It seems that just like US equities, a rising price for the booze in American’s local bar has done nothing to stymie demand. As Bloomberg Businessweek notes, Americans are increasingly ordering the ‘good stuff’, buying more from the top-shelf than drinkers elsewhere. Among the biggest alcoholic brands, the US is making up a far greater proportion of profits than revenues (e.g. for Smirnoff Vodka, North America was 40% of profits and 33% of sales) as it seems one should never underestimate the consumer confidence of a ‘classy’ drunk. Beer sales may have fallen 2% but revenues for InBev (for example) rose 1.5% and profits almost 3% – so it seems, at a time of great uncertainty in the US and middle-class ‘better bargains’, alcohol providers are ‘preying’ on that stress relief demand.
Diageo, which owns Smirnoff Vodka, Shark Tooth rum, and many other intoxicating brands, noted in its earnings report that North America accounted for 40 percent of profit in the recent quarter, despite representing only one-third of the company’s sales. Why are drinkers here so lucrative? For one thing, North Americans are buying more from the top shelf than drinkers elsewhere. Diageo’s best performers included Bulleit Bourbon, considered a “super deluxe” brand, and spendy whiskeys such as Johnnie Walker Blue Label, which generally sells for $150 to $200 a bottle.
While reporting some “soft spots” in emerging markets, Diageo was also able to stick U.S. drinkers with higher prices, levering a 9 percent increase on its “super premium” scotch, according to a conference call this morning. Even lower-end librations saw payoffs on higher prices – drinkers paid 10 percent more for Popov vodka and 7 percent more for Gordon’s Gin – but didn’t seem to notice, with sales by volume remaining steady.
The story was similar at Anheuser-Busch InBev. Despite a 1.2 percent drop in drink sales by volume, the Brussels-based beer company posted a 3.9 percent boost in revenue, in part due to a price increase on its U.S. beers at the end of last year. Americans increasingly reached for Stella Artois and Goose Island and the like, and warmed to new InBev brands Bud Light Platinum and Budweiser Black Crown. All told, InBev North American beer sales fell almost 2 percent – yet revenue increased 1.5 percent and profit climbed almost 3 percent.