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Bonus: All Access Live Show – the Stocks – Part II

HOSTS Alec Renehan & Bryce Leske|21 May, 2021

Back in April, we hosted an awesome live show in Sydney at Atomic Beer Project, and we’re stoked to be able to share the audio from the event! This is Part II of our panel conversation, unpacking the alcohol industry.

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Bryce Leske: [00:00:16] Welcome to another episode of Equity Mate, a podcast that follows our journey of investing, whether you're an absolute beginner or approaching Warren Buffett status. Our aim is to help you break down your barriers from beginning to dividend. My name is Bryce and as always, I'm joined by my equity buddy Ren. How are you going? [00:00:31][15.0]

Alec Renehan: [00:00:31] I'm very good. Bryce stoked that we've got a second episode to cover the second half of our live show. We're going to be speaking to two expert investors about some of the companies that we can all invest in and not only invest in Australian alcohol companies, but there's plenty listed over in the States. In fact, some of the biggest in the world are listed over in the States. And that's why we partnered with stake. [00:00:54][22.7]

Bryce Leske: [00:00:54] We did partner with stake for this one. You know, you can sign up a brokerage account with them and they'll offer zero dollar brokerage. They'll put Wall Street at your fingertips. And the best news is if you use the code equity mates and fund your account in 24 hours, they'll be slinging you a free stock in either knocking at Dropbox or GoPro. [00:01:14][19.4]

Alec Renehan: [00:01:14] So none of them alcohol stocks. But, you know, they're all pretty good companies. [00:01:17][2.9]

Bryce Leske: [00:01:18] Can't complain. [00:01:18][0.2]

Alec Renehan: [00:01:18] But I'd be fingers crossed for Nike. No offense to Dropbox, OK? Yes. [00:01:22][3.8]

Bryce Leske: [00:01:23] Now, before we jump into it, I also just want to make a comment around the equity mates community. It was so good to see many of you at the live event. You know, we had a great time after the show having a few beers and some food and really catching up and chatting all things stock. So thank you for those that I bought tickets for and came along. Big apologies if you didn't because they sold out really quickly, but we did also live it. If you want to watch the show, it's available on our Facebook page and stake's Facebook page as well. So head over and check that out. The good news is that we've partnered with State again to do more all-access live shows. So stay tuned for that. [00:01:59][35.5]

Alec Renehan: [00:01:59] Watch this. Most people would have to be super keen to listen to this podcast and then go and watch the livestream. [00:02:04][4.9]

Bryce Leske: [00:02:05] People might want to say with all the awesomeness that it will take it. Yes. So without any further ado, here is the second half of the all access live show with state. Where are we going to spend the next 30 minutes talking about is some stock specifics, which we know you all want to get into the details and actually have a look at some investment opportunities, because there are plenty of massive multinationals and it's sometimes difficult to understand where we should put our cash. So to introduce our panel on my left, we have Chris Hernandez, who is a senior investment analyst at Evans and Partners International Fund. And on our right, we have Marc and Monica, who is the head of the Individual Business Morningstar program. I'm totally put it that you almost done well with all the inflows. [00:02:56][50.9]

Alec Renehan: [00:02:57] The last one let you down. [00:02:58][0.7]

Bryce Leske: [00:02:58] All right, Marcus from Morningstar. And we'll be able to give us some pretty great detail on how their programs work and we can go from there. So thank you guys for joining us. And we'll get stuck in. So we're going to [00:03:10][11.5]

Alec Renehan: [00:03:10] So we're going to talk about individual stocks here. We're going to get their mark and Chris's assessment on undervalued, undervalued stocks that they might hold. We got to say, we've always got to say nothing. Here is personal investing advice. Do your own research. This is just general advice and a general conversation about stocks in saying that. Chris, let's start with you. Let's start, General, what are some of the key considerations that retail investors should be keeping in mind when we're thinking about investing in the alcohol and beverage industry? [00:03:42][31.9]

Chris Hernandez: [00:03:43] I guess, first of all, you need to, as the previous panel described, you need to know who are their spirits players, who are the big B players, and that you've got wine players as well. But maybe start with the spirits. Do you? Virtually every single brand that you know, when you drink, it's owned by a big, large multinational company, the largest Western-style experience. And I'll make this distinction because the two largest Chinese spirits companies are the two largest companies in the world. So you got the maker of MORTI that's actually got a market capitalization of 400 billion. So it's about four times larger than Diageo. And then talking about Western spirits, you got the number one player, which it's Diageo. They've got brands like Johnnie Walker, Smirnoff, Captain Morgan, Bailie's and the second largest player in the Western spirits would be pandorica from the French company, brands like Absolut, Jamison and Mattel as well. So those I guess you need to know what your exposure. And and within that, they've got regional original Forte's as well. So you need to make sure that not every alcoholic beverage company has got the same growth drivers. [00:04:56][72.9]

Bryce Leske: [00:04:57] It seems to me there's maybe four main players and they own everything. Yeah, that's exactly right. [00:05:03][5.8]

