Soaring inflation has made life harder for most of the world — but some people are still smoking expensive cigarettes, and doing shots of fancy tequila.
From Pall Mall producer British American Tobacco, to Tanqueray gin maker Diageo, cigarette and alcohol companies have cited strong demand for high-end products people can’t seem to shake, in their reported results this week.
Far from buying cheaper alcohol and tobacco, shoppers are instead trading up.
“In hard times, I think people just want that little moment to celebrate, you know, to unwind with family, with friends, with colleagues,” Diageo’s finance chief Lavanya Chandrashekar said.
The trend contributes to a pattern of affluent consumers spending big on luxury items following the Covid-19 pandemic. Lockdowns resulted in average bank balances rising, and record stock markets boosted wealthy people’s investment portfolios.
Diageo, the world’s largest spirits maker, beat full-year sales forecasts, helped by demand for “super premium” brands such as Don Julio tequila, Johnnie Walker Blue Label and Bulleit Bourbon.
Food and personal goods companies such as Procter & Gamble and Kraft Heinz have seen increased competition from cheaper private label brands, as consumers trade down in the face of a cost of living crisis.
People who smoke cigarettes, buy luxury products, and drink alcohol, however, tend to stay loyal to their brands even if they’re more expensive.
Ms Chandrashekar offered some insight as to why this may be the case:
Diageo doesn’t have much competition from supermarket-owned brands, she said, highlighting the US, where private labels represent less than 2% of the spirits market.
Alcohol consumption increased worldwide during the pandemic as people stuck at home had limited options for entertainment.
Many are now trying to drink less, but better, said Tineke Frikkee, fund manager at BAT, and Diageo investor Waverton Investment Management.
But the cost of living crisis and rising energy bills this winter mean that trading up may not last.
Mr Frikkee acknowledged that a decline is likely in winter:
AB InBev, the world’s biggest brewer and maker of Stella Artois and Budweiser, reported higher-than-expected profits, helped by many drinkers switching to premium beers.
Since the start of Russian aggression in Ukraine, US sales of premium spirits have risen nearly 3% to $3.7bn, according to NielsenIQ.
Globally, sales of fine wines, champagne, and spirits are expected to rise about 6% to $155.2bn in 2022, according to Euromonitor.
Meanwhile, sales of luxury tobacco products — cigars, cigarillos, and smoking tobacco — are expected to rise 7.5% to over $95bn, according to Euromonitor.
