Rabobank Report - Global Spirits Industry Q1

FLAVOR OF GROWTH IN SPIRITS MARKET

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Jan 26, 2015, 11:25 ET

NEW YORK, Jan. 26, 2015 /PRNewswire/ -- Rabobank has issued a new report on the global spirits industry, looking at demand, supply and price trends. Rabobank says that while demand for spirits across Europe has been mixed, the U.S. spirits market continues to grow, with value outpacing volumes. On the other hand, a heavier discounting has arisen in China, triggered by the increase of e-commerce and consumer migration away from the luxury segment of the Chinese spirits market. India appears to have returned to growth mode, with Brazil following this trend due to diversification and innovation across brands.

"The U.S. market is currently experiencing its slowest rate of volume growth since the recession," says Ross Colbert, global strategist for beverages. "While the overall trends in the U.S. market remain positive, it should be noted that the ongoing premiumization trends (particularly in whiskey), and the success of several new key product innovations which have helped drive the success of the market, have masked some of the underlying challenges. Volume growth remains positive, but there has been a marked slowdown in the rate of growth in 2014."

Rabobank says the past months have shown some signs of stabilization in the European spirits sector, but as the mixed financial results of the major spirits companies such as Pernod and Campari show, the industry is not out of the woods yet. Scotch producers are facing another hurdle, as export figures for 2014 are showing signs of a slowdown in the sector, while high-quality aged sipping rums are winning over consumers in the UK, Benelux, France, the Nordics and Eastern Europe.

China's spirits market is being reshaped by a number of factors, including the continued consumer migration away from luxury segment. Going forward Baijiu companies in the country are expected to slow their shipments to preserve the stability of prices of their leading premium, given continuing weak performances (i.e. 22% decline in total net profit in Q1). Additionally, e-commerce continues to increase, supported in part by aggressive pricing, forcing traditional channels to change.

The Indian spirits market shows growth (i.e., Diageo-owned United Spirits: 5.8% total volume increase) while it continues to see the structural shift from a volume-based to a value-based business model. On the margin front, the operational environment remains challenging mainly due to regulatory changes and price hikes.

Cachaca sales in Brazil returned to growth across measured channels in 2014, supported by greater innovation, favourable weather and the World Cup. A weaker economy has the market forecasting weaker consumption through the holiday and Carnival season compared to last year. Once again the weather conditions and new policy changes will play a huge role in 2015.

For more information about this publication please contact its authors:

Ross Colbert: [email protected] Stephen Rannekleiv: [email protected]

Rabobank Group is a global financial services leader providing wholesale and retail banking, leasing, real estate services, and renewable energy project financing. Founded over a century ago, Rabobank is one of the largest banks in the world, with nearly $1 trillion in assets and operations in more than 40 countries. In North America, Rabobank is a premier bank to the food, beverage and agribusiness industry. Rabobank's Food & Agribusiness Research and Advisory team is comprised of more than 80 analysts around the world who provide expert analysis, insight and counsel to Rabobank clients about trends, issues and developments in all sectors of agriculture. www.rabobank.com/f&a

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