Chris Hernandez: [00:05:04] And same with beer. You've got a beer. It's a giant, obviously, this talus and Budweiser of the world. Then you've got. Heineken, obviously, the Heineken brand sold Tiger. So it's all very, very consolidated and as I mentioned, every single brand that you get, you buy its major brand. It's owned by a large multinational. [00:05:24][20.3]

Alec Renehan: [00:05:26] So Mark from your perspective, what is some of the, I guess, general considerations investors should keep in mind if they want to invest in this industry? [00:05:33][7.4]

Mark: [00:05:34] Yeah. Yeah, absolutely. So, number one, what are all these alcohol stocks we're talking about? There are consumer defensive stocks. So no offense. So, I mean, what that means is the economy is good, the economy's bad, people drink, right? So you're not getting cyclicals like a cyclical stock. You're not getting those ups and downs. People generally keep drinking no matter what's happening in the economy. So I think that's the first thing. The other thing is Morningstar. So if I talk about Morningstar, we have analysts all over the world. We cover 21 stocks that fall into these sectors and these sectors and industries. And so the two things that make great investments are you guys talk about Buffett a lot. Two things that Buffett always talks about. Number one, a great company. So what's a great company? A great company is a company with a moat. That means they have a sustainable competitive advantage. That means as investors, over time, those higher margins accrue over time. That's where you want that compound. So we cover 21 stocks, 18 of them, our analysts say have moats, and that's a lot. So we cover sixteen hundred stocks globally, way less than half have a moat rating from us. But 18 out of 21 in this industry have a moat and two different moat sources. So we have five different moat sources at Morningstar, the two that it comes from. So, number one, intangible assets, something brand. We'll talk a lot about brand, right? We all know that. We walk up to the bar, we order a brand. We all understand this is what we drink and we'll get more into this. And then the other one, of course, is cost. So cost advantage. So particularly with beer. And I'll talk about beer later. There are huge economies of scale. So that's one side of it. Great companies. We think a lot of these are great companies, but then the other side is price. Right? So Buffett always says pay a compelling price. And I will say globally if we look at those twenty-one, we think that they are 14 percent overvalued. If we take an equal-weighted look at those companies. So we do think they're overvalued. To compare that, we think the Australian market's about 11 percent overvalued, us, about 10 percent overvalued. So we do think they're a little bit expensive, but we'll talk about some opportunities. So I think those are the two ways that we'll try to frame these things. Right. Great company, compelling price. And yeah, hopefully it will be interesting. [00:07:51][137.6]

Bryce Leske: [00:07:52] Well, let's get stuck into it. We'll start with you, Mark, and then we'll head across and talk about the with you, Chris. So as you said, you cover twenty one stocks internationally. But let's take a look at the biggest American company. And how's Uche? Yeah, InBev, the ticker is beer day. It's traded on the New York Stock Exchange. It has a market cap of about one hundred and twenty billion dollars and did just shy of fifty billion in revenue. Quick fire response, overvalued or undervalued? [00:08:21][29.0]

Mark: [00:08:22] We think it's undervalued. The most undervalued. We think it's 22 percent undervalued. [00:08:26][3.4]

Bryce Leske: [00:08:27] Wow, that's pretty significant. Yeah. [00:08:28][1.8]

Alec Renehan: [00:08:30] So talk us through it. Why do you think it's undervalued? And for people who aren't familiar with the company, can you tell us a little bit about it and some of its major brands? [00:08:38][8.4]

Mark: [00:08:39] Yeah. Yeah. So actually, as a token American here, because I can say Anheuser-Busch, I of course, got to get to talk about this. But the kicker, Bud, is Budweiser. So one of their biggest brands. But yeah, let's talk about the company. So company has acquired a bunch of companies. It is a global beer giant, so they sell twice as much beer as the second biggest company, second biggest company that sells beer. And and they recently bought a couple of years ago, South African breweries. And they paid a lot for it. They took on a lot of debt and they are now obviously trying to pay that off in a couple things have happened. Number one, they cut their dividend a couple of years ago. People do not like that. Investors don't like that. So that's been a problem. The other thing is they've been hit pretty hard with covid. So they have big operation in Brazil. Brazil is obviously not doing well South Africa, where they actually stop selling alcohol, which is an issue since I just bought South African breweries. So the company is, we think, temporarily going through some issues. But overall, it's we feel is a great company wide moat, our highest rating. We think they have a sustainable competitive advantage for over twenty years. And a lot of a lot of if we look at breweries, a lot of it isn't global. You don't get those economies of scale globally, but you get them regionally. Do you think about sharing ingredients, manufacturing different beers in the same plants? But they have built this model wherein North America and South America and Europe and in South Africa, they built these giant regional hubs that they're able to wring cost out and. Their cost cutting program, I mean, what they've been trying to do has not happened as fast as they expected because of covid and some of the issues and beer. And I think we heard this from the previous panel. Beer has been particularly hit with with the covid restrictions because it is on premises. Right. Its pubs, restaurants and people are drinking beer. But we think this is going away. We think the stock's undervalued. And yeah, as I said, it's our cheapest stock. [00:10:36][116.9]

