It’s the “Year of Gin” and investors are loving it.
By: Parker Nolan
Tags: News, Investing, Economics, UK, Marketing

A company with such legendary brands under its ownership is attractive regardless of gin consumption.

Diageo’s product lines are diversified enough that it will not be affected too badly should there be a down-trend in any drink category. Also, with the new gin consumption statistics, the company’s bank accounts will only swell.

Fun fact: Tanqueray was a favorite of Frank Sinatra (Image Source)

Diageo’s location is also a boon for the company. Not only have domestic sales in the UK increased, but exports to the United States from UK brands have improved as well. As a London-based producer, Diageo stands to benefit from the rising popularity of UK gin.

Diageo’s stock has risen by $1.09 as of Friday the 9th, to $103.88. Cheers to that!

Pernod Ricard

Pernod Ricard is making moves in the gin world. It already owns two big names in Seagram’s and Beefeater gin, and it recently announced that it is in the process of taking the majority stake in Smooth Ambler Spirits, the producer of Greenbrier gin. It is also in the process of acquiring a majority stake in Black Forest Distillers, makers of the German gin Monkey 47.

With these acquisitions, Pernod Ricard is supplementing its mainstream gin brands with these craft distillers, which will help them reach another segment within the gin market.

Ricard already owns powerhouses Absolut, Kahlua, and Jameson (top-selling Irish whiskey on the planet), which make the company very attractive on its own. Their newest gin acquisitions, combined with the uptick in gin consumption, help bolster Pernod Ricard’s bottom line.

Investors must be pouring their celebratory drinks: Pernod Ricard’s stock has risen by £2.56, bringing its price to £100.95 ($126.94).

Still, you might be wondering, “why are people buying more alcohol?”

The answer is a mixture of economics and simple hipsterness. Unemployment has decreased and more people have more money, but it’s more than just that.

Just as the craft beer industry has exploded in the US, craft gin is growing extremely popular with millennials. Classic gin is still popular among the older crowd, and younger people looking for a more refined version of the drink have turned to craft distilleries like the ones acquired by Pernod Ricard.

Just like bell bottom jeans, Brikenstocks, and v-neck t-shirts go in and out of style, so too do drinking trends. As trends appear, there will always be people to buy the mainstream offering, and niches that buy into the higher-priced “artisanal”/”craft” versions of whatever is in style. This is what we can see occurring with the gin market.

2. An improving economy

In 2008, the European economy was rocked. This year, the UK economy has seen many statistics improve to, or even outperform their pre-recession levels.

Unemployment rates have tumbled, and currently the rate stands at 4.8%. This is the lowest unemployment has been in the UK since 2005, according to figures from the Financial Times and the UK Office for National Statistics.

This is good for businesses selling consumables like clothes, food, and alcohol, as more people now have money in their pockets to buy these things. Don’t just take my word for it: retail sales have climbed by 7.4% as of October

Consumers are buying way more retail goods Source: Financial Times

Still, not everything is rosy: annual manufacturing output was down 0.4% as of October, and lending to businesses has slowed as well.

Lending to businesses is an indicator of how much financial growth will occur, as companies take out loans to expand their businesses, product lines, etc., which results in increased employment numbers and more money flowing in the economy. If this metric is low, that indicates that there is little growth occurring.

This doesn’t necessarily give cause for alarm, though, as some companies may not need to take loans out to finance growth. This could result from increased revenues as a result of the growth of retail sales.

So, as a whole, while retail sales are improving and unemployment is low, actual economic growth is lagging. Still, the UK economy is improving, even if at a slower-than-hoped-for rate.