According to a recent weekend Financial Times article, major alcohol companies are sitting on a staggering $22bn worth of unsold products.[1]
This ‘lake of unsold spirits’ will likely swell further this year, when more stocks matured. The total unsold inventory hoard is likely to grow close to 40-50 percent of annual sales.
In Mexico, the volume of unsold tequila is estimated at a gargantuan 525 million litres, enough to fill hundreds of Olympic-sized swimming pools.
Diageo (LSE:DGE), for example, is reported to have $8.6bn of unsold whiskey and scotch.
What, you wonder, is causing consumers to shy away from alcohol?
Health consciousness is one; shrinking consumer wallets is another. The persistent rise in inflation encroaches discretionary spending, an impact that is visible on the middle class.
Alcohol, to re-quote writer George Bernard Shaw, is seemingly no longer “the anesthesia by which we endure the operation of life.”
But all these bearish factors are pretty much baked into the share prices of the major alcohol manufacturers.
Diageo, for example, is amidst the longest bear trend in decades. Prices have slumped nearly 60 percent from its pandemic peak at £40.
Despite this, its multi-year downtrend is still very much intact. Prices are marching downhill in a near-perfect 45 degree angle. Prices recently slipped to 12-year lows.
To consider buying into DGE, we need to see the downward momentum dissipates. And for this to happen, the barrels of unsold alcohol have to be sold. Yes, there is a new CEO on board. But any positive corporate action will take months to filter down to the numbers.
Until DGE’s downtrend pauses, I would probably stay on the sideline. Fighting an entrenched price trend is not recommended.
