Canned cocktails are booming. These businesses are profitable.
I’m pretty sure I’m a major influencer. For the past few years, I’ve been enjoying a hot dog and a mule of vodka halfway through the golf course. The cocktail – vodka, ginger beer, bitters and a can of lime – is made by Cutwater Spirits, purchased in 2019 by the brewer
(ticker: BUD). “These are pretty good,” I distinctly remember telling more than one playing partner who hadn’t asked.
Now I’m learning that ready-to-drink cocktails, or RTDs, as distributors call them, are suddenly the fastest producer in the industry. No word on a hot dog tip yet, but we’ll see.
It comes as a dark time for revelry is showing signs of improvement. Not the Covid-19 pandemic, which still holds many drinkers at home. I’m talking about the hard seltzer outbreak, or bubble water mixed with malt liquor and just a rumor of fruit. Sales of the flagship brand, White Claw, are down. Player n ° 2
(SAM) had to throw away millions of unsold cases of its Truly brand.
“If you take a look at the hard seltts, the flavor, the taste, just isn’t there,” says Ann Mukherjee, CEO of North American operations for the spirits vendor.
(RI.France). “People are looking, ‘I want a margarita in a box. I want a boxed cosmos. Enough with the seltzers I don’t know what it really is. “
Sales of RTD cocktails more than doubled in 2021, according to BevAlc Insights, part of online liquor seller Drizly. Forget the sweet and bottled mixers of yesteryear; today, distillers blend premium spirits with simple ingredients. Pernod will soon play a serious role for my Cutwater business by launching canned Jameson whiskey with ginger ale and lime. Old-school people can’t be far behind. The company already offers RTD cocktails for its Absolut vodka and Malibu rum.
Pernod shares in Paris returned 35% this year. US certificates of deposit returned 26%, as the euro fell against the dollar. Boston Beer shares, meanwhile, are down 47%. Seltzer was injured by a stack of beer brands. MKM Partners analyst Bill Kirk predicts that some recent Seltzer entrants will step down, which could pave the way for more RTD cocktail earnings.
This helps explain why stills trade like software start-ups. Pernod, as the owner of Johnnie Walker
(DGE.UK), goes for 30 times earnings, and the maker of Jack Daniels
(BF.B), 43 times. All of them see their earnings per share increase by double-digit percentages for years to come.
Kirk waits either
(RCO.France) or Pernod to buy an American distiller next year, possibly the family company Sazerac, to strengthen its exposure to a hot market. I predict a lot of new canned choices to lubricate my golf swing in the spring. As a responsible influencer, I’d better try as many as possible.
Let me divert your attention from alcohol to banks. They obviously get some of their money from the spread between the rates they pay depositors and the rates they charge borrowers. These rates usually move in tandem, but there is an unspoken floor for deposits of zero percent, otherwise banks would start charging savers interest. So when loan rates are as low as they are now, spreads are crushed.
This means that spreads can re-inflate as rates rise, as we expect them to soon, given the recent spike in inflation. The last time the Federal Reserve hiked interest rates by one percentage point, interest on bank deposits only increased by a tenth of a percentage point, says Ebrahim Poonawala, head of bank coverage North America for Bank of America Securities. This time around, there is such a glut of money on deposit that the banks are in an even stronger position, he says.
This is one of the reasons to love banks now. Another is that they might just spend some of their excess deposits on loans or securities even without a rate hike. And a third is that traders around the world will need to restock in 2022 as supply chain chaos eases, which means more inventory lending for banks.
Poonawala says it’s time to favor regional banks, which derive a higher percentage of their profits from traditional loans than large central banks. (See 6 Bank Stocks With Diversified Income Streams and Strong Management for more about banks.) He recently upgraded
(KEY) of Underperform to Buy, and loves the business growing rapidly on the West Coast to complement its strength in the Midwest and Northeast. He likes too
Citizens Financial Group
(CFG), which is strong in New England and the mid-Atlantic states. He made a series of acquisitions that Poonawala said could deter short-term investors but pay off in two to three years.
Citizens CEO Bruce Van Saun told me that the company’s internet bank, called Citizens Access, could be the key to expansion. There are small groups of Citizens branches in the Washington, DC, and Miami areas, and online banking allows the business to gain market share in these and other markets without adding branches first.
Speaking of online banking, the app-based neobank market seems crowded, with entrants targeting increasingly specific groups, like Daylight for LGBTQ clients, Lili for freelancers, and Aspiration for climate change activists. I am thinking of launching SwingSplit to offer the consolidation of credits to divorced trapeze artists. Start-up capital, judging by the price of some recent neo-bank financing rounds, won’t be an issue.
Despite appearances, the industry is far from being inundated. Most neobanks are front-end software that must team up with traditional chartered banks for things like insured deposit accounts and a full menu of lending capabilities. There are few new chartered banks and the number of reconciliations between existing banks has doubled this year. BofA’s Poonawala estimates that among nearly 5,000 U.S. banks, about 4,500 have less than $ 1 billion in assets. The industry has been consolidating for 30 years, he says, and from there the number of banks could drop to half in a decade. Don’t tell my future SwingSplit backers, but traditional banks seem to be getting stronger.