Perhaps the latest scare out of the Surgeon General asking for warning labels that even moderate drinking can lead to cancer scared the drinking public. The problem, even though this “study” was being refuted by other experts, is that sales of beer, wine and booze have already been showing significant pressure from the after-effects of inflation.

The economy for beer, wine and spirits has been believed to be economically insulated against shocks for decades. Good day at work – “Let’s go celebrate!” Bad day at work “Let’s go have some drinks!” That is just no longer accurate, at least within reason. Even libations are suffering from the trade-down economy.

Many consumers are spending less on alcohol. One definite issue is the weight-loss trend from the GLP-1 craze. These people are simply drinking (and eating less). Another issue is that consumer prices having risen over 20% in the preceding 4 years is forcing consumers to make the trade-down — even if they are drinking regularly, they are buying less or cheaper beverages.

Another issue is that GenZ adults simply are not drinking as much as their parents and grandparents did. And Gen Z is also more prone to drinking low-alcohol or non-alcoholic beverages as well.

CONSTELLATION BRANDS SAYS…

Constellation Brands (NYSE: STZ) is the top public adult beverage supplier in America. Its beer business includes Corona and Pacifico and hose quarterly sales rose by 3% to $2.03 billion. The wine and spirits segment posted a drop of 14% drop in sales, even worse than the 12% drop the wine and spirits had seen the previous quarter.

Constellation noted in the release that wine and spirits weakness is due to continuing weaker demand and wholesale partners’ destocking efforts. That means that consumers and wholesalers are wanting to buy less wine and spirits — and the company lowered its annual outlook ahead based on near-term uncertainty whether or not consumers will revert to more normalized spending. Constellation’s CEO also noted the “adoption of broader value seeking behavior across consumer goods.” In short, people are trading down.

Constellation Brands’ stock was last seen down over 17% at $180, back at the 2019 share price and under the 2018 share price.

BROWN-FORMAN SAYS…

Brown-Forman (NYSE: BF-B) showed some weakness of its own just a month earlier. The company reported that sales of its Jack Daniel’s Tennessee Whiskey were down by 1% from a year earlier and its overall whiskey sales were down 3%. Unlike Constellation’s results, its stock rose as the company’s anticipation for a return-to-growth by maintaining 2% to 4% organic sales growth.

DIAGEO SAYS…

Diageo plc (NYSE: DEO) has also seen some news where a top fund manager decided to dump this stock over the impact that weight-loss drugs are having on alcohol demand. That fund manager is Terry Smith of Fundsmith, and he is worried that after strong demand for Guinness beer that “the entire drinks sector” is in the early stages of being impacted negatively by weight-loss drugs. This points to weight-loss drugs also eventually being used to curb alcoholism. And Diageo did issue its own profits warning in November.

A Christmas-time report from Reuters also pointed out that, despite bard still being full, customers are simply spending less when they go out now. The Reuters report even noted that customers were buying fewer expensive craft cocktails than before.

WHAT ABOUT BUDWEISER & COORS?

Anheuser-Busch InBev SA/NV (NYSE: BUD) may have done some self-serving damage on a marketing campaign blunder, but after a 5% drop its stock is nearing a multi-year low that may even put it near the 2020 lows when “the world was shutting down” over Covid. Molson Coors Beverage Company (NYSE: TAP) is a mere fraction of Anheuser-Busch, but a 5% drop in the stock now has its shares close to a 52-week low.

ABB InBev and Coors have both acquired into and participated in the rise of craft beers. They are also in the constant rotation of drinking trends from light beers to hoppy beers to seltzers and whatever is coming next.

THE RISE OF NEW BRANDS

Over the last fifteen years the rise in wine labels, alcohol labels and craft breweries seemed to only show growth. This came at the expense of big established brands. Then the big brands started buying the up-and-coming companies. All of the large beer-makers have acquired craft breweries. Wine labels have been purchased, and there have been high-profile deals in the spirits business with the large companies acquiring new vodka, tequila and whiskey companies.

Now those companies which sell craft beer and cocktails are facing the same woes as small independent restaurant owners — labor costs and occupancy costs (i.e. rent!) have gone through the proverbial roof. And all these owners can do to fight that is to raise prices, which just helps keep fueling inflation in the in-home and out-of-home food and beverage sector.

The Brewers Association has represented 2024 as a challenging year— “Craft has been going through a painful period of rationalization as demand growth has slowed and retailers and distributors look to simplify their offerings or add options for flavor and variety outside of the craft category.” It noted that the number of small and independent U.S. breweries in operation in 2024 totaled 9,736 — with 335 new brewery openings and 399 closings.

AND THE RISE OF NON-ALCOHOL BRANDS

Athletic Brewing recently raised $50 million in a private funding round. This company has already become the face of non-alcohol beers that are brewed and taste the same as regular and craft beers. A recent article about their capital raise noted that 41% of Americans are actively trying to moderate their alcohol consumption in 2024 (a 7% increase from 2023); and also 58% of consumers believe low- and non-alcoholic beer is a good alternative to moderate alcohol consumption long-term. Whether those hold true remains to be seen but this company is growing rapidly and has expanded its presence.

PERSONAL OBSERVATIONS

On a personal note, these “spending less and buying less” trends are being seen around the horn. Think about going out now versus pre-pandemic – the price of 3 drinks then is basically the price of 2 drinks now, or if not the cost of 4 drinks back then is the cost of 3 drinks now.

Another trend is that is obvious is drinkers switching to cheaper brands, and also cheaper venues. This is overall bad for the entertainment out-of-home.

The price of craft beer is also now so high that even for “plain old light beer” feels relatively expensive for a 6-pack or 12-pack. It is not unusual for craft beer to cost over $15 per 6-pack after taxes and if the retail establishment charges a fee for credit cards. If that doesn’t make people drink less, well actually it has to be contributing.

One unquantified issue that the bars and restaurants are dealing with is the war against tipping abuse. Frankly, it has become embarrassing because so many tip prompts are now defaulting to 18%, 20% or 22%… and many are happy to show higher tipping levels. The old tipping rule used to be 15% — and the IRS in the United States uses an 8% average sale of food and beverages as the baseline for determining the taxes owed food and beverage sales.

Many of the existing trends may be stuck in place for a long time. Some trends may pass, because, after all, things usually revert back to the way things were. Then again, smoking trends for combustible cigarettes were lower and lower for three decades.