Affordability is the biggest headwind facing the bev-alc industry, according to survey results released Monday from investment banking firm Jefferies.
The 3,600-person survey focused on the “highly charged, emotional debate” around cyclical or structural factors putting pressure on the industry. From a list of 27 headwinds for the sector, the firm identified four major headwinds, with economic concerns the leading driver toward moderation.
Money was the highest-ranked reason for U.S. survey respondents who aim to drink less over the next 12 months – up 58% compared to 36% in 2021. For respondents 18- to 24-years-old, the gap versus 2021 is even wider (55% compared to 23%). The pressure on disposable income and the discretionary nature of alcohol has led respondents to prefer drinking at home, and is driving growth of small pack share and ready-to-drink (RTD) beverages, according to the study.
“U.S. wallet headwinds are largely cyclical, not structural, and consumption should improve as purchasing power grows,” according to the report.
Jefferies analysts echoed newer narratives that as disposable income and job security rise, attitudes and consumption patterns will evolve more favorably (more frequent and less intense) among the existing 18- to 24-year-old cohort, which drinks 17% less than other age cohorts.
Winners Will Shape, Not Resist Moderation Trend
Given broader “wellness trends, social media, weight-loss drugs” and perceived global stricter health guidelines, self-prohibition is also not going away, added the report.
“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,” read the report.
But similar to survey results from 2021, the majority of respondents did not consider moderate consumption (one to two drinks per sitting) harmful. Hangovers and headaches are the biggest gripes about health for the younger cohort but as consumption patterns normalize, analysts expect this to ease.
Still, with the economic and physical costs weighing on Gen Z, Jefferies analysts questioned if alcohol is also losing a traditional role as a universal social lubricant among changing social norms. As an example, 69% of Gen-Z first dates are without alcohol.
The role of alcohol as a social tool in emerging markets, such as India and China, where traditional growth patterns still apply is unchanged.
“But for developed markets, a de-normalization of alcohol from the public space could hamper the industry’s ability to recruit the next generation of consumers,” read the report.
Another headwind? Risk of over-innovation and ineffective marketing, at a time when advertising and promotional budgets are being slashed.
“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?” the report asks.
The brands and categories that will dominate growth over the next five years will likely be different from those in the past five years, added the report. Premiumization, innovation and price-pack optimization were called out as core long-term drivers.
“Emotional/cultural relevance and functional differentiation are good places to kick start growth,” read the report.