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Highlights
- Concerns Over Pricing Trends: UBS has expressed worries about pricing trends in the US spirits sector, highlighting a weakening pricing power for brands like Diageo.
- Negative Pricing in Premium Segment: The super-premium spirits segment, priced above $30, has experienced negative pricing trends, signaling challenges in the premiumisation strategy.
- Industry Growth Projections: UBS forecasts that a return to 4-5% category value growth in 2025 appears less achievable given the current market dynamics.
Description
Diageo PLC (LSE:DGE) is facing increasing scrutiny regarding its pricing strategies, particularly in the US spirits market. UBS has recently added its voice to a growing chorus of brokers concerned about pricing pressures that may extend into 2025. The Swiss bank highlights that consumers are becoming more price-sensitive, which is diminishing the industry’s pricing power.
In a troubling trend, prices in the super-premium segment—spirits priced over $30—have turned negative. This shift raises questions about the effectiveness of premiumisation efforts within the sector. As the market dynamics evolve, UBS notes that the overall premiumisation trends have weakened, impacting brands like Diageo.
Current data shows that US headline spirits pricing has risen by only 2.2% this year, lagging behind other categories such as beer, which has seen a 3% increase, and the Consumer Price Index (CPI), which is at 4.5%. This deterioration in headline pricing raises concerns about industry value growth in 2025, with UBS suggesting that achieving previous growth targets of 4-5% may not be realistic under current conditions.
While management teams attribute the pricing weakness to retailers’ efforts to stimulate traffic, UBS argues that this reflects a broader perception of category health and brand equity. Such perceptions can have short- to medium-term impacts on companies within the industry.
In contrast, brands like Campari and Brown-Forman are reportedly achieving positive pricing, while Diageo, Pernod, and Remy are seeing flat or negative trends. As these dynamics continue to unfold, the pressure on Diageo's pricing strategies and overall market position may present significant challenges moving forward.
