HSBC Premiumisation 2 0 report

Premiumisation 2.0: the audacity of hope

Spirits industry about to enter two-stage growth, in our view

The US could start to surprise positively in the next few months We see upside on Diageo, Pernod Ricard, Rémy Cointreau (all Overweight) and LVMH, but remain Neutral on the latter.

The two-stage growth engine The end of de-stocking We like the spirits category for H1 calendar 2010 because you don’t need to be an optimist to factor in decent top-line growth. We are not very bullish about end-demand for Champagne, for instance, but still factor in strong double-digit growth in this quarter and the next. Why is that? Simply put, we believe the mere non-recurrence of the de-stocking phenomenon should translate into hefty volume growth. The higher-end products that were the most heavily hit should hence recoup the most, regardless of how confident the end-consumer is feeling. Let’s take a simple example: assuming no price increase and stable consumer demand, if a brand lost 10% of volumes in calendar Q1 last year because of destocking, the same brand may grow volumes by c11% this year just to meet this stable end-demand.

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