Bryce Leske: [00:10:37] So when you mentioned they have 18 of 21 stocks that have a strong moat and we all know Buffett talks about the the value of a strong moat. And you've mentioned there that but also has a strong moat. Everyone has a strong moat. What is driving these moats and how do you determine between everyones votes? [00:10:54][17.2]

Mark: [00:10:55] Yeah, yeah. No absolute question. Me obviously saying that 18 out of 21, that's a lot. But if you look overall, you look overall, less than 50 percent of the companies are. Sixteen hundred companies we cover have a moat. The big thing, I think the industry just there are some industries that just have certain qualities to them. And it is those two things, like it's number one brand. And if you have brand, most people don't walk up to the bar and order a general whiskey. People go and they ask for their brand. And I think these companies have been able to build these huge brands with Anheuser-Busch InBev. The easiest one. Well, for me to talk about, of course, Budweiser, Bud Light and the U.S., huge brand, but they've also done the same thing in in South America, in Europe, in South Africa. So, yeah, it's building a brand and then just the natural cost advantages, particularly around breweries. So we say very different things about winemakers, like we talked about Treasury. We would say very different things about that, where it's harder to get both of those two things as a wine producer. But I think particularly in spirits and in beer brands are important and also the ability to take cost out of the process, the bigger you get is important. [00:12:06][70.9]

Alec Renehan: [00:12:06] So you said 18 out of 21. Can you name and shame the three that don't have a rating? [00:12:12][6.2]

Mark: [00:12:13] Well, so I tried to come up here without my notes because I thought there. So the answer is no. [00:12:18][4.6]

Alec Renehan: [00:12:20] Finmark afterwards he'll have his notes and he'll tell you the three. [00:12:23][3.5]

Mark: [00:12:24] Exactly by my team's ripping them up back there to embarrass me. Oh, there we go. See, they're back there. But but yeah. Come find me after. [00:12:30][6.1]

Alec Renehan: [00:12:32] Should we move to Chris. So we're going to move away from beer. We're going to talk spirits. Evans and Partners has invested in Diageo. So I assume if we played the quickfire overvalued undervalued game, you would say undervalued. [00:12:47][15.1]

Chris Hernandez: [00:12:48] That's a fair assessment. Yes. Yeah. [00:12:49][1.3]

Alec Renehan: [00:12:50] So let's not play that game instead. Can you tell us about the company, what it does, some of its major brands? [00:12:55][5.2]

Chris Hernandez: [00:12:56] Yeah, I guess maybe taking you through our investment process a little bit. And you've got it starting with business quality. As I mentioned before, Diageo is the largest Western producer in the world. So they've got roughly depending on the data you get from about 15 to 20 percent market share. And they do own 25 of the 100 top selling brands in the world. So back to Marc's point that they do have very strong brands and is the largest producer, it comes with a lot of scale advantages. So they've got about one point six, one point seven times the revenue of the next largest competitor, which is Panerai cut. And so that just builds builds on the moat. And it's a highly profitable business. The gross margins are about over 60 percent, operating margins over twenty percent, return on invested capital about eighteen percent. So it's it's super profitable and the drivers of growth are very strong. And I guess this applies to most of the spirit industry. And I guess the key for them, it's premiumization. So people might be drinking less, but they're drinking better. And for the spirits industry, I think they're blessed with these pretty minimization because it's very tangible. You've got other consumer product companies that talk about premiumization, but it's not as tangible for them. Like Diageo, year in, year out, about half of their organic growth comes from premium. I say our product mix price and it's a mid single digit growth industry. But it's as Mike mentioned, it's super resilient. People don't stop drinking. They might downtrend a little bit, but the growth is still there. And I guess in terms of we look at management, the quality of management, and we like the CEO, even bonuses he joined he became CEO in 2013. So he was quick. We want CEOs that come come to the leadership. They want to be alone. They're good capital allocators. So what he then did is right away he changed their route to market model. So they changed the sales structure. He's invested in technology. This is yes, it's a few years ago, so we sold digital technology data. So he actually made the company much more agile. He removed. Management layers, so it's a much more decentralized company. They're forced to react and in terms of capital allocation, what you see with some CEOs is that they want to keep growing, they want to keep acquiring businesses, acquiring brands again, sometimes their remuneration is it's it relates to the size of the company. What we're seeing with Diageo is that they've actually made more investments than acquisitions since he joined. So it's it bodes well for the management quality and valuation as well. So we paid about twenty three times earnings. Diageo typically traits about high single digit premium to the S&P 500. We use the S&P 500 as a market proxy and normally trades that at about 20 percent premium. Obviously, with all the covid issues and uncertainties, we thought taking the longer term opportunity to get into the stock. And and we've we've done reasonably well. [00:16:10][193.9]

