(DJ) Wine and Beer Makers Wait for Recovery

[AKR]

Wine and Beer Makers Wait for Recovery
2020-11-06 10:30:00.129 GMT

By Amber Burton

(Dow Jones) -- Americans are reportedly drinking more at home as lockdowns
continue, but the shift has done little to buoy turbulent wine, beer and
spirits stocks.

Among the biggest players in the industry, U.K.-based Diageo PLC is down about
16% so far this year. Constellation Brands Inc., a U.S. wine, beer and spirits
manufacturer, is down about 4%. Crimson Wine Group Ltd., a smaller publicly
traded vineyard in Napa, Calif., is down 35%.

Without bar and restaurant sales, revenue in the wine industry won't recover
until a full reopening. Jon Moramarco, a wine analyst and industry veteran,
projects that this year, on-premise wine sales in the U.S. will be about 50%
to 60% of last year's levels.

Sales to bars and restaurants make up a large portion of the companies' sales
as the establishments tend to buy large volumes of alcohol on a recurring
basis. In the U.S., about 20% of alcohol sales are done via on-premise sales,
said Brandy Rand, chief operating officer for the Americas at IWSR Drinks
Market Analysis. Without that volume being sold regularly and the number of
restaurants and bars reduced for the long term, distributors are taking a hit.

"The profit and overall value lost due to on-premise closures will not be able
to be offset by the increase in off-premise purchases," she said.

As of September, one in six restaurants had closed long-term or permanently in
the U.S., according to an analysis by the National Association of Restaurants.
A survey by the organization also found that 40% of restaurant operators
believe they will have to shut down permanently by early 2021 if they don't
receive additional relief from the federal government.

Until restaurants, bars and nightclubs are fully reopened, the alcohol
industry is "missing a leg of the stool with the leisure space," and sales
will remain down, said John Petrides, a portfolio manager at Tocqueville Asset
Management.

Alcohol falls in the consumer-staples sector of the S&P 500. The sector is up
0.79% for the year through Nov. 5, while the S&P 500 is up about 1.95%.

There is a rush to invest in consumer-staples stocks because of their
products' higher demand and margins in places such as grocery stores during
the pandemic. But a year from now, if people are vaccinated against
coronavirus, some wonder if consumer-staples companies will be able to get
full price for their products.

"I think you're going to have very difficult year-over-year comparisons in the
consumer-staples industry," said Mr. Petrides. "So the [alcohol] industry
itself for me isn't overly attractive for that reason."

Despite the stocks' current performance, analysts believe the beaten-down
shares will eventually recover once a vaccine is approved, because many people
are itching to return to the normalcy of going out to bars and restaurants.
The trouble is that no one knows exactly when that will be.

This has challenged alcohol companies globally. Diageo said its pretax profit
fell in the second half of fiscal 2020 because of the coronavirus. The company
reported in August that net sales fell about 9% to GBP11.75 billion,
equivalent to about $15.26 billion, from GBP12.87 billion.

Constellation Brands, the largest beer manufacturer in the U.S., also
experienced a slight dip in sales. The beverage company reported net sales of
$2.26 billion in its second fiscal quarter, down slightly from $2.34 billion a
year earlier. Constellation beat expectations with earnings of $2.62 a share,
versus a loss of $2.77 in the same period a year earlier. The improvement was
in part because of strong sales.

Mr. Moramarco projects that beer sales will be relatively flat, wine sales
will creep up by about 1% to 2%, slower than last year, and spirits sales will
be up 4% in the fourth quarter.

Even as the holiday season approaches, overall volume sales of wine are
expected to remain lower, although direct-to-consumer and grocery-store sales
are helping wine makers get through this tough time.

In September, the total value of direct-to-consumer wine shipments was nearly
$312 million in the U.S., an increase of 17% from a year earlier, said Andrew
Adams, the editor of the Wine Analytics Report, which tracks data within the
industry. Grocery-store sales tracked by Nielsen were up 16% in September
compared with the same period in 2019, according to Wines Vines Analytics.

"Those have been the two channels that have really kept wine going through
this," Mr. Adams said.