Gold prices bounce off 3-week lows; demand likely longer term
On Monday, Bernstein analysts released a report examining the factors behind the continued decline in U.S. alcohol consumption, which has reached its lowest point since 1962. According to the analysis, per capita alcohol consumption dropped approximately 3% year-over-year in 2024, marking a 10% decrease from the peak in 2021. This trend raises questions about whether the decline is due to structural changes like generational shifts in drinking habits and competition from other substances, or if it’s a cyclical issue influenced by economic conditions. The impact is evident in industry metrics, with InvestingPro data showing a 0.89% revenue decline in the last twelve months for major industry players.
The report, authored by Bernstein analyst Nadine Sarwat, highlights that the drinking prevalence among 18-34 year-olds has significantly decreased, from 72% in 2010 to 50% in 2024. Despite this generational shift, the data suggests that the decline in alcohol consumption may not be permanent. While underage drinking has been on the decline for decades, alcohol consumption among 21-22 year-olds has shown an increase over the past two years. The onset of this decline coincides with the rise of social media, suggesting that economic pressures, rather than a permanent change in preferences, may be influencing the moderation in drinking. InvestingPro analysis reveals that leading beverage companies maintain strong gross profit margins of 53.48%, suggesting resilient pricing power despite volume challenges. Get access to 10+ more exclusive ProTips and comprehensive industry analysis with InvestingPro.
Economic factors seem to play a significant role, with the Bureau of Labor Statistics’ Household Expenditure Survey indicating that under 25-year-old households have maintained a stable proportion of post-tax income spent on alcohol since 2016. However, the consumer confidence of 18-34 year-olds is notably lower than that of older groups, a disparity not seen in decades. The younger demographic is also more concerned about rising prices, and a record number of 18-24 year-olds are living with their parents due to financial reasons. Low-income consumers are feeling the economic squeeze the most, with a widening gap in consumer confidence between the lowest and highest income tiers.
In the alcohol market itself, the bottom 60% of households by income have reduced their spending on alcoholic beverages more than the top 40% when comparing pre-COVID levels in 2019 to the latest data in 2023. Companies like Diageo (LON:DGE) and Brown-Forman have observed stronger performance in smaller pack sizes, indicating a consumer focus on affordability. Industry leaders maintain healthy financial positions, with InvestingPro data showing current ratios of 2.64 and moderate debt levels. For detailed insights into 1,400+ US equities, including comprehensive Pro Research Reports that transform complex data into actionable intelligence, explore InvestingPro’s premium features.
The distinction between structural and cyclical factors is crucial for investors considering the long-term potential of the alcohol industry. While health concerns and the possibility of a long-term structural volume decline liken the sector to the challenges faced by tobacco, the evidence suggests that economic pressures are a significant factor behind the weak volumes. This insight is vital for investors evaluating the industry’s prospects, especially as the expected normalization of the market has been prolonged and complicated by issues like tariffs.
In other recent news, Bernstein SocGen Group has adjusted its financial outlook on Becle SAB de CV, reducing the price target from Peso39.00 to Peso37.00 while maintaining an Outperform rating. This revision is influenced by the looming possibility of US tariffs on Mexican imports, which could impact Becle’s profits significantly. The company, which derives about 33% of its net sales from tequila in the US, could face an $80 million hit to profits if tariffs are imposed, representing a roughly 20% decrease in operating income. However, Becle’s strategy to ship 51% agave as a liquid from Mexico and bottle it in the US might mitigate the impact. Additionally, increased inventory in the US could offer short-term benefits. Despite these challenges, Bernstein SocGen remains optimistic about Becle’s valuation and prospects but has taken a conservative stance on the company’s constant currency net sales growth for fiscal year 2025. The firm also noted a lower-than-expected effective tax rate guidance at around 26%. Due to these factors, Bernstein SocGen has trimmed its fiscal year 2026 earnings per share estimate by approximately 3%.
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