BusinessJul 6, 2026
Alcohol Has a Demand Problem. Investors May Have a Valuation Opportunity
Beverage Trends
Rhea Lobo
Discover
The global spirits industry is facing its most sustained demand decline in modern history. Four straight years of falling US volumes, a $22B inventory glut, and share prices last seen during the financial crisis have pushed major distillers into territory typically reserved for tobacco companies. The question for investors is whether the damage is already priced in.
Diageo and Pernod Ricard are now trading at tobacco-like valuations, with Pernod's earnings multiple cheaper than both British American Tobacco and Marlboro owner Altria. Diageo's price-to-earnings ratio is at 2009 levels.
Brown-Forman trades at 16 times projected earnings, still well below Philip Morris International.
This re-rating reflects a genuine shift in consumer behavior. The share of Americans who say they drink alcohol hit an all-time low of 54% in 2025, per a Gallup poll. US spirits volumes have declined for four consecutive years.
Bernstein analysts estimate spirits prices at bars and restaurants have risen 29% over five years, making out-of-home drinking increasingly unaffordable.
At-home drinking has not filled the gap. Grocery and liquor store spirit prices are up only 9% over five years, yet instead of trading down consumers are cutting back entirely.
That behavior is a meaningful departure from the post-2008 period, when spirits volumes kept growing even as consumers tightened budgets.
Global alcohol consumption is forecast to remain 1% below 2025 levels even by 2035, despite a 9% rise in the number of legal-age drinkers worldwide.
Market research firm IWSR projects that volumes will not stop falling until after 2031.
Several forces are compounding at once. Younger consumers, particularly Gen Z, are drinking less frequently and socializing in ways that do not center on alcohol.
GLP-1 weight-loss drugs reduce alcohol cravings in users. Cannabis and THC-infused beverages offer legal alternatives in states where they are available.
The World Health Organization puts global consumption down 12% between 2010 and 2022. The pandemic-era production surge left a lasting hangover. Five major spirits producers are collectively sitting on $22B in aged unsold inventory, the largest overhang in a decade.
Diageo has paused production at distilleries in the US and Scotland. Jim Beam will not produce whiskey at one of its main facilities for all of 2026. Brown-Forman sold a cooperage, cut its global workforce, and closed a Scotch distillery.
"If you cut inventory during a downturn, you have huge problems when you're trying to satisfy demand in the future."
Edward Mundy, analyst at Jefferies.
Not every corner of the category is contracting. Ready-to-drink cocktails -- pre-mixed canned drinks sold at retail -- are growing 20% to 30% annually in the US.
A 12-pack of Cutwater Spirits margaritas costs ~$25 at Walmart, undercutting the upfront cost of buying full bottles and mixers.
The publicly traded distillers have largely missed this wave. The ready-to-drink category is dominated by beer companies and private spirits brands. Anheuser-Busch InBev owns Cutwater Spirits.
Traditional distillers have been reluctant to invest heavily, given that ready-to-drink products carry lower margins than large-format spirits bottles and because past category booms like craft beer and hard seltzer faded quickly.
Emerging markets offer a more durable offset. India is forecast to become the world's second-largest alcohol market by 2032, with a 38% rise in drinking volumes over the next decade. Mexico, Vietnam, and Colombia are also projected to grow.
Diageo has meaningful exposure to India and other emerging markets, where demand remains healthier than in the US or Europe.
Major producers are also pivoting research and development toward non-alcoholic alternatives. Diageo's alcohol-free portfolio grew ~40% in fiscal 2025, and the company acquired Ritual Zero Proof, the top-selling non-alcoholic spirits brand in the US.
Pernod Ricard offloaded its international wine portfolio, brands generating over 10M cases annually, to sharpen focus on premium spirits and no-low alternatives.
The bad news is visible and reflected in prices. Diageo's incoming leadership is expected to announce a new strategy later this summer, including affordable product launches.
Beverage stocks more broadly delivered mixed first-quarter results. As a group, revenues beat estimates by 4.9%, though next-quarter guidance came in 3% below consensus. The divergence within the sector is wide.
Health-focused brands like Zevia and Vita Coco posted strong beats, while Boston Beer missed on operating income and fell 22% after reporting.
Spirits majors trade cheaply by historical standards, but cheap can get cheaper if volumes keep deteriorating.
The more defensible case rests on emerging market exposure, non-alcoholic pivots, and the prospect that Gen Z's ready-to-drink preference signals a desire to drink rather than full abstinence.