Bryce Leske: [00:16:11] So you mentioned there that a big driver of organic growth is the premiumization of their brands and the way people are drinking. What are these geographies, I guess, or some of the major countries that are driving that growth? [00:16:22][11.2]

Chris Hernandez: [00:16:23] I think it's pretty broad based and it's not necessarily going from Red Label to Blue Label in developed countries, but also in emerging markets. Is India or you might go from unbranded spirits to branded spirits or homemade homebrewed spirits to branded. So there's Diageo have over 200 brands. That is its premium to super premium, but they've got a more value brands to just make sure that they capture the consumer with every price point. But it's pretty broad based. [00:16:57][33.6]

Alec Renehan: [00:16:58] So another alcohol brand that's benefiting from this premium ization trend is LVMH, and they're really pushing hard into China. And for people who aren't familiar with LVMH, Google their brands after this and look at every major champagne brand in the world. They own them. So that's the business we're talking about. Among a number of other things, is Diageo pursuing a similar strategy, but really trying to push into China. [00:17:29][30.5]

Chris Hernandez: [00:17:30] And the Chinese is not a huge market for them, which is a bit, I guess, counterintuitive, because most of those big international players say they have got a large skew to China. That's a big driver of growth for Diageo. China, it's only about five percent of the sales. And what you have with the Chinese market, it's only about one percent of the consumption is Western spirits. So it's very local Biju beer experience. So for them, they do have a big company in China that's growing pretty strongly. But compared to a four hundred billion market cap might, it's still relatively small, but whiskey is doing pretty well. Their flagship spirit, there will be a blue label and the Chinese consumer, they like cognac. So that's that's the biggest the biggest Wesson's period there. [00:18:17][46.8]

Bryce Leske: [00:18:19] So we've covered, I guess, two of the biggest alcohol companies in the world. It's pretty phenomenal. Let's just do a bit of a stocktake, I guess, of of where we're at and rattle off some of the characteristics that you love to see in a company. And if you can tell us which stocks kind of fit the bill for these characteristics. So if we are talking about a company that has the strongest portfolio of brands, would love to get both of your opinions. Obviously, you're going to say Diageo, because I'd love to get your opinions on perhaps a company that you think has the strongest portfolio of brands. [00:18:58][39.1]

Mark: [00:18:59] Okay. I mean, personally, I would probably say Diageo as well. I, I personally bought it in 2008. So for the younger investors, that was a real bear market that lasted more than three weeks. But but I want to do something different, so I'm going to go with it, we think, in Asia, InBev as well. But I'm going to go with Brown-Forman and mostly because Jack Daniels, I was drinking Jack Daniels last night trying to prepare for this. And they have a pretty great stable brands as well, Jack being the Jack being the key. So I'll go with that. [00:19:31][32.0]

Bryce Leske: [00:19:32] Are you going to stick with Diageo? [00:19:33][0.7]

Chris Hernandez: [00:19:34] I we do like Diageo. And maybe something that could complement the portfolio would be Remy Quantrill's. It's a French company. About 70 percent of their sales is cognac. About a third of their sales go to China. And what we like about the company, it's the heritage of the brand. So you've got a Remy Martin that's got about three centuries of heritage, so you won't wake up tomorrow. And there's a new Remy Quintal, Remy Martin in Adibi. And obviously it's a this is Kassidy element to it as well. So there's only that much cognac that you can produce in. In a few regions in France, so that that really sort of elevates elevates the the value of the product, the value of the brand and obviously very strong drivers in China. [00:20:23][48.3]

Alec Renehan: [00:20:24] So that was the strongest portfolio of brands. Let's move to best growth prospects and let's let's think long term here. You know, we want to be long term investors at equity markets. So this alpha company with the long term growth prospects. [00:20:39][15.5]

Mark: [00:20:40] OK, I'm going to keep trying to do new things here so I don't keep repeating things. I'm going to go with Constellation. So Constellation Corona. Has everyone heard of Corona? So the really interesting thing about Corona is my personal opinion. It tastes really bad. It's not a great beer, but the amazing thing is it's produced with the same cheap ingredients that everyone makes light beer in the U.S., but they sell it for 30 percent more. So the interesting thing about consolation is the U.S. is becoming more and more Hispanic. So Mexican brands are gaining more and more traction. They're selling it for a giant premium. I think their margins over 40 percent on Corona, which to me is amazing because once again, I think it's a terrible beer. So so I think the trends in the US and I think the ability for them to get a premium price, I'm going to go with Constellation Brands. [00:21:30][50.4]

Alec Renehan: [00:21:31] So Constellation's an interesting one, because in the last panel we had Dan talking about hemp being a big thing, constellation of obviously made a lot of investments in that space. Is that is that part of the thesis? [00:21:43][12.1]

