Shift in drinking habits wipes US$830 billion off alcohol stocks
The main challenge facing the industry is a change in behaviour
[MELBOURNE] Shares of the world’s top listed beer, wine and spirits makers have shed a combined US$830 billion in a little more than four years as the industry grapples with monumental change.
That’s the total loss in market value, as a Bloomberg gauge of some 50 companies stands 46 per cent below its June 2021 record high.
Shifting drinking patterns and rising health concerns have hit earnings, compounded by US tariffs, the impact of buoyant interest rates on consumer spending and even elevated commodity prices.
In China, weak household confidence and a booze ban for official functions have added fuel to the downtrend.
The result is a wave of pressure facing companies behind some of the world’s most popular drinks that has left them adrift from the record rally in global equities. Instead, these businesses are struggling to adapt to new commercial dynamics that have caught many by surprise.
“There is a structural change going on – people are drinking less,” said Sarah Simon, an analyst at Morgan Stanley.
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This year, shares of European giants Diageo, home to the Johnnie Walker and Smirnoff brands, Pernod Ricard and Remy Cointreau have all hit the lowest levels in at least a decade. Jack Daniel’s owner Brown-Forman and Australia’s Treasury Wine Estates have similarly slumped. Chinese baijiu titan Kweichow Moutai is trading more than 40 per cent below its 2021 high.
Stock price declines may extend further with alcohol producers grappling not just with hits to revenue, but also elevated levels of debt and management churn as they adapt to a sector in flux, according to Simon.
Shifting patterns
The main challenge facing the industry is a change in behaviour. In August, a Gallup gauge of US alcohol consumption fell to the lowest since records began in 1939. Warnings from the likes of the World Health Organization and US Surgeon General have sapped demand among Gen X. At the same time, alcohol has become less fashionable for millennials and Gen Z.
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A teetotalling trend among celebrities has compounded the decline, with Tom Holland and Katy Perry hawking non-alcoholic drinks. The popularity of GLP-1 weight-loss drugs such as Ozempic and the emergence of alcohol alternatives such as cannabis have also dented booze sales.
“We have seen four times the impact of the financial crash on alcohol consumption,” said Laurence Whyatt, an analyst at Barclays. “The market believes there’s been some sort of structural change and that we are not going back to the growth rates that we had in the past.”
The crunch has led to a flurry of deals and product debuts. Carlsberg unveiled a non-alcoholic cider in February and Davide Campari-Milano launched its alcohol-free Crodino in the US in May.
Last year, Diageo acquired Chicago-based Ritual Zero Proof Non-Alcoholic Spirits, while Moet Hennessy, the drinks arm of luxury giant LVMH, purchased a stake in French Bloom, which makes a high-end sparkling beverage.
Some corporate moves have been more dramatic, including restructurings and job cuts. Chief executives have been changed this year at Diageo, Remy Cointreau and Campari in Europe, Treasury Wine in Australia, Molson Coors Beverage in the US and Suntory Holdings in Japan. Moutai has seen two chairmen depart in less than two years.
“It is notable that in an industry where a lot of changes are occurring, suddenly there is also a lot of management change,” said Morgan Stanley’s Simon. The analyst noted she has more underweight recommendations in beverages than in any other category in European consumer staples.
Value trap
Not all are negative on the sector, however, with some seeing an opportunity to buy after the massive sell-off. The Bloomberg gauge of global alcohol stocks is trading at around 15 times forward estimated earnings, less than half its 2021 high.
Cook & Bynum, a value hedge fund in the US, has grown positions in Brazilian beer distributor Ambev and Peruvian brewer Backus y Johnston, according to Richard Cook, partner and portfolio manager at the firm. The two stocks have fallen this year, but Cook maintains an upbeat outlook given the dominance in their respective markets and steady earnings, he said.
“We don’t think that humans are going to stop drinking alcohol,” Cook said. Brewers in growing emerging markets will sell more beer and “the beer they sell is going to be more premium and higher margin over time”, Cook said.
Other investors hoping for turnarounds have also seen losses, including the king of value investing Warren Buffett. Shares of Constellation Brands, which owns Corona beer, have slumped roughly 40 per cent since Buffett’s Berkshire Hathaway began building a position last year.
Milwaukee hedge fund Artisan Partners has grown its holding in Diageo to more than 50 million shares from less than nine million as at the end of last year. The stock is down about 30 per cent in 2025.
Uncertainty over the alcohol industry is drawing comparisons to tobacco’s trajectory that “would have been inconceivable five years ago”, said Andrew Gowen, head of research for Bell Asset Management. Negative volume growth will push companies to cut costs and build out cheaper options, he said. His firm is avoiding the sector given lack of clarity over long-term prospects. BLOOMBERG
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