Pernod is trading at its lowest ratio since 2009, the investment thesis is that I believe we have sufficient visibility into the future to project a return of growth at MSD and capture thePE rerating
Wine wallet share of alcool has dropped 33% (from 20% share to 15%). Beer has lost 2% of market share. Spirits went from 35% to 40% between 2014 to 2024. Overall consumption of alcool went up. So we are fine. Demographic change happens very very slowly. GenZ are more into spirits than wine and beer for sure. Cocktail generation.
First section of the Pernod Ricard universal reference report 2025.
wine is not the right place to be. I think the decision fro mgt to get out of the wine business - Jacobs creek etc.. is the right one. Beer seems in statuquo - decline in volume counterbalance by price. Spirit is growing - both volume and price slowly but growing.
Good writeup. I am long Diego. But coming up to speed on this one. Looks like premium Wine did well in the recent quarter as per LVMH earnings release. The trend changes very slowly but narratives are so strong. Buying at these prices feel safer even if it does not mean revert
Champagne and particular high end Rosé chateau rebounded to be exact. Not sure Wine in general is getting better. I agree at this price there is a lot of margin of safety.
He's correct. It's high end and especially ultra-high end wine that's doing well. "Premium" (which could be construed as $15 per bottle and above, if you listened to some people in the industry) is still pretty flat and unlikely to improve in the foreseeable future - see TWE's Hail Mary to reclassify anything other than Daou and Penfold as anything other than "Value Premium" (if you believe industry nonsense).
Yes, You are right. Calling Champagne a premium wine does not bring justice to champagne. Btw, Do you treat the RI investment as a trade or kind of buy and hold. In general I am disillusioned with this sector. Maybe because I am down 30% on Diego :)
Always buy for a 3-5 years investment. The thesis is rerating over this time horizon as too much pessimism for a double. Catching falling knife is though.
Out of interest, what do you like about Pernod Ricard over their competitors? When I reviewed the industry, my preference was Diageo, I find their annual reports give better insights into the whole business and I think their margins / market exposure is better. I have to consider I may be at risk of confirmation bias, but I honestly prefer Diageo, much as I love the Irish Distillers' products!
as I mention in my post, Diageo does not disclose their volume nor sales on a brand basis. They make us difficult to track what is going on. Through independant survey I realised that 2 of its top 3 brands Smirnoff and Captain Morgan haven seen decline versus 2019, and Smirnoff is largest brand is actually down from 2015. Johnny Walker got 2 weak years in a row. It doesn't bold well when your top 3 brands - which represent more than 2/3 of premium spirits according to my survey - is facing decline or flat. Smirnoff and Captain Morgan are really mainstream brands unexciting... Don Juan tequila has momentum but it 5x less volume than johnny walker! Pernod Ricard is smaller but its top3 brands Absolute, Jameson and Ballantine have momentum. This makes a lot of difference for me. I am a lot more confident of their sequential growth.
Great write up and research, thank you for sharing.
You are right that the wine business is in a pretty bad situation as consumption is falling off a cliff while production is increasing.
Everywhere around me younger people - 18/25 - are drinking less and less, and when they are it's usually a local craft beer. I'm not sure that trend is going to reverse anytime soon.
Hey I have not look too much at BF recently, but it is faced with volume decline while $RI has bucked the general trend and has seen as small rise in volume - BF still trading at 17x earnings vs 12x for $RI. BF is facing some strong headwinds being off the shelves in Canada and not like in Europe. Not sure this is priced in. But again there might be value there but I quickly decided to spend the last few weeks on the most obvious opportunity
Wine wallet share of alcool has dropped 33% (from 20% share to 15%). Beer has lost 2% of market share. Spirits went from 35% to 40% between 2014 to 2024. Overall consumption of alcool went up. So we are fine. Demographic change happens very very slowly. GenZ are more into spirits than wine and beer for sure. Cocktail generation.