Mark: [00:21:44] Yeah. I mean, they own they own this company called are most of this company called Canopy, which is a cannabis producer in Canada. There's been some interesting stuff going on with cannabis, mostly that Canadians are not smoking as much weed as everyone thought they would when they legalized it. So a little bit in the bubble was starting to come down. But still, I think long term, hopefully those Canadians, it's cold. They don't know what they're doing up there. So hopefully they'll keep smoking weed. And it yeah, it's an interesting part of conservation. [00:22:11][27.1]

Bryce Leske: [00:22:12] So, Chris, do you have a company for great growth prospects? [00:22:15][2.8]

Chris Hernandez: [00:22:16] Look, I'm going to stick to two Diageo. We have fun. We we've got an investment horizon of five to seven years. I think it fits just perfectly. And the portfolio of brands, I mean, what you want is diversification in some categories. Go up and down. You've got gin, you've got tequila. So you want something pretty diverse, not only by category, but by region as well. And the tequila portfolio is just kill it. And now they've got Don Julio the last. Let's have that in the US that tequila brands 80 percent Kazami goes that you might recall that they bought that for a month. It was George Clooney tequila brand a few years ago that grew 140 percent glass half. So that they really are killing it in the tequila space. [00:22:58][42.1]

Bryce Leske: [00:22:59] Can I assume you're going to say judge jury for the rest of these questions? Yes. [00:23:04][4.9]

Chris Hernandez: [00:23:04] Yes. [00:23:04][0.0]

Alec Renehan: [00:23:06] Just just on that George Clooney tequila story, I don't know if everyone saw Conor McGregor sold his whiskey. Six hundred million dollars, I think it was yesterday. What is it with celebrities making alcohol or is it just, you know, just slap a celebrity on it and you can get a hundred million dollar plus valuation? Is that is that the game at the moment? [00:23:25][19.4]

Mark: [00:23:26] I mean, apparently, I actually I saw that on your Instagram account. I started following your Instagram account. So that's the only reason I do that. But but yeah, I make my own tequila. Nobody buys it, so I don't what's going on. [00:23:37][10.7]

Alec Renehan: [00:23:38] You need Bryce's faced on it based on Australia's most famous drink up. [00:23:41][2.8]

Mark: [00:23:41] There we go. We can we can figure something out. [00:23:43][1.8]

Bryce Leske: [00:23:44] All right. So we are just about to get to Q and A but one more question. To close it out, I think, for Mark would be what is one of the most undervalued at the moment, according to Morningstar? Is it what we kicked off with? [00:23:56][11.7]

Mark: [00:23:57] Well, so I obviously I already said what is our most undervalued? So that that's Entires or Busch InBev. Molson Coors. So now I remember Molson Cause is one of the twenty one that does not have a moat. If anyone has ever had Coors Light, you'll know why it is terrible. But but yeah that is our second most undervalued. I think that's around seventeen, eighteen percent undervalued. [00:24:18][21.6]

Bryce Leske: [00:24:19] Awesome. Well guys, thank you very much. It's been fascinating getting a bit of insight into what you're investing in, what Morningstar is doing over there and covering twenty one stocks. So go and check out Morningstar if you do want further analysis. And yeah. Chris Rock, thank you very much. We are going to try to. We are going to get the panel back up for about 15 or 20 minutes of Question Time. We've got some questions coming in from online. All right. I guess we'll start with the actual, I guess, fund managers or investment analysts. How does investment in alcohol fit with an ASG theme focus? Will a greater focus on RSJ affect alcohol stocks? And that is from Howard. [00:25:06][46.9]

Chris Hernandez: [00:25:08] I can start with us. And I guess when we're looking at ESG, it's not about a product doing harm necessarily or not with alcohol. It's all about what the company is doing to maybe tackle some of those. I guess question marks is not black or white. It's ethical or not. But Diageo actually has a triple A rating ESG. So it's it's the highest rating they can have. So they are doing a lot of things to to spending another money, trying to get campaigns about positive drinking, tackle underage drinking. They're doing a lot of things to to reduce their carbon emissions, not just only them, but the suppliers as well. So they've got 50 percent of the bodies is it's it's very diverse sports. It's that 50 percent female, 50 percent male. So it's all those attributes that they can towards a proper S.G. rating. [00:26:03][54.7]

Alec Renehan: [00:26:04] I feel I feel we've got to ask Irene that question as well. To what alcohol companies fall in an ethical investing framework. [00:26:12][8.0]

Irene: [00:26:15] That's a really good question. OK, so alcohol companies as an investment being ethical, but a lot of alcohol. Do you mean brands like wine brands? Because this I think like there's a lot of alcoholic brands that are making nonalcoholic ethical products. So I'm all about that. I don't I think that I think the more people invest in. Yes. But I think we need to hold them accountable. That's that's the answer. Yes. [00:26:41][26.5]

Alec Renehan: [00:26:42] Fair enough. Equity markets, we're just going to interrupt the show to give stake a quick shout out. We really want to thank them for helping us put this live event on and for helping us put future live events on. That's right. Watch this space. But for both Price and I will use steak. And for us, it's been an epic way to get access to the US market all at zero dollar brokerage. [00:27:06][23.4]

