Investing in moderation - how alcohol companies adapt to a drier world

Social change can have a huge effect on businesses, particularly consumer ones. 

For alcohol companies like Heineken, Pernod Ricard, LVMH and Diageo, social change is affecting drinking patterns.¹  Per capita alcohol consumption in the US fell around 3% in 2024.²  Global per capita alcohol consumption has been steadily declining for a decade.³
  
Gen Z’s light drinking habits have been challenging for some investors.⁴   According to 2023 Gallup research, ‘drinking prevalence’ amongst American 18–34-year-olds was 59% in 2024, down from 72% in 2013.⁵

Social online

In the age of social media, you can understand people’s reluctance to partake in a messy Saturday night. You can also understand how being constantly on camera fuels a desire for a healthier lifestyle for the sake of one’s appearance. The move towards more online socialising also means fewer in-person social interactions and therefore drinking occasions. 

Economic forces are also making the younger generation a drier one. According to the US Bureau of Labour surveys, alcohol as a share of total expenditure for Americans under 34 years has declined since 2012, while necessities such as housing and healthcare make up a larger share than they did in the past.⁶ 

There is evidence that lower alcohol consumption is at least in part cyclical. Studies by Heineken and others suggest once younger people reach full working adulthood (and hence higher disposable income), drinking prevalence reverts to the patterns of prior generations at that age.  

Alcohol companies are adapting to the structural and cyclical changes facing their industry using some innovative product, pricing and marketing strategies. 

Less but Better

Alcohol executives I speak with emphasise that while consumers may be drinking less, they prefer to stick with premium brands if they can - for taste and social cachet - rather than trading down to lower priced alternatives. 

Companies are adapting by shifting their brand portfolios to the premium end and offering smaller pack sizes. Heineken launched smaller cans in markets such as Africa and Vietnam. Don Julio’s famous 1942 bottles are now available in miniature form.⁷

Diageo management also note the ‘zebra-striping’ trend, where consumers manage their budget - and risk of inebriation - by switching between alcoholic and non-alcoholic beverages on a night out. 

Getting into the spirit(s)

Spirits have been gaining share from wine and beer in the US as beneficiaries of the premiumisation and moderation trends.⁸  

Diageo management note that American Gen Zs purchase spirits at an earlier age than other generations. Spirits have a broader pricing window, allowing for more premium offerings. The ability to customise the alcohol and calorie content of your drink also plays into spirits’ favour. 

Spirits also allow consumers to experiment with different flavour combinations. We have been hearing from food companies about younger consumers’ preference for bold and experimental flavours. Alcohol companies are encouraging consumers to take this one step further and pair spirits with food.⁹  

Embrace ‘non-alc’ alternatives

Rather than taking significant share from alcoholic counterparts, non-alc alternatives appear to be helping alcohol companies expand their reach into new occasions and demographics they couldn’t previously access. 

Non-alc Heineken 0.0 is reported to have cannibalised roughly 25% of Heineken’s beer sales, meaning 75% of non-alc purchases are for new occasions - like the 0.0 beer Heineken’s CFO offered me at 11am during our last meeting. There is also talk that Diageo’s Guinness 0.0 is helping revive the Irish pub scene. 

Portfolio theory

The Covid boom and post-Covid malaise in the alcohol industry teach us that consumer preferences change like the tide. Some of the strongest consumer companies sell a portfolio of leading brands serving different market segments and geographies to help weather those storms. They focus on innovation so they can meet evolving consumer needs better than their competitors. Alcohol companies are no different and are rising to the challenge. 
 

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1.We hold Heineken in the Platinum European Fund.
2.Bernstein estimates
3.www.who.int/data/gho/data/indicators/indicator-details/GHO/total-(recorded-unrecorded)-alcohol-per-capita-(15-)-consumption
4.People born between 1996 and 2010
5.www.news.gallup.com/poll/648413/alcohol-consumption-increasingly-viewed-unhealthy.aspx
6.www.bls.gov/cex/tables/calendar-year/mean-item-share-average-standard-error.htm#rf-age
7.Don Julio is one of Diageo’s tequila brands
8.www.niaaa.nih.gov/publications/surveillance-reports/surveillance121
9.www.diageobaracademy.com/en-zz/home/masterclass-webinars/the-art-of-spirits-food


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