Global liquor stockpile is bursting at the seams! With $22 billion worth of inventory piling up, giants are forced to close factories and sell off excess stock.

According to reports, there has been a sharp decline in demand for high-end spirits, leading to global giants in the industry facing historically high levels of inventory backlog for whiskies, cognacs, and tequilas. This situation has led to production shutdowns in many places and forced businesses to increase price pressure to clear inventory. The total value of aged spirits inventory for major companies such as Diageo plc Sponsored ADR (DEO.US), Pernod Ricard (PRNDY.US), Diageo plc Sponsored ADR (DEO.US), Brown-Forman Corporation Class A (BF.A.US), and Rmy Cointreau (REMYY.US) has risen to approximately $22 billion, the highest in over a decade. Some companies' inventory levels are even close to their annual sales, not only pressuring financial statements but also raising concerns about the industry's long-term downturn. The current oversupply situation can be traced back to the pandemic period. At that time, the demand for drinking at home surged, prompting producers to vastly increase production. However, as inflation squeezed household budgets and consumer spending contracted, industry optimism quickly waned, leading to many companies issuing profit warnings and changing management. The cognac category has been particularly hard hit. Exports have dropped significantly in the past year, and the ongoing tensions between China and France, along with the increasing aged brandy inventory, have worsened the situation. Producers now have to consider reducing prices to clear inventory, a stark contrast to the high prices of high-end spirits during the pandemic. Tequila producers are also facing difficulties. After years of rapid expansion driven by celebrity endorsements and surging demand in the US market, the industry is now experiencing a slowdown in sales, leading to high local inventory in Mexico. Recent retail data shows that overall liquor sales in the US market continue to be weak. Due to the substantial investment tied up in inventory backlog, industry debt levels are continuously rising. The debt ratios of many producers have surpassed historical warning levels. To curb inventory growth, companies such as Suntory (STBFY.US) and Diageo plc Sponsored ADR have temporarily shut down or slowed production at distilleries in the US. Analysts warn that the production cuts themselves pose risks. As spirits typically require years of aging, if production capacity is currently reduced and market demand unexpectedly rebounds in the coming years, companies may face supply shortages. The report highlights the long-term uncertainty faced by the industry.