There can be few Scotch whisky distilleries as eccentric as Tormore, the neoclassical Speyside plant that draws the gaze of drivers on the A95 so magnetically that it might be considered a traffic hazard. When it opened in November 1959, it boasted a crescent of cottages for distillery workers, a curling rink, a village hall, a musical clock and gardens featuring a selection of topiary. There was even an animatronic distillery model that spouted smoke and took 14 people a year to build.
Tormore, acquired from Pernod Ricard by Elixir Distillers in 2022, wasn’t cheap – the £500,000 construction cost would be around £40m ($53.7m) today – and yet, several years earlier, the US firm that built it, Schenley Industries, had been in trouble. According to a Time magazine article in 1952, founder Lew Rosenstiel, who had risen to prominence by supplying ‘medicinal alcohol’ during Prohibition, had stepped aside as company president, with Schenley’s sales suffering as consumers migrated from straight whiskeys to blends.
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Trouble in the US spirits market… sounds familiar? A succession of company results in recent weeks illustrates the depth of the challenges confronting brand owners in the world’s most important beverage alcohol market.
Diageo’s fiscal first-quarter numbers were lauded (sort of) as “a modestly encouraging start” and “a small step forward” by analysts at TD Cowen and Bernstein respectively, despite an underwhelming performance in India and an APAC uptick that owed more to some helpfully soft baijiu comparisons than anything else.
Organic net sales rose 1.4% (+0.6% without the soon-to-depart EABL) when many had predicted another decline and North America was down by only 3.6%, roughly half the expected slump. But the US numbers were boosted to an unspecified extent by shipment phasing ahead of the holidays – which implies the company’s second quarter may tell a different story.
Not that Diageo is alone in its travails. Rémy Cointreau’s sales in its first-half (May to September) were up 2.9%, spearheaded by a welcome 10.3% surge for Cognac. But all the action is happening out east: accelerating sales in China and a 14.3% rise across APAC as a whole.
And the Americas? Sales down 5.5% and a familiar tale involving a high basis of comparison for Cognac and destocking. Underlying trends were described as “encouraging”, but there’s no immediate sign of the rot being stopped.
Prospects are even dimmer at Becle, where third-quarter net sales slipped by 15%. Recent numbers have been so lacklustre that the company felt able to flag a 3% volume dip in the US and Canada as “a significant improvement”. Jose Cuervo’s global sales plummeted by 21% in the quarter.
Aperol owner Campari, on the other hand, benefits from a portfolio that’s relatively heavy on the zeitgeist-friendly aperitif segment, enabling the company to report a 1% organic net sales rise in North America for the nine months to 30 September. Even here, however, the picture is far from rosy, with CEO Simon Hunt highlighting the pressure felt by American whiskey and vodka.
These companies aren’t idly sitting back and waiting for the economic cycle to turn. Perhaps the most concerning aspect of trading conditions in the US right now is that the strategic response – most typically dropping the prices of key products – is taking such a long time to have any discernible impact.
Bernstein’s analysis of Diageo’s Q1 results notes the company has been steadily cutting the price of Casamigos for more than two years, adding those efforts have “sharply accelerated” since the end of March. Even so, Bernstein adds, the brand’s current short-term performance is broadly static, with Casamigos Blanco back in growth – just. Casamigos, Don Julio and Crown Royal were all singled out for their uninspiring Q1 showings.
As Campari’s experience indicates, this isn’t exclusively an agave story. Quizzed more broadly on the prospects for 2027, Hunt’s suggestions that “there’s not one answer” and that “it is really on a brand-by-brand basis” aren’t exactly bullish predictions of a market on the way back.
More specifically, Mauricio Herrera, MD of Becle’s US and Canada business, told analysts: “The very aggressive pricing that you’re seeing in the market is not only restricted to Tequila. It’s across every single category … We don’t see any indication that at least over the next 18 months the contraction in the industry will reverse.”
A US turnaround isn’t suddenly going to materialise in the next quarter, or half – or possibly even year
I think this is the key message and it’s one that Diageo has been pushing for months now, most obviously at its Capital Markets Day in August: a US turnaround isn’t suddenly going to materialise in the next quarter, or half – or possibly even year; it could be well into 2028 before the weather changes. Diageo reckons its US turnaround initiatives will take nine to 12 months to bed in and take effect; right now, that’s verging on optimism.
These are not short-term challenges but medium- to long-term issues. And we still don’t know for sure whether the persistent headwinds buffeting the industry are cyclical or structural, or a mix of the two. How do we distinguish between moderation driven by health concerns and that prompted by financial worries? What is the true impact of GLP-1 usage, gambling, gaming and the experience economy?
Things could change, most obviously with regard to the seismic geopolitical events of the past few years. An end to the conflicts in Ukraine and the Middle East would not be a panacea but they would be a start; the problem is that there seems to be little immediate prospect of them occurring.
And in the meantime? Buckle up and knuckle down. When Lew Rosenstiel stepped aside as Schenley Industries president in 1952, Ralph Taft Heymsfeld took on the job. Under its new boss, according to Time, “Schenley now seems to have a somewhat healthier respect for the lowly blend and may push its blends harder in the future.” Heymsfeld sums this up with an apt apothegm that still resonates nearly 75 years later: “You can’t sell a man a Cadillac when all he can afford is a Chevrolet.”
