Spirits Industry Faces $22B Hangover as Pandemic Boom Turns to Inventory Glut

Five of the biggest listed alcohol producers -- Diageo, Pernod Ricard, Campari, Brown Forman and Remy Cointreau -- are sitting on $22bn worth of ageing spirits, the highest level of inventory in more than a decade, according to their financial reports.

A report by Madeleine Speed in the Financial Times found that high inflation and reduced disposable income curbed premium spirit sales.

French cognac maker Remy Cointreau's inventory value is now nearly double its annual revenue and almost equal to its entire market capitalisation. The mounting stocks have aggravated the debt burdens and are threatening a price war.

"The build-up of inventories is unprecedented. In 2021 and 2022, everyone lost the run of themselves and thought [demand] would go on like that forever," said Bernstein analyst Trevor Stirling.

According to the Financial Times, the cost of storing and producing this excess stock has pushed debt-to-earnings ratios (leverage) well above target levels for giants like Diageo and Pernod Ricard.

It further said that some have argued the drop in alcohol consumption is linked to societal changes, primarily the rapid adoption of weight-loss drugs like Wegovy and Ozempic, and a greater focus on health and wellbeing.

According to the Financial Times, sales of the French brandy have been hit hard, with exports falling 72 per cent year on year in February 2025, according to the Bureau National Interprofessionnel du Cognac (BNIC), a trade body.

It mentioned that China imposed a 34.9 per cent duty on European cognac last year, amid trade tensions with the EU, but exempted Pernod Ricard, LVMH and Remy Cointreau if they agreed to sell at a minimum price.

At Remy Cointreau's half-year trading update in November, a 7.6 per cent drop in organic cognac revenues was reported. Chief executive Franck Marilly suggested that elevated supplies of eau de vie meant prices would have to fall. "We're in a different world," Marilly said. During the pandemic, LVMH's Hennessy cognac was priced as high as $45 a bottle in the US but has since been reduced to as low as $35.

The tequila boom of the past decade -- fuelled by new brands fronted by the likes of George Clooney, Dwayne "The Rock" Johnson and Kendall Jenner -- led producers including Diageo and Brown Forman to spend millions of dollars adding new production capacity.

In December 2024, FT reported that Mexico was sitting on more than half a billion litres of tequila in inventory, almost as much as its annual production.

As per FT, Jefferies analyst Edward Mundy said that cutting the production of ageing spirits was a risky game, as it could leave producers short of stock in five or ten years' time, when demand for a particular brand or category might have reignited.

"If you cut inventory during a downturn, you have huge problems when you're trying to satisfy demand in the future," said Mundy. He further noted that it was nearly impossible to predict the boom-and-bust cycle of spirits.

"Ultimately, there's an element of human judgment," he said. "[But] you just don't know what demand will look like in five years' time."

- ANI