Trends brewing in the alcohol industry

With Spring Break in full swing and summer approaching, Piper Sandler takes a timely look at the U.S. alcohol market, a $90B industry represented by the major players: beer, spirits, and wine.

The preference for spirits over beer and wine has not changed dramatically over the past 10 years but beer drinkers are starting to catch up (based on sales, not volume). With the Hispanic population growing at 2x the general population in the U.S., Mexican beer brewers like Modelo (NYSE:STZ), Dos Equis (OTCQX:HEINY) and Tecate (OTCQX:HEINY) are reaping the benefits from the growth in the Hispanic population. According to Piper, in 2023, Mexican beer was the only alcohol import to increase, gaining 1.9% from the year prior. By comparison, statistics from Piper show alcohol imports from Ireland were down 15%, down 16% from The Netherlands, and down 31% from Belgium.

That’s good news for Modelo, brewed in Mexico and imported into the U.S. by Constellation Brands (STZ). With the former number one beer plagued by boycotts and a crippling billion-dollar loss in sales, Modelo (STZ) captured the top spot from Bud Light (BUD), once the most popular beer in the U.S. for over 20 years. In the wake of the Dylan Mulvaney boycott Bud Light (BUD) lost 415 basis points in market share while Modelo (STZ) gained 225 basis points. Other brands also benefited from Bud Light’s topple with Miller Lite (TAP) gaining 80 basis points of share, Coors (TAP) gaining 130 bps and Corona (STZ) up 50 bps since last April. Michelob Ultra (BUD) has now taken the number two U.S. beer spot from Bud Light (BUD).

The $38B spirits market has not seen much growth in revenue over the past year and is just edging out beer sales for a second consecutive year, although that lead is narrowing. While sales exceed beer and wine, the majority of consumers, as cited by Piper, prefer beer which continues to lead spirits and wine on a volume basis.

As a percentage of the $90B in revenue for the entire U.S. alcohol market, spirits have a 42.2% share, followed by a 41.7% share for beer, while wine was just 16.1%.

A third category (although technically considered beer or spirits under Alcohol and Tobacco tax rules) including seltzers, malt beverages, spiked teas, and ready-to-drink have been steadily gaining market share among younger drinkers. The popularity of brands like White Claw and The Boston Beer Company’s (SAM) Truly ignited a wave of imitators from mainstream brands like Anheuser-Busch (BUD), and Molson Coors (TAP), morphing into ready-to-drink options with harder liquor from Topo Chico (KO), Bacardi, and even coffee-infused cocktails. According to Piper, pre-mixed cocktails have become a $2.5B to $3.0B segment of the $38B spirits category with “strong double-digit volume and revenue growth” while sales for legacy hard seltzers have been declining.

Who’s drinking all of this? According to a Gallup poll, 62% of adults drink alcohol while 38% are teetotalers, a relatively stable trend since the mid-90s. Middle-aged adults, higher income consumers, and college-educated adults all have higher drinking rates than other demographics. Sixty-nine percent of 35–54-year-olds are more likely to be drinkers, up from 63% 20 years ago, while just 61% of 18–34-year-olds are drinkers down from 67% in 2001-2003. And for those over 55, the number of individuals who drink regularly has increased from 49% to 59% in the same 20-year period. It’s uncertain how cannabis influences this data, but considering most states legalized cannabis over the last few years, it’s unlikely to have much of an impact on the number of 18-34 year olds who drink.

Beer drinkers remain in the majority with 37% drinking beer, 31% liquor, and 29% wine. Although the consumption of wine remained steady until this year, liquor consumption has picked up from a 2018 low of 19%, corresponding to 42% of beer drinkers.