FTSE 350 Review: The drinks brands likely to grow in a struggling market

The year got off to a difficult start for some beverage giants, as China began an anti-dumping probe into brandy imported from the EU that hurt the share prices of companies including Pernod Ricard (FR:RI) and Remy Cointreau (FR:RCO).

China is far from the only market that will cause issues for alcohol sellers as 2024 progresses. While Diageo (DGE) isn't directly exposed to this latest cognac trouble, it has plenty of things to worry about in other locales. The Johnnie Walker and Smirnoff owner is under the microscope after it said in November that operating profit growth would slow due to visibility issues over distributor inventory levels in Latin America, where sales are expected to plunge. New chief executive Debra Crew also has demand headwinds to contend with in North America, Diageo’s biggest market. Analysts expect the company's sales to fall there this year. 

US problems suggest a more challenging year for spirits overall. While the major trends seen in the market over recent years will still be apparent in 2024, it will not be a surprise to see more muted spirits growth and a paring back of the idea that premium products will always win out.

RBC Capital Markets analysts, who are more bullish on beer than spirits, argue that “the spirits companies’ increasing hegemony had been as much a function of the brewers' failings as the spirits companies' excellence”. Big brewing beasts such as Carlsberg (DK:CARL) could feasibly provide a more competitive landscape for market share this year, now they have new chief executives in charge.

A London-listed beer merchant that is hoping for a revival in fortunes is Tennent’s and Magners owner C&C Group (CCR). It highlighted "resilient" trading in its latest update, as branded net revenue grew by 6 per cent. The attempted rebuild of margins, which remain below pre-pandemic levels, is an ongoing project. 

Away from the world of alcohol, Irn Bru maker AG Barr (BAG) continues to diversify its portfolio through a smart acquisition strategy. It bought tropical drinks brand Rio last autumn, to add to purchases including Boost Drinks and Moma Foods. These strong additions to a strongly performing core product set the business up well. Elsewhere in the soft drinks space, UK-focused Britvic (BVIC) will hope to improve volumes this year after they fell in 2023. 

A final mention goes to a previously unrated company with ties to a leading brand. We provided our first recommendation on Coca-Cola HBC (CCH) last year and like its free cash flow generation and dividend. One of the biggest bottling partners of Coca-Cola (US:KO), CCH will have to face most of this year with a new chief financial officer once Ben Almanzar steps down in May. 

So while the outlook for the sector as a whole is decidedly mixed, there are some solid long-term options on the table to which investors can raise a drink.