I was talking to a Master Distiller last week who was thinking of expansion and investment to cater for increased demand for their premium whiskeys. They also produce gin. “How much of current output is gin?” I asked. “That would be zero” he said. “We have enough in stock for quite some time.”
I probably shouldn’t have been surprised. In the past 10 years, here in Ireland, our consumption of gin has more than doubled. It was all the rage. But we hit peak gin in 2021. We’re about 20% off that figure now. Overall spirit sales here in Ireland are around about the same level as they were in 2021.
The business economics of making gin together with the surge in demand was a compelling proposition. Is that proposition still intact?
Well here you have to broaden it out to the outlook for the spirits market in general and see how it impacts on consumers, companies and investors.
Firstly the Irish are drinking less.
Per capita alcohol consumption among Irish adults fell by 2.1% last year and is down 35.6% since its peak in 2001. Beer is still the most popular followed by wine and spirits. And our levels are broadly in line with the European average (although there is quite a range around that average!).
And it’s global. The trend to more moderate alcohol consumption is visible in most markets driven, to a greater or lesser extent, by health concerns, weight loss aspects, different social patterns in younger age groups, presence of alternatives and affordability. In the US, for example, 54% of adults drink alcohol – the lowest ever recorded.
Secondly, companies fully recognize this and are sizing themselves accordingly. In the most recent set of profits announcements from European drinks companies, in the face of stagnant markets, many are well into cost reduction programmes. Pernod Ricard, for example, announced this week that it expects to complete its €1 billion restructuring programme a year ahead of schedule and had cut around 3,600 jobs since its 2024 financial year. Similarly, Diageo the world’s top spirits maker announced a $1 billion restructuring plan as it anticipates years of low growth. It’s a common theme in the sector.
Thirdly, investors have felt the pain. It’s been a tough time in this sector. Here are what the shares have done over the last 12 months for these European drinks companies:
| Company | Performance |
| Remy Cointreau | -15% |
| Campari | -11% |
| Pernod | -36% |
| Diageo | -17% |
And the tone from the CEOs remains cautious – certainly for the next 18 – 24 months.
There will of course be bright spots. There are growth markets like India, new categories like low alcohol or ready to drink brands and premium drinks are holding up. Those who are nimble enough or in the right categories can prosper.
But the overall market looks challenging.
And while we’ll continue to drink high quality Irish gins and whiskeys, I don’t think that master distiller will be reaching for his botanicals anytime soon.
Tradewinds 