In this piece, we will take a look at beer loses fizz as spirits gain popularity: Top 10 stocks to buy.
With 2024 heading to a close, the alcoholic beverages industry is also changing. Data from the Distilled Spirits Council (DSC) shows that spirits continue to gain over beer, which has traditionally been the go-to alcoholic beverage of choice. In 2023, spirits held more than 42% of the total market to mark a 13 percentage point gain since 2000. These shifts are coming at a time when Americans’ attitudes relating to alcohol are significantly changing. For instance, a very detailed survey from Gallup asked participants a plethora of questions surrounding their drinking habits and their perceptions of alcohol’s role in society.
When compared to participants surveyed in 2001, when 22% of participants viewed alcohol as good for health, this figure dropped by more than half in 2023 and sat a two decade low of 10%. Similarly, confirming the DSC’s data, while 47% of participants had drank beer the most often in 1992, not only did this percentage drop to 37% in 2023, but the figures for wine and liquor jumped to 29% and 31% from 27% and 21%, respectively.
29% drank no alcohol in the past week in 1987, while 33% reported the same in 2023. Other research also shows that while 72% of 18 to 34 year olds had reported having a drink in the past year between 2001 and 2023, this dropped to 62% as of 2024. This suggests that the trend for lower alcohol consumption is driven primarily by young people as the percentages increased for both 35 to 54 year olds and those aged above 55.
Building on this, while the dropping alcohol use might intuitively sound bad for the liquor industry as it contributes to lower sales, the reality might be a bit different. This is because lower intensity of alcohol consumption leads to better health outcomes and more long term business for the alcohol companies. Additionally, with the rising demand for spirits, younger drinkers tend to be focused on sweeter drinks like tequila or its close cousin Mezcal. This is because while the sales of America’s favorite spirit, vodka, remained flat in 2023, tequila/mezcal sales grew by 7.9% annually to sit at $6.5 billion and edge close to vodka’s dominant market position of $7.2 billion.
Additionally, Americans continue to be driven by convenience too, since the fastest growing spirits category is premixed cocktails or ready to drink (RTD) alcohol. While this category’s share of the market is relatively smaller at $2.8 billion, it jumped by 26.8% annually and was the only spirit with a double digit percentage market share gain.
While it’s possible that the drop in alcohol consumption is because of a health conscious population (with 39% believing in 2023 that alcohol is bad for health, up from 27% in 2001), it’s also possible that other recreational products such as cannabis and psychedelics are taking over. For cannabis, 2024 has proven to be a pivotal year as more users get to try it due to growing legalization and decriminalization. On this front, data gathered by the Substance Abuse and Mental Health Services Administration (SAMHSA) provides insights. The SAMSA’s 2019 National Survey on Drug Use and Health revealed that 50.8% or 139.7 million people reported drinking alcohol. The same survey for 2022 saw this figure drop to 48.7% or 137.4 million people. Crucially, 54.3% or 18.3 million aged 18 to 25 had drank within the past month in 2019, while in 2022, this figure was 50.2% or 17.5 million.
So, it’s clear that alcohol use has dropped in between 2019 and 2022. For marijuana, its use is growing on the other hand. In 2019, 35.4% of the same age group were marijuana users, which was significantly higher than the 29.8% in 2002. Overall, 17.5% or 48.2 million people used marijuana in the past year in 2019, up from 11% in 2002. In 2022, this figure had jumped to 61.9 million people. Another key study that directly analyzes whether marijuana is gaining over alcohol in popularity comes from the Addiction Journal. It analyzes the SAMHSA’s data between 1992 and 2022 to report a 15x per capita rate increase in cannabis use.
Numerically, 17.7 million people reported using cannabis on a daily or near daily basis in 2022, which was three million higher than the 14.7 million for alcohol use. Similarly, the intensity of cannabis use was higher as the median cannabis user reported using 15 to 16 days in the past month while the median drinker drank for 5 to 6 days.
