Tobacco’s reinventing itself – Will spirits follow?
In this column last month, I wrote about how there’s an increased focus amongst the investment community on the ‘purpose’ of companies. I also queried whether that meant some industries, tobacco in particular, and even some parts of the beverages world, may find themselves falling off the investment list for major shareholders.
We’ve already seen some of the big energy companies, such as BP and Shell, responding by moving quickly away from their traditional focus on oil to find new growth areas in green energy.
Last week, we saw a very interesting move by one of the leading tobacco companies, Philip Morris International, when the group trumped an offer from private equity to try to buy a UK-quoted pharmaceutical company called Vectura. Now, Vectura specialises in producing inhalers, which are often used to treat asthma and respiratory diseases – conditions that, of course, can be exacerbated by smoking.
The Sunday Times reacted strongly: “Marlboro Man’s health hypocrisy sparks outrage,” ran the headline.
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By GlobalDataIt’s tricky – on the one hand, PMI has a strategy to become a “healthcare & wellness company”, which is a laudable aim. On the other hand, the group can be accused of using ‘dirty’ tobacco profits to fund the plan.
What does this mean for the beverages industry? Having managed to dodge the health bullets that have consistently been fired at tobacco, some parts of beverages, spirits in particular, could start to find the firing heading more in their direction.
How does, say, Diageo respond? The group is already in beer and is investing in lower-strength spirits, such as Seedlip. But, does the brand owner need to think about a broader reconfiguration of its operations if it’s to continue to remain on investment lists?
If so, what do they end up buying? Soft drinks? Or do they need to think about going as far as Alcoholics Anonymous? Or in a drug company focusing on liver disease?
Now is a tricky time to be a public company. It’s not just about delivering profit growth anymore: You have to have a ‘purpose’. I’m not convinced that Diageo’s motto of “celebrating life every day everywhere” will tick investors’ boxes in future.
‘Blue’ sets a high bar for Q2
As usual, PepsiCo was the first major consumer company to reporting for Q2 last week. To use the vernacular, the company went and blew the lights out. Sales climbing 11%, EPS up 27%, and raised guidance for the rest of the year.
The group did admit that its beverages operations, in particular, had some benefit from restocking for out-of-home channels as lockdowns generally eased across the globe; analysts were already aware, however, and the scale of the ‘beat’ is still impressive.
One thing that struck me is that early on in the prepared remarks for the analysts’ conference call, PepsiCo flagged several ESG targets, giving them as much importance as the financial matrices. On a number of fronts, the company has set a high bar for other beverage – and consumer – companies that have still to report, There are a few coming later this week: The Coca-Cola due on Wednesday, Unilever on Thursday, then Diageo and Nestle the following week.
The major concern amongst analysts ahead of Q2 reporting has been around higher input costs and inflation. PepsiCo’s margin actually increased by 70 basis point in the quarter, so there’s not a lot of sign of it yet, and the issue wasn’t referenced in the prepared remarks.
We shall see whether other companies manage to sidestep this pothole in quite the same way – and whether they can make the same level of ESG commitment.
Calling time at the BAR?
Ever heard of the ‘Beverages Annual Reunion’? I’m on the organising committee for the annual event, which brings together analysts from yesteryear – most of whom have retired – together with some of the management from beverages brand owners – also mainly retired.
Traditionally, the BAR has allowed for a quiet celebration around an industry that, I think most of us would admit, has something special about it. Our most recent get-together has been delayed, of course, by COVID, but it’s clear that the worlds of beverages and investment have been changing rapidly in recent years.
As a result, we’re thinking this might be the last year we hold this event.
As with UK whisky drinkers, the average age of BAR attendees is going up every year, and numbers are on the decline. I was particularly shocked a couple of weeks ago to receive two emails concerning people of my age group. The first reported the death of David Thompson, previously CEO of Marstons; a delightful and very clever man, slightly eccentric in a way that probably would not be acceptable in today’s City world.
The second reported that one of my co-organisers John Wakely, an ex-analyst whom some of you might know, had suffered a stroke; John was also very much his own man, with the sort of firm, often controversial, views that investors want from an analyst, combined with a strong ‘joie de vivre’. I’m pleased to report that John appears to be recovering, albeit slowly.
This all brings home that the world of beverages is an ever-changing world; in its products, its corporate structures and, sadly, in its people.
