We have produced a chart pack with category forecasts for the Australian liquor industry reset (see PDF report). This liquor outlook provides two insights – 1) The weakness in sales is more a function of the COVID-19 spike in demand than a structural concern. 2) The recalibration of liquor demand differs across categories, with wine and RTDs likely to see better demand from affordability and drinking preference. The data includes actual consumption trends for Australian households to the end of FY23.

Endeavour’s share price has dropped 10% in the past quarter. Our take is the share market is concerned about the outlook for liquor industry demand and the transition to a new CEO. We address the liquor industry outlook in this report and find that the weakness in sales is more a function of the COVID-19 spike in demand than a structural concern. We expect retail liquor sales to improve meaningfully by June 2025 and support better earnings for Endeavour. 

What a roller coaster it’s been for anyone importing retail goods! The Shanghai Containerized Freight Index shown in the chart below peaked in January 2022 and was 5x higher than its 2019 level. As the world returns to “normal”, sea freight rates are dropping back to 2019 levels. We view freight rates as a barometer of both the supply chain strain and outsized retail demand witnessed during COVID-19. While supply chains are still recovering, inflation in import-driven categories has peaked in our view and may unwind as some of the sea freight savings are passed through. Lower inflation is one of the key triggers for slower retail sales growth over the next 12 months.

For more on inflation click here 

Domino’s AGM trading update has ignited the debate about the extent to which the company has been a beneficiary of COVID-19 lockdowns. Japan is likely seeing -25% same store sales in October. Sales declines in Japan are likely for another 12 months and Europe may have a very soft 2H22e as well.  Domino’s is a well-run business with good long-term growth, but its sales and earnings will reset as lockdowns ease.