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Players in the Zacks Beverages – Alcohol industry are grappling with inflation and rising costs for commodities and logistics, leading to increased operational expenses from heightened advertising and marketing spend. These elevated costs are likely to persist and may squeeze the profit margins of alcohol producers.

Despite these challenges, the industry is benefiting from the demand for premium, high-quality products and innovative spirits. Strong momentum in spirits and ready-to-drink (RTD) cocktails is driving growth. Investments in product innovation, premiumization and technology platforms position companies like Anheuser-Busch InBev BUD, Constellation Brands Inc. STZ, Molson Coors TAP, The Boston Beer Company Inc. SAM and The Duckhorn Portfolio NAPA for continued success.

About the Industry

The Zacks Beverages – Alcohol industry mainly comprises producers, importers, exporters, marketers and sellers of alcoholic beverages like beer, craft beer, ciders, wine, rum, whiskey, liqueurs, vodka, tequila, champagnes, brandy, amaretto, RTD cocktails and malt. Some industry players also produce and sell non-alcoholic beverages like carbonated soft drinks, sparkling waters, bottled water, energy drinks, powdered and natural juices, and RTD teas. The companies sell products through wholesalers and retailers like supermarkets, warehouse clubs, grocery stores, convenience stores, package stores, drug stores and other retail outlets. The industry participants also sell beer directly to consumers in cans and bottles at restaurants, pubs, bars and liquor stores. Some brewers operate brewpubs or taste rooms at breweries, offering consumers the freshest beer.

What's Shaping the Future of Beverages - Alcohol Industry

Elevated Costs: Players in the alcohol industry have been enduring pressures from the ongoing impacts of inflationary labor, transportation and commodity costs. The industry players have been experiencing elevated ingredient and other input costs. Fluctuating prices of raw materials, such as grains and fruits, have been the key deterrents. Additionally, elevated expenses for shipping and freight, labor, trucking, fuel, co-packing fees, and secondary packaging materials have been leading to increased costs of sales and higher operating costs. These have been resulting in adverse gross and operating margins for beverage companies.

Apart from elevated input and packaging costs, players in the alcohol industry are anticipated to witness higher advertising and promotional expenses, as well as SG&A expenses, further threatening profitability. Rising brand investments, particularly in media, advertising, production and local marketing, and increased freight to distributors due to higher volumes are resulting in elevated advertising, promotional and selling expenses. Growing external costs, increased compensation expenses and higher discretionary spending are expected to drive SG&A deleverage. Most industry players expect the trend to continue in the near term, impacting profitability to some extent.

E-Commerce Development & Pricing Gains: Alcohol companies are capitalizing on growth of e-commerce and market recovery, leading to increased volumes. Investments in online and e-commerce platforms have become more significant, with companies adopting advanced technologies to enhance customer engagement. The expansion of digital capabilities and market recovery position alcohol companies well for growth. Price increases and supply productivity savings are helping counteract cost inflation. Strong marketing strategies and effective commercial execution are also driving sales for alcohol beverage companies.

Premiumization & Product Diversification: Premiumization has been driving growth in the alcohol sector as consumers seek new and refreshing tastes. Beverage companies are expanding their product lines to capture more sales, with a notable increase in demand for premium and high-end products. The market is evolving, with a rise in craft spirits, low-alcohol and non-alcoholic options. This transformation has led companies to explore beyond traditional categories like beer, whiskey, spirits and wine. Popular trends now include RTD spirits, such as canned wine and cocktails, hard seltzers, cider, and flavored malt beverages. To align with consumer preferences, companies are focusing on innovation and new product offerings.

Zacks Industry Rank Indicates Dull Prospects

The Zacks Beverages – Alcohol industry is a 17-stock group within the broader Zacks Consumer Staples sector. The industry currently carries a Zacks Industry Rank #222, placing it at the bottom 11% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dull near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential.

Before we present a few stocks that you may want to consider for your portfolio, let us take a look at the industry’s recent stock-market performance and valuation picture.

Industry Underperforms S&P 500

The Zacks Beverages – Alcohol industry has underperformed the broader sector and the S&P 500 in the past year.

The stocks in the industry have collectively declined 14% in the past year, while the Zacks Consumer Staples sector has risen 5.5%. Meanwhile, the Zacks S&P 500 composite has rallied 30%.

One-Year Price Performance