Interesting statistics, from where did you get those numbers?
First section of the Pernod Ricard universal reference report 2025.
wine is not the right place to be. I think the decision fro mgt to get out of the wine business - Jacobs creek etc.. is the right one. Beer seems in statuquo - decline in volume counterbalance by price. Spirit is growing - both volume and price slowly but growing.
Good writeup. I am long Diego. But coming up to speed on this one. Looks like premium Wine did well in the recent quarter as per LVMH earnings release. The trend changes very slowly but narratives are so strong. Buying at these prices feel safer even if it does not mean revert
Champagne and particular high end Rosé chateau rebounded to be exact. Not sure Wine in general is getting better. I agree at this price there is a lot of margin of safety.
He's correct. It's high end and especially ultra-high end wine that's doing well. "Premium" (which could be construed as $15 per bottle and above, if you listened to some people in the industry) is still pretty flat and unlikely to improve in the foreseeable future - see TWE's Hail Mary to reclassify anything other than Daou and Penfold as anything other than "Value Premium" (if you believe industry nonsense).
Yes, You are right. Calling Champagne a premium wine does not bring justice to champagne. Btw, Do you treat the RI investment as a trade or kind of buy and hold. In general I am disillusioned with this sector. Maybe because I am down 30% on Diego :)
Always buy for a 3-5 years investment. The thesis is rerating over this time horizon as too much pessimism for a double. Catching falling knife is though.
Out of interest, what do you like about Pernod Ricard over their competitors? When I reviewed the industry, my preference was Diageo, I find their annual reports give better insights into the whole business and I think their margins / market exposure is better. I have to consider I may be at risk of confirmation bias, but I honestly prefer Diageo, much as I love the Irish Distillers' products!
https://open.substack.com/pub/showmethevalue/p/industry-dive-in-good-spirits?r=1ukiw6&utm_campaign=post&utm_medium=web&showWelcomeOnShare=false
as I mention in my post, Diageo does not disclose their volume nor sales on a brand basis. They make us difficult to track what is going on. Through independant survey I realised that 2 of its top 3 brands Smirnoff and Captain Morgan haven seen decline versus 2019, and Smirnoff is largest brand is actually down from 2015. Johnny Walker got 2 weak years in a row. It doesn't bold well when your top 3 brands - which represent more than 2/3 of premium spirits according to my survey - is facing decline or flat. Smirnoff and Captain Morgan are really mainstream brands unexciting... Don Juan tequila has momentum but it 5x less volume than johnny walker! Pernod Ricard is smaller but its top3 brands Absolute, Jameson and Ballantine have momentum. This makes a lot of difference for me. I am a lot more confident of their sequential growth.
Great write up and research, thank you for sharing.
You are right that the wine business is in a pretty bad situation as consumption is falling off a cliff while production is increasing.
Everywhere around me younger people - 18/25 - are drinking less and less, and when they are it's usually a local craft beer. I'm not sure that trend is going to reverse anytime soon.
this might be anecdotic but everytime I go to a restaurant with my children (20-25y) and friends of etc... they order cocktails never beer never wine.
I’m on the bid for good burgundies so not going to complain about the drop in wine consumption ;) although it’s mostly bordeaux suffering these days.
Why buy this instead of Brown-Forman?
Better returns. U.S. company so no trading tax, less corporate tax, and management more incentivized to deliver returns
Hey I have not look too much at BF recently, but it is faced with volume decline while $RI has bucked the general trend and has seen as small rise in volume - BF still trading at 17x earnings vs 12x for $RI. BF is facing some strong headwinds being off the shelves in Canada and not like in Europe. Not sure this is priced in. But again there might be value there but I quickly decided to spend the last few weeks on the most obvious opportunity
Very good analysis! I'm also long Pernod and Diageo. Let's hope that the boomers don't stop drinking and Gen Z is not too much into healthy living 😉
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