Alcoholic beverage companies are facing a sobering outlook in the U.S. market. According to a new report by Berenberg, the relatively strong U.S. alcoholic beverage business has peaked and will likely stagnate in the next 10 years. Analyst Javier Lastra says U.S. alcohol consumption per capita will drop 0.4 percent annually for at least the next decade.
Berenberg estimates U.S. alcohol consumption increased 15 percent from 2005 to 2015 while consumption fell in many large European markets, such as Germany (-7 percent), France (-4 percent) and the U.K. (-6 percent).
Lastra says there are three primary factors contributing to the weakening U.S. market. First, a maturing millennial generation will likely become more health-conscious and dial back its alcohol consumption. In addition, Berenberg believes new Generation Z consumers who are reaching the legal drinking age are less prone to alcohol consumption than previous generations.
Second, a shift in ethnic demographics in the U.S. suggests a more challenging market for beverage companies. Historical data indicates the growing Hispanic and African-American populations tend to consume less alcohol than Caucasian drinkers.
Finally, Lastra says the U.S. female alcohol market is reaching maturity. Female per capita alcohol consumption in the U.S. grew by 24 percent from 2000 to 2015. The growth was driven millennial females, who consume 40 percent more alcohol per capita than their Generation X counterparts.
Total U.S. alcohol consumption increased at a compound annual rate of 1.5 percent from 1995 to 2005, but Berenberg estimates that growth will slow to just 0.2 percent annually through 2040.
Lastra says the beer market will be hit particularly hard. Berenberg estimates total beer volumes will decline 0.4 percent annually through 2030. “We continue to favor exposure to emerging markets, where demographics are a tailwind for alcohol consumption growth,” Lastra says.
For investors, Berenberg prefers Anheuser Busch Inbev (NYSE: BUD) to Molson Coors Brewing Co. (TAP). Both companies are exposed to the softening beer market, but Anheuser Busch gained a significant presence in emerging markets with its buyout of SABMiller.
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