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As Millennial Tastes Shift, Beer Cedes Share To Spirits And Wine

July 26, 2017

A new report from Goldman Sachs forecasting a weak outlook for the U.S. beer market is making waves across the drinks industry. Released earlier this week, the report cites changing millennial tastes—which are shifting away from beer in favor of wine and spirits—as a key factor behind beer’s slowdown, which has been ongoing but seems to be accelerating this year.

Goldman has downgraded its expectations for the beer market over the next two years, anticipating volume declines of 0.7% and 0.3% for 2017 and 2018, respectively. The softness is largely being driven by beer’s “core domestic” segment, which includes mainstream brands such as Budweiser, Miller Lite and Coors Light and is on track to decline by 3% through 2018. As a result, Goldman lowered its beer volume forecasts for MillerCoors parent Molson Coors as well as Boston Beer Co., downgrading the latter’s stock from neutral to sell.

Compounding beer’s troubles, the craft brewing segment, which has been the darling of the beer industry the past several years, has decelerated significantly. The Goldman report projects that craft growth will slow to 2.5% for 2017, compared with a 5.1% increase last year. One of the few bright spots within beer is the import segment, which is predicted to expand 7% by volume for 2017 and 6% in 2018. The import category is led by Constellation Brands, whose fast-growing Mexican portfolio includes Corona, Modelo Especial and Pacifico. In the craft arena, however, Constellation recently took an $87 million writedown on its Ballast Point business, which it acquired for $1 billion in late 2015. Constellation remains a force in wine and spirits as well, insulating the group somewhat from a broad downturn in beer.

Beer’s shrinking sales come as wine and spirits continue to steal share within the drinks industry. According to Impact Databank, the U.S. wine market is slated to expand 1.1% to 330 million cases this year, while spirits are set to rise 2.5% to 228 million cases. Meanwhile, Impact Databank projects that per-capita beer consumption in the U.S. will fall 1.4% for 2017, with wine and spirits expected to grow by 0.3% and 1.6%, respectively.

While it won’t happen imminently, spirits are on track to pass beer in terms of U.S. dollar value in the years ahead. In 2006, beer outsold spirits by $13.5 billion—by the end of last year the gap had narrowed to about $6 billion, with spirits seeing ongoing benefits from the whisk(e)y boom and cocktail trend. Wine also continues to make inroads on the value front. Since 2005, its U.S. dollar value is up about 26% to $46 billion, according to Impact Databank. Wine’s growth is being driven by California wines retailing above the $10 mark, as well as the burgeoning sparkling wine segment, which is expected to rise 8% to a new record of 22 million cases this year.

These trends are being driven primarily by consumers under 34 years old—who are drinking less than prior generations did at their age—as well as the 35- to 44-year-old segment, which is often opting to consume wine or spirits over beer, according to the Goldman report.

Other consumption patterns challenging beer include an uptick in e-commerce alcohol purchases—a channel in which beer sales notably lag behind wine and spirits. Additionally, the Goldman report asserts that spirits within the mid-premium tier ($16-$26) have proven more price competitive in comparison to domestic premium beers of late, providing consumers with increased choice across categories.

With beer facing an uphill climb over the next few years, wine and spirits appear poised to continue gaining share, boosted by a new generation of adventurous consumers more eager to branch out and embrace a broader repertoire of drinks than their predecessors.—Christina Jelski

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