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Thursday, August 14, 2008
Booze, chocolate, smokes thrive in tough times

Even as consumers face soaring energy costs, rising food prices and higher mortgages or rent, they're not prepared to forgo many of life's little treats. Alcohol, cigarette and candy makers report healthy sales amid the gloom.

By JANE WARDELL
The Associated Press

LONDON — As a global recession looms, what better way to cope than to eat, drink and be merry?

Even as consumers face soaring energy costs, rising food prices and higher mortgages or rent, they're not prepared to forgo many of life's little treats. Alcohol, cigarette and candy makers report healthy sales amid the gloom.

"I would never give it up, not unless I was dying of alcohol poisoning or something," said Kelly Piggeln, a 62-year-old retired nanny, as she indulged in her favorite two vices of a cigarette and a glass of wine on the patio of a London bar.

Piggeln's stance is echoed by cash-strapped consumers around the world, a trend reflected in strong financial reports this season from some of the biggest so-called "sin stocks" even as banks and many retailers slump.
Sin stocks, ranging from gambling to liquor, are usually a safe bet in hard times. While shares in some of those companies have fallen along with stock exchanges this year, many still have strong sales."It's inelastic demand as far as many of these stocks are concerned," said Hargreaves Lansdown analyst Keith Bowman, using the economists' term for consumption not deterred by higher prices.

"So far there's signs that they are holding up, although there's still concern that these industries will see some impact."
Brewer going strong
Among the winners: Anheuser-Busch, the biggest brewer in the U.S., turned a profit in the most recent quarter despite fears that rising costs for raw materials like glass, barley and wheat and fuel would cut into the bottom line.

The company is so confident consumers won't abandon the beer that it plans to increase prices for popular brands like Budweiser and Bud Light to stay ahead of the higher costs.

Denmark's Carlsberg reported a 36 percent rise in second-quarter profit, saying stronger sales, particularly in Eastern Europe and Asia, helped offset rising costs.

In Milwaukee, Katie Brozovich, a teacher who also works three part-time jobs, said she makes choices in her spending, such as not having her hair and nails professionally done, so she can keep drinking the pricier craft brews she prefers.

"I'd rather spend $4 or $5 on quality beer than $3 on hopped up water," said the 46-year-old, sipping on a craft beer from nearby Michigan. "It's worth the extra buck or two to get quality."

Diageo, the world's largest producer and distributor of spirits, dubs many of its brands — including Johnnie Walker whiskey, Smirnoff vodka, Captain Morgan rum and Guinness stout — "affordable luxuries" that people are loath to give up, even in an economic downturn.

London-based Diageo expects its Scotch whisky business to continue to grow at least 8 to 9 percent annually, amid rising demand from emerging markets in Asia and Latin America.

Cigarette sales
Philip Morris International said its earnings rose 23 percent in the second quarter and it raised its earnings forecast for this year, saying it had not been affected by inflationary pressures like other consumer-products companies.
"Cigarettes in general can withstand such an environment better than many consumer products," Chief Financial Officer Hermann Waldemer said at the time.
But a drink and a smoke do not appear to be the only ways consumers are comforting themselves in tougher economic conditions.
London-based Cadbury, the world's biggest confectionary company, reported a 7.3 percent rise in first-half sales in its first results since spinning off its U.S. drinks business.
Among the big sellers in its candy store was Dairy Milk chocolate, rising 9 percent.

In the U.S., Hershey reported dramatically higher second-quarter sales and profit and reaffirmed its 2008 guidance of sales growth of 3 to 4 percent.
"The odd bar of chocolate is not going to break the bank," said Louise Hill, 33, a London office worker. "I always have a piece a day and I can't see that changing."

Copyright © 2008 The Seattle Times Company
http://seattletimes.nwsource.com/html/businesstechnology/2008112578_recessionparty14.html


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