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Changing tastes create winners and losers in booze industry

Monday, June 10, 2019   (0 Comments)
Posted by: Leila Abboud, Financial Times
These are strange times in the booze business.

Beer is being marketed as a wellness drink to enjoy after a tough workout. Designer soft drinks known as "alcopops” are growing in popularity despite often resembling liquid junk food. The world’s biggest spirits company Diageo proudly markets Seedlip, a non-alcoholic, botanical-infused drink for those who eschew alcohol but want a gin-like flavour.

Worldwide alcohol consumption fell 1.6 per cent to 27.6bn cases last year, according to IWSR Drinks Market Analysis, with the blame (or credit depending on your point of view) being laid on consumers’ desire for healthier lifestyles. But growth is expected to return with alcohol sales by volume rising 3 per cent over the next five years driven in part by emerging markets. People are trading up to high-quality products, prompting companies across the sector to trumpet how "premiumisation” will lift profits.

But dig deeper and it is clear that changes are afoot that are creating winners and losers in the alcoholic beverage industry.

One of the biggest casualties is the declining in popularity of beer, especially in mass-market lagers, which is most pronounced in the US.

Anheuser-Busch InBev, the world’s biggest brewer, has been losing market share in the US for years because its flagship Budweiser and Bud Light brands do not appeal to consumers seeking the more complex taste profiles typified by craft beers. While US trends have improved in recent quarters, AB InBev is also hedging its bets by investing outside beer. It is testing a machine nicknamed the Drinkworks Home Bar that uses coffee-like pods to make cocktails at home. It bought a San Diego-based maker of canned cocktails called Cutwater Spirits this year for an undisclosed price.

"Many younger legal-drinking-age consumers are gravitating away from beer to other categories, which in the US includes legalised cannabis,” says Mark Meek, CEO of IWSR. For example, ready-to-drink cocktail sales by volume grew 5 per cent last year.

Spirits are also gaining in popularity among drinkers, helping Diageo, France’s Pernod Ricard; China’s Kweichow Moutai; and America’s Brown-Forman to enjoy strong growth in recent years. Consumers in emerging markets such as India and China are drinking more spirits and as their incomes rise, they turn to international brands as a sign of prestige. In a sign of the times, Diageo trades on a roughly 19 times enterprise value-to-ebitda multiple, more the double the FTSE 100 average, while ABI is on 12 times.

Within spirits, what people drink is also changing: vodka has lost share in recent years, while gin and tequila have grown. Such shifts tend to occur every 10 years or so in spirits, industry executives say, so big distillers try to be present across categories to blunt the effects.

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