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US: 'Trading up' still driving wine and spirits growth - analysts

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Easing pricing pressures and favourable consumption trends will continue to benefit the US wines and spirits industry, according to an investment review by Standard & Poor's.

"Our fundamental outlook for the distillers and vintners sub-industry is positive, reflecting our view of favorable demographics, strong consumption trends that we foresee, and a possible easing of pricing pressures," a note from the rating agency said this weekend.

S&P expects modest economic growth in 2008, which will allow US consumers to continue to trade up to luxury items, albeit at a moderating pace.

"With demand for premium beverages expected to rise, we think companies offering high-end products and a selection of imported wines will benefit, allowing these companies to capture market share from domestic brewers," the note said.

S&P said that the US distilled spirits shipments saw modest gains for late 2007, following strong growth in 2005 and 2006, thanks to continued innovations and aggressive on-premise marketing to first-time drinkers and the over-50 age group.

However, it noted that volume growth had slowed, and it expects this trend to continue in 2008.

"While support behind brand investments will likely continue, we see profits from spirits benefiting from pricing power and strong demand.

"Despite a possible stabilisation in wine prices as grape costs begin to recover, we think wine volumes will rise moderately, driven by increased off-premise consumption. We project continued competitive pressures from imported wines from Australia, Spain and Chile.

"We see stabilisation in grape costs and higher interest expense partially offsetting likely price recovery and improved cost structures from consolidation," the agency said.

Looking ahead, S&P said it believed US alcoholic beverage demand will rise, with most of the growth generated from new product activity and penetration into developing regions abroad.

"We believe the likely outcome of these trends will be a continuation of consolidation for the global alcoholic beverage group, as companies look to build economies of scale and global capabilities, as well as improve pricing flexibility."


Sectors: Spirits, Wine

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