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Investing in beverages

13 August 2021

4 minute read

We discuss investing in the growing demand for luxury goods of as part of a diversified portfolio.

Who's it for? All investors

The value of investments can fall as well as rise and you could get back less than you invest. If you’re not sure about investing, seek professional independent advice.

The growing demand for trendy coffees and favourite tipples has seen many companies prosper.

This increasing demand can in turn serve investors well if they back those companies with the tastiest prospects.

Many people will have plenty to celebrate with weddings and parties postponed from lockdown. Or will perhaps simply feel like splashing out on the good stuff.

Non-alcoholic beverages are proving extremely popular too, with coffee being a big growth story. The value of the coffee market is expected to increase by 8% by 2025 1.

Younger generations are key to this rise to fame. When it comes to millennial’s spending habits, coffee comes in as the fourth most popular in the US, according to a report 2. It says that while the average American spends more than $1,000 a year on coffee yet 41% admitted this was more than they put aside in their pensions over the same 12-month period 2.

Some 60% of millennials agreed that they would buy a cup of coffee that costs more than $4, compared to just 29% of baby boomers 3.

Stephen Peters, Portfolio Manager at Barclays, said: “This is an interesting area, firstly in the short-term since the world is opening up again with restaurants and bars able to welcome back customers. People can also acknowledge their newly-regained freedoms by hosting parties at home and with a backlog of celebrations such as birthdays, weddings and anniversaries.

“As a longer-term theme, the luxury beverage market will prosper from the rising wealth in Asia. They want high quality drinks – and an experience.

"Following the study on US coffee drinkers, high quality coffee is a market that looks set to continue to grow."

Here are the names in the market capturing the attention of fund managers:

Fevertree, a UK-based firm is known for its premium mixers. Its adverts highlight “…three quarters of your drink is the mixer”. Its expansion to the US, Canada and Australia has marked its global reach.

Diageo, the global drinks company, owns Johnnie Walker whisky, Smirnoff vodka and Tanqueray gin among many others – it has a collection of over 200 brands across spirits and beer. Diageo produces its brands from more than 140 locations around the world, with over 100 manufacturing sites.

Scotland is Diageo's biggest global supply centre with 50 sites around the country, including 28 malt whisky distilleries, responsible for producing over 50 million cases of premium spirits each year.

Diageo has been making promises to cut carbon emissions and at several distilleries the left-over grain, water and yeast from the distillation process is turned into renewable power.

LVMH owns a long list of luxury brands including Moët & Chandon, Krug, Veuve Clicquot, Hennessy and Château d'Yquem. These are brands that hold their value - Sotheby’s in New York auctioned a 1915 Krug millésimé (vintage) for charity for $116,000 in 2015.

Brown-Forman is behind a number of brands including the biggest-selling American whiskey, Jack Daniels. Its portfolio also includes Woodford Reserve, El Jimador Tequilas and Chambord liqueur. It celebrated its 150th year in business in 2020 and the UK is Brown-Forman’s second biggest market.

Dutch brewer Heineken owns a total of 300 beer and cider brands including Fosters, Bulmers, Amstel, Newcastle Brown Ale, and Birra Moretti. It has been investing in alcohol-free lagers such as Heineken 0.0. In April it enlisted celebrities such as Sophie Ellis-Bextor to serve Heineken 0.0 beer to people working from home from a special cherry picker bar.

Starbucks recently celebrated 50 years of business, and now has more than 32,000 stores globally.

Want to invest?

Investors interested in this theme but don't want to risk investing directly in stocks can gain exposure through some of the best-known funds in the market, managed by professionals.

We have a number of funds on the Barclays Funds List which currently own beverage brands, among other holdings.

  • Blackrock European Dynamic owns LVMH
  • Loomis Sayles US Equity Leaders holds Starbucks
  • Brown Advisory US Equity Growth holds Brown Forman
  • Lindsell Train UK Equity owns Heineken, Diageo and Fevertree

Please remember that the fund manager may choose to disinvest in stocks at any time so if you want exposure to the beverage market on a more permanent basis, you may want to consider other investments such as Exchange Traded Funds.

Investing in beverages is just one of many investment ideas and should be part of a widely diversified portfolio.

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