"We can't supply enough." That's what Suntory Holdings CEO Takeshi Niinami said about U.S. demand for the company's premium Japanese whiskies. The company also manufactures whiskeys such as Jim Beam and Maker's Mark in the U.S. Niinami says that, overall, consumers are trading down from ultra-premium to premium and premium to standard, which is reflective of the overall trend of consumer shifting their spending habits. When it comes to the recent surge in popularity of tequila, Niinami says the demand has stemmed from younger generations, but "mostly millennials." Niinami explains these customers are not drinking a lot, but they are buying premium options, though they are seeing a similar trade down from premium options recently.
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
BRIAN SOZZI: Welcome back to Yahoo Finance. Now, the US consumer may be showing signs of slowing down, but does that mean they're pulling back on their favorite alcoholic drink? Let's dive into the business of alcohol, notably whisky. Suntory CEO Tak Niimani joins us now. Tak, good to see you. It has been a while.
Now, of course, Suntory very much a global business playing in many big markets. Let's start in the US here. We've been talking all morning long about a consumer spending slowdown-- more cautious consumers when it comes to consumer confidence. How are you seeing the US consumer look through the prism of your business?
TAKESHI NIIMANI: I think we've been seeing the trade down from ultra premium to premium and the premium to standard. I think consumer confidence has been declining. We are responding to that change because we have the wide range of American whiskys, tequila, Japanese whisky, and so forth.
But we had the strategy and all the industry players had the strategy called the premiumization. I think that is a right strategy still because quality assurance is so important, and our strength is always pursue quality to exceed our consumers' expectation. Having said that, we have to understand the current consumer confidence, which is declining. But is that long-term or short-term, mid-term, which we don't know yet.
BRIAN SOZZI: How are you seeing the consumer-- let's just stay in the US here-- for those really higher priced Japanese whiskys that you sell. So you're maybe seeing some weakness in those mid-tier brands, but that ultra-- those ultra blends that you put out, what are you seeing there?
TAKESHI NIIMANI: A Japanese whisky like ours is still attracting consumers. The reason behind is, I'm afraid to say, but we can't supply enough. So still demand is much higher than our supply, such as Yamasaki Hibiki, because of the strict policy not to compromise the quality of our whisky. So we can't supply enough. So in that sense, still our whiskys, like Yamasaki Hibiki are chased by consumers. My mission is to apologize to consumers.
BRIAN SOZZI: Is the business of tequila still on fire? And as someone who has been operating in this business for many years like you, help us understand why tequila is so in focus and so in favor with consumers.
TAKESHI NIIMANI: I think tequila is catching new customers in the States, and it's been attracting especially younger generation such as millennials and Gen Z-- mostly millennials. And well, young people don't drink a lot but the premium. Having said that, the trade down of tequila has been happening here from ultra premium to premium. And we have Hornitos, which is very much a fit to the current change.
And having said that, another factor is the price of agave has been declining, so I think it's a good sign for us to be able to enjoy more profits. But again, we have to take a look at the trend of the consumers. Younger consumers, they want to stay with their premium or to order the standard, I believe they will stay at the premium but not ultra premium.
BRIAN SOZZI: So you mentioned some weakness here in the US in certain areas. Are you seeing that in emerging markets like China?
TAKESHI NIIMANI: Yes, China has been shifting toward the single malts-- I mean single malt whisky-- from their local baijiu. This trend has been accelerating so much. Though China is more or less setting down the kind of exported to the imported spirits, but the general trend of young generation in China wants to drink a single malt whisky and including, to some extent, the very, very quality blended scotch whisky as well and the Japanese whisky.
BRIAN SOZZI: You mentioned some investments or the product what you make continues to be in short supply. How are you investing to ultimately increase that supply? And then you know, I just-- I'm really just fascinated by your business. So you know, Warren Buffett earlier this year started making a lot of investments in Japan. Talk to us what he might be seeing in that Japanese economy. Why are you making those investments, and why is an investor like a Warren Buffett making those investments in Japan?
TAKESHI NIIMANI: Now, first of all, I think the current administration wants to bring more investment from abroad such as easing the grip of the older regulation, not to mobilize labor. Now people started to change jobs. Second are higher wages than before, which motivates people to think something new. So that means we have more startups than before and even big corporations started to invest to Japan.
The reason behind it is mostly perhaps the fluctuation of Japanese yen versus dollar. We better invest to Japan. And we have lots of inbound visitors, so there are lots of investment frontiers now in Japan because one thing-- we didn't do a lot of things. So there is a huge room for us to improve, for us to do something new because we didn't do, such as even digitalization. We are lagging behind from the United States and perhaps Europe and China, but we started to change the landscape of Japan from deflation to moderate deflation.
BRIAN SOZZI: Tak, lastly, before we let you go, I think a lot of investors on our platform only know you as leading Suntory on this global basis and driving a very large transformation of your company in Japan and around the world. How have you protected that very interesting and-- very interesting culture of a Suntory, and how do you ultimately, at some point, hand that off to the next generation?
TAKESHI NIIMANI: First and foremost is we should not compromise our quality story and plus try to let the drinkers, the consumer, the fans understand our culture to live with the nature. That's a huge asset of Suntory as well as Japan. So that is our differentiation.
BRIAN SOZZI: All right, we'll leave it there. Suntory CEO Tak Niimani. Always a pleasure to get some time with you. Full disclosure, I've had a lot of your whiskies before, so I look forward to staying in touch.
TAKESHI NIIMANI: Thank you very much.