COMMENT: Wholesale destocking hits drinks firms
Reluctance by wholesalers and distributors to order in fresh stock, for fear that consumers will not buy, is proving to be the weak spot in drinks companies' handling of the economic downturn in early 2009.
Pernod Ricard announced yesterday (15 April) that like-for-like sales fell by 12% in its fiscal third quarter, the three months to the end of March. It attributed two thirds of this decline to destocking by wholesalers and distributors throughout January and February.
Today, SABMiller, announcing flat beer volume sales for the year to the end of March, said that destocking was a major reason for a 7% drop in its beer sales in Russia.
These examples are only the latest in a series of grumbles about destocking that have reached just-drinks' ear from drinks companies both large and small in 2009.
Earlier this year, Pernod rival Diageo blamed destocking for sales slips in certain markets, and particularly Spain, in the final six months of 2008. French wine firms have also lamented that merchants and importers have been running down existing stocks, rather than ordering new batches.
The coming results season, in that case, could be the one in which the global economic downturn comes home to roost on drinks companies' top-line growth.
Distributors, wholesalers and importers, quite logically, are clearing what they have in their warehouses before ordering any more, given uncertainty about consumer confidence amid persistent warnings about falls in gross domestic product and rising unemployment.
Pernod admitted yesterday that it has been surprised by the level of destocking that has taken place in some markets.
At some point, however, stocks will begin to run out.
Pernod CEO Pierre Pringuet said yesterday that he expects orders to pick up in the firm's fourth quarter.
Trevor Stirling, analyst with Sanford Bernstein, agreed with Pernod's forecast, but warned that restocking is likely to be a more gradual process.
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