4 Alcohol Stocks Feeling The Sting Of Declining Sales

Alcohol companies are taking creative measures as Millennials are increasingly choosing a bowl over a pint

Feb. 4, 2020

It’s been 100 years since prohibition in the U.S., but where does alcohol stand?

Americans have always had a love affair with alcohol. Prohibition is the only amendment that has ever been repealed in the United States Constitution as restricting alcohol proved too much of a difficulty for the government.

Fast forward a century and America is still in love with alcohol — but with limitations. People today are more health-conscious and drinking less. Millennials and Gen Zers are consuming less alcohol in general, but specifically less beer. Reasons for this are centered on health and diet (alcohol, especially beer is not keto-friendly, for example). Most significant, however, is the rise of marijuana legalization in the United States.

Here is how a view of some of the players in the alcoholic beverage industry has faired lately.

1. Anheuser-Busch InBev SA/NV (NYSE: BUD), the world’s largest brewing company, acquired SABMiller in 2016, raising its debt to more than $100 billion. To deleverage, it cut its dividends in half in 2018 and sold its Carlton and United Breweries unit for $11 billion.

2. Constellation Brands (NYSE: STZ) has had a steady growth in the last five years, with revenue climbing 36.66%. Its Corona beer has tied with Budweiser sales in the U.S.

3. Boston Beer Company (NYSE: SAM), known for its Sam Adams beer, has had a steady rate of decline in beer depletions (cases sold to retailers) since Q4 2015, bottoming out in Q1 2017 with a 14% depletion drop. However, its seltzer sales have been on the rise through its Truly Twisted Tea range.

4. Brown Forman (NYSE: BF.B), makers of Jack Daniels, reported that underlying net sales grew 6% in the United States for the first half of fiscal 2020.

Dry January is a campaign that started in the UK in 2013 to encourage abstinence from alcohol in January after the revelry of the holiday season. It started with 4,000 participants and grew to a reported 4,000,000 by 2018. Although alcohol sales are generally slow in January anyway, the U.S. has seen a decline in the last few years, spurred on particularly by the drop in beer sales. Sales of domestic beer slipped 4.6% between October 2018 and October 2019, according to Nielsen.

Companies have taken steps to counter the effects of recent declines. As health-conscious consumers have taken to low- or no-alcohol beers, Anheuser-Busch created a position for Head of Nonalcoholic Beverages to manage brands like Prohibition (Budweiser without alcohol). In fact, it has committed to making 20% of its beers no or low alcohol by 2025.

All of the above companies, except Brown Forman, are partnering with cannabis companies as well. Constellation invested $4 billion in Canopy Growth (NYSE: CGC). Anheuser-Busch is working with Tilray (NASDAQ: TLRY) to develop cannabis-infused beverages. Even Boston Beer, after initially funding a campaign to restrict cannabis legalization, has plans to partner with a cannabis organization.

A joint study shows that alcohol sales dropped 15% in states where medical marijuana is legal. This makes sense as it’s less expensive than drinking and you don’t get the negative side effects like a hangover.

Although alcohol sales are in decline, particular types of alcohol are not affected or are growing. Premiumization has driven sales of high-end whiskey, tequila, and vodka. In fact, 2019 was the ninth consecutive year of record liquor sales and it’s why Brown Forman has seen growth recently. The Hard Seltzer sector has also had spectacular growth, projected to be worth $2.5 billion by 2021. Hard Seltzer is a low calorie, low-carb, low alcohol beverage and both Anheuser-Busch and Boston Beer have a line of hard seltzers on the market that are performing well.

Ultimately, it seems that America’s love affair with alcohol is evolving from a wild time into a more mature, sensible relationship. Manufacturers are taking steps to keep revenues climbing. Investments in lower alcohol products and the cannabis industry are good hedges against a slightly declining market.

What does the future hold for alcohol? Perhaps continued lower ABV beverages. Another possibility is a synthetic alcohol product, that promises to deliver all the fun of alcohol but none of the nastiness, which is currently in its research stage. I’ll drink to that.

MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.