US beer stocks slide as millennials turn to wine
Goldman Sachs has downgraded the stocks of two of the biggest US brewing companies due to a continued drop in beer consumption and a shift towards wine by millennials.
Goldman Sachs downgraded its rating of shares in Constellation Brands from “buy” to “neutral” last week, causing its value to slide by 1.2% on Monday. The stockbroker also downgraded Boston Beer Co., rating its stocks as ‘to sell’, causing its value to drop by 5%.
According to CNBC, both downgrades were prompted by slowing US beer volumes, which have been further impacted not only by an overall drop in alcohol consumption, but also a shift away from beer and toward wine by millennials.
Goldman Sachs also lowered its overall US beer volume forecast to a decline of 0.7% in 2017, while Nielsen has forecast a 0.6% decline in US beer consumption for the first half.
“As we explored back in 2014, we expected a cyclical rebound in total alcohol consumption post-recession,” wrote chief analyst Freda Zhuo in a note obtained by CNBC. “The cause [for shifts in beer and wine market penetration] is younger groups shifting away from beer.”
He added: “We view the shift in penetration and consumption trends as driven by a shift in preferences in the younger cohorts,” added Zhuo. “The youngest demographic (<35 year olds) overall penetration rates are not increasing. The 35-44 year old cohort shows a shift away from beer to wine and spirits.”
MILLENNIALS TAPPING OUT OF BEER?
Last year the value of California wine shipments to the US market hit $34.1 billion in 2016, up 4.6% on the previous year and a record for the golden state’s winemakers, according to figures released by The Wine Institute.
Much of this growth was driven by an increase in population and a growing taste for wine among millennials, said Jon Moramarco, founder and managing partner of BW166, who purchased The Gomberg-Fredrikson Report last year and provides analysis for the Wine Institute.
“The growth trend has been driven by population, which is up more than 12% over the last decade, and by the fact that baby boomers, traditionally the large population segment of frequent wine consumers, have been joined by millennials aged 21-38 who are also driving the growth in wine consumption,” he said.
Defined as those aged between 21 and 38, millennials are now the largest wine-drinking demographic in the US making up 36% of all US wine drinkers (as of 2015),overtaking 51 to 69 year-old Baby Boomers (34%) for the first time and pushing Generation X – aged between 39 and 50 – into third (18%).
Likewise, a report published by California’s Silicon Valley Bank earlier this year predicted that millennials would soon become the ‘largest fine wine-consuming cohort’, driving up sales of premium wines.
As millennials gain increasing influence, capturing the attention of this demographic, will become an ongoing challenge for wine producers.
“Millennials are beginning to affect the lower price range of premium sales,” the report noted. “Their presence is most visible in the $8 to $11.99 red blend category, but they will gradually move away from blends and into varietal wines or imports as their incomes improve.”