- Profit forecasts being cut for retailers
- US slowdown leading the way, while new data point to UK shoppers saving pence
During the pandemic, people started buying nicer drinks to have at home. This makes sense: if you don’t have to pay pub or bar prices, then why not get a nicer bottle of wine or classier spirit?
But now drinkers are cutting back and, in a signal that belts are being tightened across the board, most parts of the market look vulnerable.
RBC Capital Markets analysts said that share growth for premium spirits is slowing and “spirits consumption amongst low-income consumers is also declining across all price tiers”. The investment bank said that given Fevertree Drinks’ (FEVR) premium mixer offering, “any economic recession and dip in consumer confidence would have a geared effect” on the company as drinkers trade down.
Deutsche Bank, meanwhile, has pointed to consumer spending stresses, along with slowing spirits growth in America and concerns around inventory levels, as reasons for downgrading sector darling Diageo (DGE) to a sell recommendation.
New UK figures back up this trend of discretionary spending coming down.
“Consumers ... traded down to cheaper brands in food and non-food alike,” said British Retail Consortium (BRC) chief executive Helen Dickinson, discussing June sales figures released this week. Even the Jubilee long weekend and continuing good weather (which drives clothes buying) were not enough to shore up spending, she added, with a “substantial slowdown” emerging.
The latest sales data from the BRC and KPMG suggest that a difficult period lies ahead for British retailers. The June report revealed that sales volumes declined for the third month in a row against the 2021 comparatives, with volumes “falling to a rate notseen since the depths of the pandemic”.
Total retail sales were down by 1 per cent against a year ago, with online sales falling by 9 per cent.
It wasn’t just booze staying on the shelves. Homeware and white goods sales were particularly weak, which suggests challenging trading conditions for retailers such as DFS Furniture (DFS), Currys (CURY) and AO World (AO). DFS announced falling order volumes in its latest trading update, while Currys has cut its adjusted profit before tax forecast for its 2023 financial year. AO World raised £40mn last week to cover its cash needs after a key insurer pulled coverage. This means it will have to pay for more orders upfront. Its shares have fallen by more than a third since the start of July.
