It's on my watch list, but I'm waiting for tobacco multiples. It`s objectively a worse business. You have to advertise, and constantly worry about competition from a celebrity building his new premium booze brand (Clooney and Casamigos). Not to mention capex.
I have also studied the threat of GLP-1 treatment, which costs around USD1,000 monthly. It is still too early to tell whether the adoption rate will eventually be high enough to impact spirits companies' growth algorithms severely. Considering the cost and long-term health effects, it is hard to tell how long each user may continue receiving GLP-1 treatment.
Regarding the dynamics of growth algorithms and potential competition, it is unlikely that there will be a declining industry with increased competition or a fast-growing sector with reduced competition. These two factors naturally hedge each other. For example, it is worth noting that celebrity brands usually emerge in fast-growing categories (such as tequila, one of the fastest-growing categories in the U.S.). Ultimately, what comprises topline growth is market share expansion x industry growth. Slower industry growth is not a curse if market share expands, and faster industry growth is not a blessing if market share declines.
Increasing competition is also partly due to the previous credit expansion cycle, in which many industries experienced new entrants with substantial funding support (both internal and external funding). This includes automotive (dozens of new EV brands in China alone), tobacco (new vaping and oral nicotine brands), AI software and semiconductor (Open AI and dozens of Chinese companies, each owning more than 10,000 Nvidia H100 chips), and video streaming (Amazon/Disney/Paramount Global/HBO trying to challenge Netflix). All of these require capital, be it equity or debt. The prolonged high interest rate environment has limited start-up funding and reduced incentives for incumbent players to compete aggressively against each other at a loss. Hence competitive intensity is partly a cyclical issue rather than structural.
Can spirits stocks trade at tobacco multiple? Yes, I agree that is a possibility. In terms of business model attractiveness, you also mentioned advertising, a subject I haven't covered in my article. Advertising and promotional investment are indeed structural issues in the industry. I need to do more research and return to this topic in future articles.
Watch this:
Terry Smith from fundsmith explains his reasoning for selling Diageo.
https://youtu.be/NaFU5F8hI6E?si=ZgqxOvwfwNtwref4&t=3442
It's on my watch list, but I'm waiting for tobacco multiples. It`s objectively a worse business. You have to advertise, and constantly worry about competition from a celebrity building his new premium booze brand (Clooney and Casamigos). Not to mention capex.
Thanks for sharing this video.
I have also studied the threat of GLP-1 treatment, which costs around USD1,000 monthly. It is still too early to tell whether the adoption rate will eventually be high enough to impact spirits companies' growth algorithms severely. Considering the cost and long-term health effects, it is hard to tell how long each user may continue receiving GLP-1 treatment.
Regarding the dynamics of growth algorithms and potential competition, it is unlikely that there will be a declining industry with increased competition or a fast-growing sector with reduced competition. These two factors naturally hedge each other. For example, it is worth noting that celebrity brands usually emerge in fast-growing categories (such as tequila, one of the fastest-growing categories in the U.S.). Ultimately, what comprises topline growth is market share expansion x industry growth. Slower industry growth is not a curse if market share expands, and faster industry growth is not a blessing if market share declines.
Increasing competition is also partly due to the previous credit expansion cycle, in which many industries experienced new entrants with substantial funding support (both internal and external funding). This includes automotive (dozens of new EV brands in China alone), tobacco (new vaping and oral nicotine brands), AI software and semiconductor (Open AI and dozens of Chinese companies, each owning more than 10,000 Nvidia H100 chips), and video streaming (Amazon/Disney/Paramount Global/HBO trying to challenge Netflix). All of these require capital, be it equity or debt. The prolonged high interest rate environment has limited start-up funding and reduced incentives for incumbent players to compete aggressively against each other at a loss. Hence competitive intensity is partly a cyclical issue rather than structural.
Can spirits stocks trade at tobacco multiple? Yes, I agree that is a possibility. In terms of business model attractiveness, you also mentioned advertising, a subject I haven't covered in my article. Advertising and promotional investment are indeed structural issues in the industry. I need to do more research and return to this topic in future articles.