and indicators represented as individual numbers and traded in bulk; an index including luxury alcohol brands should thus reflect those brands’ performance.

LVMH (the company under which Moet Hennessy operates), for example, is part of numerous prominent indices, including the S&P Global 100; Rémy Cointreau SA is bundled into indices such as STOXX 600 and SBF 120.

Whether significant activity is directed toward these kinds of stocks and related indices remains to be seen, but with growth on the horizon, the companies involved are seeking to spur that growth on.

It has also become clear in recent years that the luxury wine market has already been attracting wealthier South Africans. Indeed, an August report showed that these South Africans are spending 11% more on high-end wine despite economic conditions that would seem to indicate a slow-down in luxury consumption.

It is one more sign of the luxury beverage market’s resilience, as well as in this case its specific appeal to South African consumers and investors.

Given these indicators, as well as the increased trading potential and capacity of the South African public, it appears that the spike in luxury alcohol investment around the world may represent ongoing opportunity for investors.

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