Future of Alcohol: Fact vs Fiction

Alcohol is the oldest CPG category on the planet, at 8,000 years old. Low visibility on growth has led to a sell-off in the sector, which we believe is overdone. Affordability is the biggest headwind, but this is cyclical. The health and wellness theme is not new but is intensifying. Alcohol will remain a key social lubricant, but shifts in some markets need to be monitored. Brand building and innovation need to improve at a time of cost-cutting.

What’s new? Alongside our 3,600-person survey published today, we take a data-driven approach to what is a highly charged, emotional debate around whether current pressures owe to cyclical or structural factors. From a list of 27 headwinds for the sector, we identify four major headwinds below. The pressures are real but not insurmountable, in our view.

Economic moderation. Alcohol is the most discretionary category within consumer staples. Whilst consumer penetration of alcohol is holding up, pressure on real disposable income is driving economic moderation. This conclusion is borne out in our 3,600-person survey. On-trade is >10% lower than pre-pandemic, and in the US, affordability considerations are driving growth of small pack share and downtrading to RTDs. In the absence of a positive inflection in the external environment, the industry should lean on natural volume growth from EMs whilst ensuring category affordability in DMs.

Health and wellness moderation. Moderation has been a story for beverage alcohol for 60 years, given the core tenet to drink less but better. The health and wellness agenda has intensified post covid, given broader wellness trends, social media, weight-loss drugs and perceived stricter health guidelines. With wearables tracking every metric and influencers glamorising sobriety, self-prohibition is a headwind that is not going away. Beer has first mover advantage in adapting to low-and-no trends. Winners will likely be those who shape the moderation trend, not resist it.

Is the role of drinking in society changing? Alcohol has been central to the evolution of culture; per Edward Slingerland, “intoxication is a badly needed salve for the only animal on the planet afflicted with self-awarness”. We question whether alcohol is losing its traditional role as a universal social lubricant, given changing social norms, in some markets, across work, play and even dating – 69% of Gen-Z first dates are without alcohol. The role of alcohol as a social tool in EMs, where traditional growth patterns still apply, is unchanged. For DMs, a de-normalisation of alcohol from the public space could hamper the industry’s ability recruit the next generation of consumers.

Does marketing / innovation need to improve? With the exception of a few blips (2008, 2013, 2020), the industry has no recent memory of a prolonged downturn. Risk of over-innovation and ineffective marketing, at a time when A&P budgets are being slashed, are further headwinds. Given the focus on the “top priorities”, does the underinvested tail represent a soft underbelly for new entrants, such as RTDs, to exploit rather than consumers being recruited into spirits? This risks breaking the cycle of the last 25 years that has allowed spirits to relentlessly gain share. Brands and categories that will dominate growth over the next five years will likely be different to those in the past five years. Emotional/cultural relevance and functional differentiation are good places to kick start growth.

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Future of Alcohol: What Does This Mean for Growth?

Source: Jefferies

Ed Mundy

September 8, 2025

Whether the pressures on alcohol are financial or societal-driven is a mute point: the debate will only be put to bed when growth comes back. In the ’80s, US alcohol per cap dropped -20% and we use this as a proxy to find a floor and embed this into our refreshed forecasts. This implies we are half way through the downturn. On lower EPS, the sector is undervalued however with consensus needing to trim, we reshuffle our order of preference.

US – more cyclical than structural, but not yet bottomed. Our 3,600-person survey clearly shows that economic moderation is the key driver of weakness in the US today, given alcohol is discretionary and wallets are under pressure. However, both financial and societal factors are at play. With visibility on the timing of an inflection still low, the debate will move to where is the floor.

Back to the Future – learnings from the last alcohol bear cycle. Between 1980 and 1995, alcohol per cap in the US declined >20% from 10.5 to 8.1 litres. This reflected (a) macro: tough backdrop, which put pressure on discretionary spending (b) Regulation: min drinking age to 21 and stricter drink-driving (c) Health: fitness boom as fitness became a status symbol (d) Price: 1990 FET increase led to a high pricing, which put pressure on the category.

Doesn’t this all sound eerily familiar? Today’s headwinds: (a) Macro squeeze on disposable income (tick), (b) Regulation: moderation messages, albeit perceived (tick), (c) Health: fitness as a status symbol (Hyrox vs Jane Fonda) and weight loss drugs (tick), (d) Price: high inflation and tariffs (tick).

Whooa – we’re half way there…Based on our estimates, alc has dropped from a peak of 9.5l in 2021 to 8.3l by end of 2025, or half of the decline of the last bear cycle. In the absence of a major intervention, eg a severe tax increase / regulatory headwind, the industry could be close to trough. However, given low visiblity on when the market inflects and given the subdued growth backdrop, we now build in a further step down to 7 litres, which would take alcohol consumption to lower than 1960s levels (7.8 litres).

…but we’re not living on a prayer. We acknowledge that this could prove overly pessimistic, but see value in incorporating an aggressive floor to then backtest what is priced in at current, depressed levels. This scenario represents an aggressive reset rather than a slow puncture, unlike cigarettes combustibles.

Europe and EMs – no great inflection. We do not detect an inflection in Europe and EMs. Europe has been in decline for 60 years, from a much higher level than US but growth is there if you look hard enough – ie share of throat, premiumisation and innovation. The EM playbook is unchanged with tailwinds from demographics, middle class growth and increase in real dispoable income as inflation eases. China headwinds are also easing; we’ll see this in beer first, then spirits.

What have we done to estimates? We put through our scenario of a further -10% drop in US bev alc. This leads to EPS cuts of LSD to HSD for the EU bevs. However, after earnings cuts, valuations are undemanding vs staples and vs history.

Order of preference – EU. Preferred names (1) Beer – Carlsberg, HEIA, ABI. All are undervalued however Carlsberg benefits from lowest exposure to the US and highest exposure to soft drinks (2) Soft drinks – CCEP and CCH. Valuations have crept up but these are safe haven, consistent hard FX compounders (3) Spirits – RI & DGE, Remy. Preference for diversified plays. Both have self-help and growth is bottoming. Subdued trading in next 6M offers entry point.

Order of preference – Global. Within China bevs: (1) Beer (2) Spirits. Within US bevs: (1) Energy and soft drinks (2) Beer.