The demands for food grade alcohol products have grown fast in 2015 and 2017 as data from some of food grade alcohol producers indicates that growth could reach at about 15-20% annual rate boosted by quick increasing demands (4-10% annual rate) for distilled spirits, especially premium spirits. However, the fast growth may be slowing down in 2018.

Sector’s current, trend, causes behind trend, and future

Current and Trend

• Demands in this sector had grown fast between 2015 and 2017mainly attributable to quickly increasing demands for premium beverage alcohol products. Growth in demands for industry alcohol is flat with downward trend during the same period.
• The fast growth in demand for premium beverage alcohol apparently slowed down in 2018 but demand for industrial alcohol seems to be picking up.
• Premium beverage alcohol products have higher margins compared with other types of food grade alcohol products. Therefore, companies in this sector have been shifting their capacity to the demanded premium beverage alcohol products and the significantly increased sales and profits have been seen in those companies’ books.

 

Causes behind the trend

• Increased demands for distilled spirits, especially for premium spirits alcohol, are obviously the reason behind the trend in this sector. As our analysis in distiller report, those changes in factors from economy and demography and the resulted changes in consumers’ lifestyle by changes in economy and demography should be considered as the fundamental reasons. Increased disposable income and accumulated wealth enable consumers to be more confident than ever before on choosing high quality and better taste products including premium spirits alcohol.

 

Industry Future

• We think the trend in demands for premium spirits will continue and, therefore, the market for premium beverage alcohol products will be expanding as well. However, while we don’t know when and how the high margins that those food grade alcohol producers are currently utilizing from sales of this type of products will have a pause, the time will come eventually as market competition increases.

General Financial Performance of Companies In the Sector

For long run, bread retail has been providing stable demands for the products that this company sells. The stable sales volume data of recent years also presents consistency with our conclusion that demands for fresh bread of US market in terms of sales units have changed in a very small range (+/- 1%) and selling price may go up lightly. Premium products such as organic breads seem growing faster than other categories. However, the data from 2017/18 indicates that there may be a downturn trend (1-3% down annually) in non-retail bread market especially from vending and food service market while retail price has been rising.

The pressure from declining demands and increasing ingredient costs is hurting this company’s margin:  gross margins (44% distribution costs excluded), operating margins (6%), and cash flow as percentage of sales (3.5%).

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