Alcohol stocks, an investing complicated story
If we look at the global financial turmoil within the past three years starting with the pandemic and peaking with Ukranian conflict, we can’t help but notice how the markets have split quite sharply between thriving and declining industry sectors. In broad terms, pharmaceuticals and internet stocks have boomed during lockdowns followed by energy players when war broke out, while traditional retailers, airlines and hospitality businesses suffered most in the first period tailed by a massive cash-in off tech companies. A big chunk of dot-com still has to fully recover, giants like Amazon, Google and Meta for example, as of May 2023 are respectively trading 40%, 20% and 30% down the all time highs recorded in August 2022. Having shown very much mixed conducts independently from main market trends, booze stocks somehow represented an anomaly with some of the leading groups overperforming major indexes throughout the whole period. Truly free-spirited.
However, there are clear gaps. Among the 20 largest alcoholic beverage companies worldwide, if we consider a timeframe between the post-covid shock lows of March 2020 and recent May 2023 prices, shooting stars from three different regions have dominated investors preference: Constellation Brands, Campari Group and LVMH (this last one driven mostly by fashion goods but with its wine and spirits division boosting profits by 55% since 2020). Put into perspective, they overperformed own country index by respectively 18%, 26%, 113%, dwarfing the abive mentioned tech giants by a weighted average of 65%. On the bitter side, brand owners such as Bacardi Brown Forman, Pernod Ricard, beer companies such as Inbev, Heineken, Carlsberg and more generally Chinese brewers have suffered lower rates of growth, underperforming main indexes in the same period of time.
Looking closely to Constellation, Campari and Moet Hennessy success and trying to detect a common trait, we can certainly say that these companies are not scared of innovation, on the contrary they embrace it. Culture here is the main factor, if compared to large brewers or more conservative spirits brand owners, these trinity managed really well throughout market gloom also because perceived as better projected into the future. Constellation has invested heavily in Canopy Growth, leading global marijuana company with a cannabis drink in portfolio. It hasn’t be so far a good move, as the $3.9 billion initial bet took a $1.1 billion writedown back in october 2022, however this stake could be mostly seen as reaching out future potential policy developments in the west. 37 states in US have approved cannabis for medical use, 10 have passed laws for the use of CBD and minimum amounts of THC. As said by David Culver, vice president of government relations at Canopy, President Joe Biden “has set into motion the actions needed to heal the harms of the past and chart a course for responsible, legal cannabis markets in the future”. This outlook, combined with a strong performance of the more traditional lines within the portfolio may have led investors to prefer the group as having on one side a solid structure for creating wealth in the present while on the other preparing for a future potential switch in trends.
Aperol has played a big part at Campari since its UK launch in 2015 and still has a dominant role. For future reference, a crucial part may instead be played by their tequila Espolon, a trend that can be certainly exploited by the Italian group already well positioned in the US which accounts for about half of its turnover , and with the latino and hispanics being one of the fastest growing groups in the U.S, making up nearly 20% of the population with a buying power ov over $2 trillion. On the diversification side, in June 2020 Campari acquired a 49% stake in Tannico.com which brings us to LVMH, in fact the french giant since Decembre 2022 co-owns the online wine shop. After Campari's entry, a joint venture was made with Moet Hennessy aimed at expanding the activities. The growth is impressive: Tannico's turnover in 2021 doubled compared to 2020 (which in turn had marked +82% on 2019), closing above 76 million euros for 4.5 million bottles sold overall, thye may seem small numbers considering Campari and LVMH size but the sole fact that this venture went ahead says loads on how the two groups envision the future of consumer wine buying habits. Bob Kunze-Concewitz, CEO of Campari says: «with this operation we confirm our commitment to making Tannico the leading European platform for the sale of wines and premium spirits.
As for the underperformers here’s a case study… AB InBev trying to bet on a consumer category that sits totally outside its reach. The conservative customers, real stronghold for the brand, have massively boycotted it after Pride themes on cans were promoted by a transgender influencer, leading to a 23% drop in sales and ongoing weekly losses. In a statement to Fox News, an AB InBev speaker said the partnership with Mulvaney was intended to "allow the brand to connect authentically with audiences across various demographics, and the personalized can was a gift to celebrate a milestone." Furthermore, the company attempts to distance itself from the campaign caused a backlash from the LGBT+ community too with bars suspending the sale of all Anheuser-Busch range. If the Mulaveny Bud Light advert teach us something is that not every bold move results in a successful outome. AB InBev stock has fallen about 20% since and even before was struggling to reach pre-pandemic levels, a more or less shared situation across big brewers except for Heineken, trading at its highs but still underperforming main indexes.
Does this mean that investments are tending away from beer in favour of wine and spirits? Maybe. Or maybe not. Global beer market size was $660 Billion in 2022 with a forecast to reach $ 748 Billion by 2028, at an annual growth rate (CAGR) of 1.9%. Rise in demand for premium beers, low alcohol products and strategic partnerships between suppliers could represent key driving forces in the years to come. As for the obstacles, the generational switch when it comes to alcoholic drinks and policies around healthcare could become important factors, here a link to an Enocracy article in which we analyse social, political and spiritual challenges for the future of booze business.