Bryce Leske: [00:27:06] That's right, Ren zero dollar brokerage. You can trade over four thousand US stocks and, you know, place trades within seconds, which is pretty important when it comes to moving in and out of stock positions. [00:27:18][11.3]

Alec Renehan: [00:27:20] You're not wrong. Not wrong. And what's also important is getting stuff for free. Yeah, and if you use the code equity markets, when you sign up and if you fund your account within 24 hours, you get a free stock, either Nike, Dropbox or GoPro. So get a free stock, get access to the US market, get access to zero dollar brokerage. What are you doing? [00:27:41][21.6]

Bryce Leske: [00:27:42] Yes, that's equity markets without a space. So make sure you go and put that in when you sign up. But here's the second half of the all-access show with stake. I hope you enjoy it. [00:27:52][10.7]

Alec Renehan: [00:27:53] So the next question comes in from Matthew. Mark, we must start with you for this one. I feel like it's a fund manager question. How can the small players best disrupt these big guys and conglomerates? [00:28:07][13.2]

Mark: [00:28:08] Yeah, I mean, I think that's that's obviously we talked a lot about economies of scale. We talked about brand. So that is a very difficult thing as you're starting out. But, yeah, it's building. I think we've seen craft brewers. One of the things that I probably should have said about Anheuser-Busch InBev is particularly in the US, they're getting impacted a lot by craft brewers. So I think it's I think it's ultimately starting small. I don't think that you are going to disrupt holistically a company that makes twice as much beer as anyone else in the world. But I think it's in those individual markets. It is building brands, it's craft breweries like this. So that impact overall of many different small craft brewers can impact these large players. But it's not like one person's going to do it. [00:28:54][45.2]

Alec Renehan: [00:28:55] Ten. What about, from your perspective, buying a lot of beers from these big suppliers, buying a lot of alcohol from suppliers? How do you think small players should be disrupting the bigger guys and taking your dollars? [00:29:06][11.3]

Bryce Leske: [00:29:07] Well, I think that the bigger guys rely on supplier agreements and that's the tying things up and those sorts of things. But ultimately and probably ten or fifteen years ago, venues were in a very top down manner dictating to customers that, hey, we're going to, you know, to a big supplier agreement, we're going to get a rebate. And we don't really care about your customer, what you might like to drink. But obviously, that's no, that's not a great business strategy for preventing. These days, you've got to listen to your customer and keep the taps open, as we would say. So, you know, that's a challenge for the big, big guys. But at the same time, it's a fantastic opportunity for the craft brewers to step here. That's the voice. The customer resonates more. Andrew, this one is for you and this comes in from online as well. So thank you, everyone. Sending in questions from online. Do government taxes, given that you're a lobby group, the government taxes pose a risk to the alcohol industry. Our government's likely to enforce taxes further or relax them. [00:30:16][68.4]

Chris Hernandez: [00:30:17] It is absolutely the biggest handbrake on our industry in Australia is the level of taxation on beer, wine, and spirits. If you look at this globally and among other beer wine-producing nations, we tax our industry more than any other country. So it's a huge handbrake on reinvestment, creating jobs. And that's the same for beer, wine, and spirits. You probably don't know that that beer in front of you, they're nearly half of it goes to the taxman. Same with a bottle of spirits, with a bottle of wine. It's around a third that goes to the taxman. So it's a lot of what could be reinvested in our industry is absolutely sucked away. I don't think it's going to go up anymore because it's pretty high. It's up there right at the top of global levels. We are hopeful that at some point governments recognize that we could actually do a lot with that money back in our own pockets, creating jobs, export opportunities and reinvesting in wonderful facilities like this and equally trying to help come out of Koven. You know, we've got our hospitality industry who's been whacked across the, you know, across the face a great opportunity for them to reinvest in their business. A bit of excise relief as well. [00:31:30][73.3]

Alec Renehan: [00:31:31] I feel like giving the head lobbyist, I guess, for the alcohol industry, no question. He's said that many times before and he had the answer ready to go. So we'll blame Bryce for serving that absolute softball. We want to hear questions from the audience. So Bryce to the microphone run around. People stick out their hand while Bryce is finding the next question. I want to ask Andrew one more. Last year, South Africa and India banned alcohol sales during covid. What do you think would happen in Australia if Schoeman banned alcohol sales? [00:32:05][34.4]

Chris Hernandez: [00:32:06] I think there'd be riots in the streets. There would be uproar there. People would be walking down with pitchforks. And the other big thing is you thought there was a big problem with toilet paper. Imagine the issues with trying to get a beer. What if they did that? So, no, I don't think that's on the cards whatsoever here in Australia. [00:32:24][17.9]

