Premiumization, or shifting a product portfolio mix toward higher-priced and typically higher-margin products, is an inescapable word in discussions of alcoholic beverage companies, and for good reason – in the developed world, premiumization in spirits has driven almost all the market growth over the last decade. Premiumization is a significant driver in emerging markets as well, with premium (as well as “above-premium”) products seeing 5% to 10% better growth, on average, than the underlying category prior to COVID-19.
For Remy Cointreau (OTCPK:REMYY) (RCOP.PA), a spirits company that is almost completely premium-focused, that premiumization trend is a significant positive tailwind. Even so, the company is attempting to broaden its revenue mix by focusing more attention on neglected products, and management is also shifting its focus from price management toward margin management, with a robust operating margin target of 33% for the end of this decade.
Remy competes with some significant rivals, and the company’s focus on the cognac segment could be a risk in markets where consumer tastes are more fickle. My bigger concern is valuation; while low interest rates support a robust EBITDA multiple for the sector, Remy trades at a premium within the sector that I’m not convinced is completely merited.
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Remy Cointreau - A Premium Distiller Trading At A Premium Price
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