To sum it up, right now, alcohol use is dropping, younger drinkers prefer sweeter drinks and spirits over vodka and beer, and the rate and scale of cannabis use are increasing. With these details in mind, let’s look at the top ten alcoholic beverage stocks to buy.
Photo by John Fornander on Unsplash
Our Methodology
To make our list of the top ten alcohol stocks to buy, we ranked the 40 most valuable alcoholic beverage companies that trade on the NYSE and NASDAQ by the number of hedge funds that had bought the shares during Q1 2024. Out of these, the stocks with the highest number of hedge fund users were chosen.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10. SNDL Inc. (NASDAQ:SNDL)
Number of Hedge Fund Investors in Q1 2024: 7
SNDL Inc. (NASDAQ:SNDL) is a Canadian liquor store and cannabis company. It operates its own branded liquor stores, which provides it greater visibility into consumer trends and allows SNDL Inc. (NASDAQ:SNDL) to tailor its sales to changing tastes such as the preferences for spirits over beer. Additionally, since it sells a variety of cannabis products such as vapes and flowers, SNDL Inc. (NASDAQ:SNDL) is also able to profit from the growth in cannabis use that might end up replacing alcohol entirely. However, since SNDL Inc. (NASDAQ:SNDL) is a small company (with total assets of C$1.4 billion and cash of $201 million) it is more vulnerable to economic downturns than some of the larger companies on our list. It hasn’t turned a profit in its last four financial years either, and its exposure to the cannabis industry particularly through vapes means that SNDL Inc. (NASDAQ:SNDL) might lose profitable products in case health regulators introduce more regulations.
SNDL Inc. (NASDAQ:SNDL)’s management commented on its liquor retail business during the Q2 2024 earnings call where it shared:
“Net revenue in the second quarter of 2024 for this segment was $114.6 million, a decline of $11 million or 7% compared to the prior year. This decline was driven by a [inaudible] Eastern time in between March and April when compared to 2023, but mostly due to market slowdown as they’re probably seen being reported by most liquor manufacturers in North America. We believe this is not indicative of structural challenges in the industry, but due to short-term consumption dynamics. Despite this macro headwinds, we continue to expand gross margin, reaching 25.4% in the second quarter, an improvement of 210 basis points compared to last year.
This was achieved through multiple initiatives including a 10% growth of our margin accretive private label, procurement productivity, and data sales monetization. As a result of this margin expansion, the segment’s gross profit and operating income delivered low single-digit growth versus the same quarter of 2023.”
9. Ambev S.A. (NYSE:ABEV)
Number of Hedge Fund Investors in Q1 2024: 14
Ambev S.A. (NYSE:ABEV) is one of the biggest brewers in the world which enjoys a considerable market share and brand recognition through its products such as Corona and Budweiser. This means that the firm has an established market position, and the pressure on it to grow is less when compared to upstarts. At the same time, as we highlighted in the introduction to this piece, spirits are rapidly gaining share over beer, which means that Ambev S.A. (NYSE:ABEV) might see its volume decline in the future. Its best known brands are beer, and the company might benefit from the fact that some of the biggest markets for Corona are Argentina and Brazil. Ambev S.A. (NYSE:ABEV), like other liquor and alcoholic beverages stocks, depends on inflation for its stock performance and the lower inflation is the higher its volumes shipped are.
During its Q2 2024 earnings call, Ambev S.A. (NYSE:ABEV)’s management remained optimistic about its brand strengths and shared:
“Corona in the super premium is the brand with the highest brand health to market share ratio in the market. And it relates to values like balance, enjoying life, traveling and unwinding. On top of that it has a distinctive packaging, a liquid that is made with 100% natural ingredients and is more refreshing. Spaten in premium is one of the highest growing brands of the market. And it has very clear beer credentials, which positions it as a beer authority in Brazil. It has been selected as Brazil’s best pure malt beer by a group of beer specialists in a survey from O Estado de Sao Paulo newspaper. Budweiser is the most aspirational core plus brand in the market. Through its global events like the World Cup and international music festivals such as Lollapalooza and Tomorrowland it is seen as an iconic and youth brands.”
