Is alcohol the next tobacco and why alcohol stocks are falling

Investing.com -- Bernstein analysts, in a note Monday, highlighted that U.S. alcohol consumption is in decline, leading to growing concerns among investors that alcohol may follow the same trajectory as tobacco—a sector that faced long-term volume declines due to health concerns and regulatory pressures. 

Per capita alcohol consumption fell ~3% in 2024, marking a 10% drop from 2021’s peak and reaching the lowest level since 1962, according to Bernstein analysts.

The firm explained that the debate over whether this decline is structural—driven by shifting consumer preferences, GLP-1 weight-loss drugs, and cannabis legalization—or cyclical, due to financial strain, remains ongoing. 

“The strong evidence of economic pressures being a key factor behind weak volumes would suggest this isn’t necessarily the case,” Bernstein wrote.

The firm adds that Gen-Z’s drinking habits have changed, with Gallup data showing that drinking prevalence among 18-34-year-olds has dropped from 72% in 2010 to 50% in 2024. 

However, Bernstein notes that this decline may not be permanent, as underage drinking has been declining for decades, and alcohol consumption among 21-22-year-olds has increased over the past two years. 

It is reported that social media may also play a role in moderating drinking habits.

Financial stress appears to be a major factor. “Young Americans are clearly pressured,” Bernstein noted, with 18-34 year olds showing historically low consumer confidence and a record number of 18-24 year olds living with their parents. 

Furthermore, lower-income households are said to have cut alcohol spending more than wealthier consumers, with Brown-Forman and Diageo (LON:DGE) reporting increased sales of smaller pack sizes as consumers prioritize affordability.

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While the longer-than-expected normalization in alcohol demand makes investing in the sector challenging, Bernstein maintained Outperform ratings on Brown-Forman, Diageo, Constellation Brands (NYSE:STZ), and several other names.

 

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