By Belegger.nl on August 18, 2021
Over the past 20 years, the MSCI European Beverages Index has outperformed the MSCI Europe Index. Surprisingly, the sector has been relatively unaffected by the financial and corona crisis across the board. And the long term also looks attractive. So says Roseanna Ivory, head of European equities at Aberdeen Standard Investments in ‘Distilling the world’s finest beverage companies’.
Strong brands are the secret
How can the established European drinks companies continue to do so well in these turbulent times? According to Ivory, the secret lies in the continuous hyperfocus on brands. “These companies cannot rely on just one box office success, so they ensure that they have a whole range of strong brands in house. Brands are cherished, invested in, they are acquired and sometimes divested. Everything to be able to respond flexibly on the ever-changing consumer tastes,” she explains. According to Ivory, this is clearly visible in Pernod’s strategy. “Each brand is classified per market in one of three categories (star, bastion or growth relay) based on its position and growth opportunities. That classification determines how much is invested in the brand.”
Difficult market for newcomers
The strength of the brand with dark, distilled spirits such as whiskey and cognac also lies in the fact that it takes so long to mature the drink. It is difficult for newcomers to enter the market. It often takes 10 years before the first bottles can be bottled. Nurturing brands is a powerful tool, explains Ivory. “Just look at Heineken, which has been doing this with care for more than 40 years. In 2019 Heineken grew by 8%, while it is already one of the largest premium beer brands in the world. You can also grow a relatively unknown brand into a well-known name, as Campari has done with Aperol for example.”
Premium brands are the driving force behind the sector, says the expert. “For European beverage companies, their entry-level offerings are already in the premium category, so they are able to raise prices before inflation kicks in. This pricing power is key.” On the other hand, A-brands also require a lot of investment in marketing. That costs a lot of money in the long run and that gnaws at the profit, she nuances.
Ivory thinks it’s brave that the three largest brewers in the world have gone ahead with the introduction of non-alcoholic beer. It shows a long-term vision, she says. “It could have had a negative effect on their reputation. Because what is beer without alcohol? Moreover, the sale of non-alcoholic products could steal the turnover of their own existing products. However, this effect has proven to be limited. The margins have even increased. Non-alcoholic beer has companies We have also been able to enter into great sponsorship deals with major parties such as Formula 1 and Euro2020.”