Audience: [00:32:26] Hi, panel. Thanks for the time tonight. There's are the two panels actually been split into local and international investment by accident or by deliberate? I don't know. But I think the whole craft liquor industry is, from my pundit perspective, is split into the big international brands and then the craft disruptors, even in the nonalcoholic space, like no one's drinking more alcohol like they are. But there are more people alive that the alcohol uptake isn't increasing. The distribution is being split, like how do I the big brands feel about competing with the small local premium brands and, you know, competing in that in Australian space. And how do you guys feel fighting against that? Do you know what how do you feel competing against these big brands that are trying to craft wash in your space? And, you know, what's your take on that? Is that going to get better or get worse? [00:33:25][59.9]

Bryce Leske: [00:33:27] Well, I'ma just start with the I guess they go back to what I said earlier about the consumer. It's about, you know, we heard earlier that people respond to Brand and, you know, a lot of people walk up and want that brand in a bar or in a retail outlet or online. However, you know, there's a lot of interest in supporting new and interesting experiences. And it's so easy to say supporting small business. But really what it is, it's new experiences and what's being developed by those craft brewers and winemakers and spirit makers. And I think from a retail perspective and certainly a venue perspective, it's keeping all those options open now your markets and listening to your customers and keeping yourself open so you can respond. [00:34:23][56.3]

Irene: [00:34:24] Yeah, and I was just going to say, I think it comes down to taste as well. I mean, if you make an incredible craft beer that tastes amazing, of course, has to be no elk. But and you compare it. I mean, I know for me, again, as a comparison almost, I will sell. A hundred times more of a heap's normal or prohibition or Nort than I would for any of the Peyronie's, all the cartoons in the in the nonexperts. And again, I asked customers when they come in what they would like and they say they want those beers because of the taste. [00:35:00][35.7]

Bryce Leske: [00:35:01] Nice. So we've got three more questions. You want to hand it out, Ren. [00:35:04][3.5]

Irene: [00:35:05] Hi. So in terms of disruption to the nonalcoholic space internationally, do you think that would that would be more geared towards larger brands making their own, like, alternative line of nonalcoholic? Or do you think that there is a possibility that, for example, something like that and strength would be able to become the next conglomerate, Pepsi? [00:35:30][24.8]

Chris Hernandez: [00:35:30] Just a guess in terms of spirits Diageo actually owns. So they have been investing there have been buying brands within their products that they obviously have low, low alcohol, gaudens, low alcohol gene. And so they actually quite aware of all the trends. And I think it's just another driver of growth. If the consumer wants to drink less alcohol, they're going to have a product for the consumer. And you need to realize that these are huge companies which huge marketing products with huge research into consumer demand. So there if that's a trend, they're going to try to fit the consumer demand as well as they can. [00:36:09][38.5]

Bryce Leske: [00:36:10] You never know. They might end up buying Sande's drinks. It feels like they just buy everything. Yeah, it's not for sale. Wow. OK, yeah. Nice. [00:36:21][10.7]

Audience 2: [00:36:21] Hi, guys. Thanks for your time and your insights today. Besides Irane, what's the biggest threat to the industry as a whole? And then in turn, obviously the companies that we're potentially looking to invest. [00:36:32][10.7]

Chris Hernandez: [00:36:32] In my outlook might be a little bit jaded here, but there is a fairly substantial anti alcohol activist movement in Australia. So they've come out of tobacco. Their new focus is on obesity and alcohol and sugary and fatty foods. And they're vocal and they're doing the same gameplan that they've done for tobacco. So the real threat that they're pushing at us is, is higher taxes. It is reduced availability. It is things like warning labels and those sorts of things, reducing our ability to market at the moment. The fortunate thing is we've got a wonderful drinking culture here in Australia. Everything's heading in the right direction. So if we can continue that trend, then that's sort of deafens that that risk to us. But for me, that's that's certainly on my radar is exactly where they're looking to move the public debate to. [00:37:20][47.7]

Mark: [00:37:22] Yeah. I mean, the only thing I would add to that is we are investors, right. And we need to be very careful to differentiate what happens in an industry versus investment opportunity. So, yes, people are drinking less, but they're drinking better. And I think you mentioned tobacco and tobacco is a really interesting, really interesting space to look at. So Jeremy Siegel, who's a professor at Wharton, wrote this book and he looked at in the US, the S&P 500, the best performing stock from 1925 to 2003 when he wrote the book, It's Philip Morris. Philip Morris makes cigarettes and cigarette smoking kind of peaked in the early 60s and has gone down ever since then. But what did they do? They kept raising prices and there were low expectations for the company. So we need to separate those two things right. So we can have a reduction in drinking. We can have people drink better. And Diageo is the perfect example, right? Every time you go to the bar, they've created a new Johnnie Walker, some different color I've never seen before. And it costs more and people just keep climbing this ladder. So I think as investor, I wouldn't be too worried about overall declines. And also we're talking about developed countries. There's a per capita correlation between per capita increase in GDP versus per capita drinking, particularly around beer. So I wouldn't be too worried as an investor. I think I think it's an industry trend that everyone knows about. They know about it. It's priced into the market. I just wouldn't worry. Obviously, my personal opinion. [00:38:52][90.1]

