Introduction

Recently, we decided to expand our coverage of the beverage industry beyond the companies that we have analysed in depth in the past (Italian Wine Brands, Duckhorn Portfolio and TFF) mainly due to the tremendous declines the sector has experienced in the last two years and the quality of most of the companies that make it up (we’re not just talking about beverage providers, probably the most well-known companies, but also companies across the entire cycle such as those making glass bottles, barrels for wine and whisky, corks…). To address this, a few months ago we brought Iñigo onto the team, a person with immense industry knowledge who is helping us develop this vertical so we can start monetising it soon (it’s a very cyclical industry)

Until 2 years ago, the beverage industry was considered a great business to be in. One could repeatedly hear that the leading alcoholic beverage producers in both spirits (Diageo, Pernod, Campari, Brown-Froman and Remy) and beer (Anheuser, Heineken, Constellation Brands and Carlsberg) categories had a strong moat thanks to their strong brand, loyal customers and ability to raise prices without losing customers.

Two years later, after a huge drawdown since January 2023 as we can observe in the following image their business fundamentals are being questioned by the market.

The alcoholic beverage company suppliers have also had historically a good standing among value investors. Some might argue that their businesses are even superior than those of the beverage producers. In the decade from January 2014 to January 2024, the investment in all Vidrala, Corticeira and TFF produced brilliant returns of around 15% CAGR. Similar to the beverage producers, most of these suppliers are trading at 5-year lows.

We believe that all the companies operating in this industry (including suppliers) are suffering the impacts of a temporary supply chain disruption that is greatly impacting both their sales and their operating margins. The speed of recovery for this companies will not be the same for each one of them, it will depend on their product categories, specifics of their operation and the company-specific dynamics.

In today’s analysis, we focus on:

  • Introduction to the Beverage industry and the current state of the industry, (issues in the supply chain, lower demand from young people…)
  • Explanation of how each sub-industry within the industry works, the differences in their respective cycles, and the current trends in each.
  • The expected recovery from the cycle-low most of these companies are experiencing.
  • The specifics of the operations of each of the segments in the beverage industry.
  • The difference in their financials (and how to analyse each subindustry)
  • Analysis of the mid/small-cap companies that we have studied, and our selection of the companies we find most attractive in each sub-industry

We believe this is one of the most comprehensive analyses of this industry, which not only focuses on the well-known alcoholic beverage providers but on the entire industry—identifying very interesting opportunities while discarding others that may seem attractive at first glance but still have a long way to recover.

Beverage Producers

Not a member yet?