financial-engineering.net - Big spirits stocks from premiumization to mass market

It's an interesting article, but I think it's overstating and oversimplifying things a bit in some ways. I'm not sure it's quite as simple as he makes it out to be - paraphrased as the problem being a clear glut relative to demand.

The chart that he shows in terms of spend on alcohol broken down by those horrible birth year cohort names is more than a bit misleading. The more important metric is how much people are drinking (or more importantly for alcohol firms, spending on drinking) prior to previous generations at the same age.

For example, I have one set of figures that shows that real spending on alcohol among 35-44 year olds is down a scary 4% compared to 20 years ago. So essentially all of the bear case, which is certainly not all unjustified, is related to the fact that younger drinkers, under 25, aren't drinking nearly as much as similarly young drinkers did in the past. In real dollar terms, on the order of half what old levels were 20 years ago. (not the ~86% drop the article's chart implies). Some fraction of that effect may be cyclical--K shaped economy and all that. Those young'uns were always big drinkers because peak alcohol consumption is often around age 25, but they were also always relatively poor and didn't account for as dominant a portion of revenues. Another confounding thing is that looking at revenue drops from peak often means looking at revenue drops from an unsustainable Covid-triggered spike.

Putting those things together, the *only* big question for the future of the businesses is whether young folks who spend less on alcohol than similarly young folks in the past will eventually become middle aged and old folks who also underspend by comparison to their same-age predecessors. This is not at all the same as the question of whether current sales are really bad, as they aren't. Recent real sales for the group of big names are down roughly 0-5% compared to 2019. Remy Cointreau has been hit hard, down -30% in real terms, but that's partly specific to them. Campari is up 30%. Diageo, Pernod Ricard and Brown-Forman are all in the range of +5% to -8%. BF is being hit recently more than most other firms by boycotts of US spirits by Canadians (including me, as it happens: I am now a bourbon-free zone). I presume some part of that small current real drop among the big firms is loss of market share to smaller firms selling ready-to-drink canned products--cocktails and specialty drinks.

Jim