The FT has learned of a $22 billion "lake" of unsold alcoholic drinks.

The historic decline in demand for Scotch, whiskey, cognac, and tequila has left alcoholic beverage producers with a backlog of unsold spirits. They are forced to temporarily suspend operations at their distilleries and reduce prices to clear out the bottles piling up in warehouses, The Financial Times reports.

According to financial statements from the five largest publicly traded spirits companies (Diageo, Pernod Ricard, Campari, Brown Forman and Rémy Cointreau), they hold $22 billion in aging spirits inventory, the highest inventory level in more than a decade.

For example, French cognac producer Rémy's €1.8 billion maturing cognac reserves are now almost double its annual revenue and close to its full market capitalization.

The company's CEO , Frank Marilli, stated that due to the surplus of raw spirit, prices will be forced to decrease. The price of Hennessy cognac in the US has also dropped: during the pandemic, it reached $45 per bottle, and now it's down to $35.

Furthermore, producers are forced to temporarily close their distilleries to cope with the workload. For example, the Japanese beverage group Suntory has closed its main Jim Beam bourbon distillery in Kentucky for at least a year. Diageo, meanwhile, has suspended whiskey production at its facilities in Texas and Tennessee until the summer.

Barrels of spirits began piling up after companies responded to the boom in alcohol consumption during the Covid-19 pandemic by sharply increasing production. In March 2021, the FT, citing analysts and alcohol producers, reported that 2020 saw a surge in demand for more expensive and stronger alcohol worldwide , with people opting for such drinks over beer and wine.

As the publication notes, many turned to high-end spirits and homemade cocktails when bars and restaurants were closed. This also happened because many were unable to go on vacation , leading to savings that they used to purchase higher-quality alcohol.

Jefferies analyst Ed Mundy told the FT that the pandemic has led to a "surge in sales" of alcoholic beverages. He said wealthy individuals who remained employed took advantage of lower retail prices compared to those in bars.

Diageo, one of the world's largest alcohol producers (brands Johnnie Walker and Guinness), reported that tequila sales grew by 80% in 2020. The company's CEO, Ivan Menezes, noted that the trend away from wine and beer toward stronger spirits intensified in 2020.

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