Martin Flanagan: Cheer at last for upmarket drinks firms

Chivas owner Pernod Ricard is enjoying strong demand in China. Picture: Mark Ralston/AFP/Getty Images
Chivas owner Pernod Ricard is enjoying strong demand in China. Picture: Mark Ralston/AFP/Getty Images
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Battered by the Asian malaise, buffeted by what for many years has been an unhelpful UK taxation regime, the spirits industry seems finally to have come off the ropes.

Pernod Ricard’s resilient interim results yesterday, with both profits and sales up 4 per cent, are the latest evidence that the sector has found its feet again, even if it falls short of having a spring in its step.

Arch-rival Diageo also cheered the market with a robust half-time performance recently, with Remy Cointreau and Hennessy coasting along nicely in the slipstream of the sector’s big two.

READ MORE: Pernod Ricard profits up on strong cognac demand

What has helped the partial turnaround? Factors range from a recovery in the key American spirits market, Asia perhaps being through the worst of its political and economic headwinds, and the European market being surprisingly resilient.

The Brexit-hit pound was an added boost for UK-domiciled Diageo, while all the main players to one extent or another have ambitious cost-cutting programmes, the fruits of which they plough into marketing and advertising behind their champion brands.

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The world’s main spirits businesses look on course to meet short-to-midterm guidance on profits and margins that is underpinned by realistic rather than heroic assumptions. They know they have taken quite a bit of economic and political volatility on the chin in recent years, they know things are better, but they know things are not so much better that it is sunlit uplands from here on in for the premium drinks industry.

If China, where cognac in particular delivered strongly for Pernod Ricard this time round, can remain a good market for the big boys of spirits, and India can deliver its potential from a vast emerging middle class aspirational for western cachet, the sector could make substantial progress.

For now, decent incremental improvement, with some standout bright spots, will do.

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