Non-Alcoholic Beverage Stocks: Is It Time for Your Portfolio to Go Sober?

Whether it’s for health-related reasons or other factors, some younger generations are avoiding alcohol and embracing other beverages—whether at home or during a night on the town—as part of a so-called “sober-curious” movement. It’s a trend that could shake up the beverage stocks segment.

Events like “Dryuary,” where people give up drinking for the month of January, and hashtags such as #sobercurious or #soberlife, reflect changing attitudes about drinking. Alcohol companies are watching this trend.

The greatest impact has been on some beer stocks, noted Michael Kealy, education coach at TD Ameritrade. Several beer stocks are down from recent highs, such as Molson Coors Brewing (TAP) and Budweiser parent Anheuser-Busch InBev (BUD).

The Beverage Information Group reported in its 2018 Beer Handbook that total beer consumption has fallen for the past five years. This is the case even though craft beer and imported beer consumption continues to grab market share.

Kealy noted that, given the professed interest from millennials and Gen Z in health and wellness, it makes sense that some younger people may be turned off from drinking. “There can be some real downsides to alcohol consumption,” he said. “And the stigma of not drinking seems to have lessened.”

Pot Shots: Changing Tastes and Preferences?

Why are beer sales down so much? Kealy suggested that cannabis could be having an impact as it becomes legal in many states, particularly in states where recreational use is allowed.

Restaurants and bars are getting into the game, making “mocktails” with fresh fruit and other ingredients, Kealy observed. But he added that these are often more costly for the establishments because they’re typically much more perishable and thus susceptible to greater waste. He also noted that millennials are picking up alternative drinks like kombucha, a fermented tea purported to have health benefits.

Alcoholic Beverage Company Stocks Going Sober-Curious

The Beverage Information Group pointed out that some consumers who are turning from beer are looking at spirits and wine instead. Data from Morgan Stanley Research, citing Nielsen statistics, noted that category sales for wine and spirits were respectively almost double and triple beer sales in the late summer. Greater growth came in the energy drinks market, Morgan Stanley noted. The two-year sales average was 8.9%. The only publicly traded energy drink company is Monster Beverage (MNST), and Coca-Cola (KO) owns 16.7% of the company.

Alcohol brands are looking to diversify, too. Diageo (DEO), which is the second-largest distiller globally and owns top brands such as Guinness and Johnnie Walker, funded a privately held, non-alcoholic spirits company called Seedlip.

The non-alcohol trend could help some other beverage giants. KO acquired kombucha maker Organic & Raw Trading, which makes the MOJO brand currently sold in Australia. PepsiCo (PEP) also owns a number of “healthy” brands, including KeVita, a sparkling probiotic drink, Naked Juice, a smoothie drink, and SodaStream, which lets you carbonate your own beverages at home.

Spirited Growth

It’s not that people are giving up on alcohol completely. Spiked seltzer and hard sodas are making inroads, Kealy observed, and hard ciders have been popular for a few years. Spirits are also doing well. This may help liquor stocks such as Brown-Forman (BF/B), which is near 52-week highs. BF/B owns a number of whiskey and scotch brands such as Jack Daniel’s, Early Times, and BenRiach.

Although Constellation Brands (STZ) isn’t in the alternative drinks space, it has a hand in the cannabis business with its stake in Canadian grower Canopy Growth (CGC), which may help it tap into the pot legalization trend. (Disclosure: Kealy owns shares of STZ.) STZ, which has a portfolio that includes Modelo, SVEDKA vodka, and wines by Robert Mondavi, can sometimes fall under all the categories of beer stock, wine stock, and liquor stock.

Although BUD is best known for its mass-market beer segment, which has been lagging recently, it has ownership in a number of craft breweries—a beer segment that is still growing. Among some of those names are Goose Island Brewery, Blue Point Brewing, and Breckenridge Brewery. BUD also has a 32.2% ownership in the Craft Brew Alliance, a beer-brewing company that has several beer and cider brands.

Investors who want to ride the sober-curious trend don’t have a lot of pure-play choices right now, Kealy said. And he added a bit of caution: “Fads do come and go.”

Cheers.