Bryce Leske: [00:38:53] Got time for a couple more questions. [00:38:54][1.5]

Alec Renehan: [00:38:55] A few down here, [00:38:55][0.5]

Bryce Leske: [00:38:56] one out the back. Nice. [00:38:57][0.6]

Audience 3: [00:38:58] Hey, thanks for the panel tonight. I appreciate all the candidates speak on everything. Just a question for Andrew just around the taxation on different alcohol. So spirits first beer versus seltzer. Do you think that's consistent or do you think there's some discrepancy on the way? The policy is tax taxing different alcoholic beverages? [00:39:20][21.6]

Mark: [00:39:20] Oh, there's no doubt there's a discrepancy. There's been a lot of tax reviews that have looked into this, and there are historical reasons why. So there's a lot of history behind Australia's taxation system as to why some products are taxed a little bit more higher than others and why this in for beer and spirits? It's. On an excise basis, that's on the alcohol content, whereas for one, it's actually based on your wholesale value. And there's been a lot of reviews into this, but no real change, a lot of recommendations to move it. But at this point in time, those historical reasons, there are political reasons behind it. There hasn't really been an appetite by any government of either persuasion to look at the taxation or have major reform in this area. [00:40:04][44.0]

Alec Renehan: [00:40:05] So we've got time for one more question. I'm going to make a rule. No more alcohol tax questions. And he's had his chance. I don't know where the microphone is, but whoever's got it doing the opposite. [00:40:17][11.6]

Audience 4: [00:40:18] I'm just wondering what your perspective is on capital markets versus private equity markets for the alcohol industry and what opportunities there are for retail investment in the private equity market in Australia specifically? [00:40:31][12.6]

Mark: [00:40:31] Yeah, I mean, it's a hard question, obviously, because private equity is difficult to access generally as retail investors and it's very, very deal-specific. So it's very easy for us to sit here and talk about individual companies. Yeah, I know that's not a very good answer, but it's hard to yeah, it's hard to comment on private equity where it is like very, very specific, [00:40:50][19.1]

Bryce Leske: [00:40:52] I guess, to from just a public perspective. And obviously Odysseas listed and we talk about Australia. That's something that, you know, we've been listed for around three years and that's something that's accelerated a lot for us in the Australian market. So from a retail investor perspective, there's no we're trading at a discount now at around 15 percent. And, you know, there is opportunity there. And and I think it's a run up against it more and more and more in regards to the industry field, which is an unnatural thing. But it is a policy. And it and, you know, alcohol, I'm saying, come on, they list more than what it has in past. And this is sort of accelerating, which is prohibitive for institutional capital and an open up for retail investors. At the same time, it you know, it puts challenges there for for these sorts of companies to stay in the in the public markets where they could go into the private markets and and, you know, possibly do better. Well, that does bring us to the end of tonight that we could do this. It's been an awesome night. And this is not the first and only we will be doing more all access with a stake. So a massive thank you to you guys as well. The next one is going to be even bigger and better. We're thinking like MSJ down in Melbourne. I'm sorry, it's going to be a massive thanks. As I said, we'll leave it there. Let's have some beers and some wine [00:42:27][94.9]

Alec Renehan: [00:42:29] Cardross for nothing just to the end of the live show. The first live show. Not the loss. Yes, but we want to thank Stache for helping us put it on. You know we've been talking about stuff throughout these two episodes, how they give access to Wall Street, a zero-dollar brokerage. You can make trades in seconds. You can sign up in minutes if you use the offer. Code equity makes no space and funds your account within 24 hours, you get a free stock. So big shout out to steak for the work they're doing over there. [00:43:00][31.1]

Bryce Leske: [00:43:00] If you did miss tickets, the best way to not miss tickets in the future is to sign up to one of our emails, head to equity Match.com email and you will be able to get access first, pass access information, I guess first information on when the next shows will be live. So sign up to our emails, but otherwise Ren. We'll leave it there. Regular programming is back next week and always good to chat. [00:43:25][24.5]

Alec Renehan: [00:43:25] Regular programing. I like that. All right. Sounds good. Speaking next week. [00:43:25][0.0]

[2498.5]

More About

Meet your hosts

  • Alec Renehan

    Alec Renehan

    Alec developed an interest in investing after realising he was spending all that he was earning. Investing became his form of 'forced saving'. While his first investment, Slater and Gordon (SGH), was a resounding failure, he learnt a lot from that experience. He hopes to share those lessons amongst others through the podcast and help people realise that if he can make money investing, anyone can.
  • Bryce Leske

    Bryce Leske

    Bryce has had an interest in the stock market since his parents encouraged him to save 50c a fortnight from the age of 5. Once he had saved $500 he bought his first stock - BKI - a Listed Investment Company (LIC), and since then hasn't stopped. He hopes that Equity Mates can help make investing understandable and accessible. He loves the Essendon Football Club, and lives in Sydney.

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