Never underestimate the consumer confidence of a classy drunk. Americans are increasingly ordering the good stuff and, in the process, pouring big profits into companies that make booze and beer.
Diageo (DGE:LN), which owns Smirnoff Vodka, Shark Tooth rum, and many other intoxicating brands, noted in its earnings report that North America accounted for 40 percent of profit in the recent quarter, despite representing only one-third of the company’s sales. Why are drinkers here so lucrative? For one thing, North Americans are buying more from the top shelf than drinkers elsewhere. Diageo’s best performers included Bulleit Bourbon, considered a “super deluxe” brand, and spendy whiskeys such as Johnnie Walker Blue Label, which generally sells for $150 to $200 a bottle.
While reporting some “soft spots” in emerging markets, Diageo was also able to stick U.S. drinkers with higher prices, levering a 9 percent increase on its “super premium” scotch, according to a conference call this morning. Even lower-end librations saw payoffs on higher prices—drinkers paid 10 percent more for Popov vodka and 7 percent more for Gordon’s Gin—but didn’t seem to notice, with sales by volume remaining steady.
The story was similar at Anheuser-Busch InBev (ABI:BB). Despite a 1.2 percent drop in drink sales by volume, the Brussels-based beer company posted a 3.9 percent boost in revenue, in part due to a price increase on its U.S. beers at the end of last year. Americans increasingly reached for Stella Artois and Goose Island and the like, and warmed to new InBev brands Bud Light Platinum and Budweiser Black Crown. All told, InBev North American beer sales fell almost 2 percent—yet revenue increased 1.5 percent and profit climbed almost 3 percent.