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Debate rages on, especially in investment community, about the issues facing the alc bev biz and the category's prospects over time. Count analyst Nik Modi and team at RBC among those viewing category challenges as mostly "cyclical" and likely to wane over time. Still, "there are absolutely structural headwinds that cannot be ignored," Nik wrote, kicking off near 200-pg report on the topic today. Urging "hope," Nik thinks better alignment between industry tiers and a refocus on mktg can address even the structural challenges. A slew of brands continue to do just fine, he reminds. The detailed report recalls another early 2024 analysis and Nik's talk at our Spring Conference last yr. In all, "the cyclical will take care of itself," but "will take a few more quarters," he acknowledged. To correct for more structural issues tho, "important pivots will have to be made and some may directly conflict with near-term profit growth."It's the Money, Honey "A little over half of consumers are buying less alcohol due to macroeconomic pressures with the other half being due to structural factors," Nik said, summarizing results of RBC's survey work with Numerator. Frankly, very few respondents named some of the most-discussed reasons for pulling back on drinking when asked what "would cause you to buy less alcohol?" Just 3% of folks cited GLP-1s, while 2% named each of cannabis and concerns about being "caught intoxicated on social media." Instead, price increases were the top reason, named by 22% of respondents, followed by the 15% who said "economic uncertainty" and the desire to save money. Another 10% said making less money would reduce alc bev buys.Among the more "structural factors" cited most often, 12% pointed to a "new diet" and 10% said drinking more non-alc bevs. A similar number of folks reported somewhat opposing reasons for drinking less: 10% said being busy or having "increased commitments" would impact drinking, while 9% said going out to parties or events less frequently would cause a reduction in alc bev purchases.Rebalance Biz for Better Recruitment Given economic concerns, makes sense that Nik took a moment to "warn the industry to be mindful of balancing pricing/trade-up with new consumer recruitment." Trade-up has been a major macro trend across alc bevs for decades. And a "hyperfocus on premiumization may be good for margins, but it's costing the industry new consumers," Nik reminded, urging suppliers to "rethink portfolio construction." He expects the consumer landscape to "continue to bifurcate," with a slimming middle class. High-income individuals have been well-served by premiumization, natch. And tho brands like Busch Light, BeatBox and private label spirits buck the trends, "we do not believe industry strategies have offered enough relevant alternatives for these value conscious buyers," Nik and team concluded.Prices Up, Frequency Off Among Gen Z; Don't Forget Older Drinkers Nik dug further into Numerator data on purchasing behavior to demonstrate how younger legal drinkers are pulling back on their alc bev purchases. For the last 52 wks, buy rates among Boomers and Gen X are up strong double-digits from even 2020's highs, but Millennials and Gen Z spending is barely up in that time period. And while everyone's spending around 10% more per trip (driven more by units than spend per unit), younger consumers are offsetting that by making fewer trips. Frequency dropped 7% among Millennials and 9% among Gen Z vs 2020. When it comes to Gen Z, Nik believes "the lion's share of the problem is a function of COVID-era behaviors and subsequent macro pressures," which he suspects might ease a bit more by 2027. Then too, consumers age 45+ contributed around 3/4 of total $$ spent on alc bevs, he reminds. So "be more attentive to these older consumers."Experience Experience Experience Returning to some of the themes he presented at our conference last yr, Nik noted a series of "under-served" occasions he feels the industry from supplier to retailer could target better. In addition to the "low-hanging fruit" of "ethnic holidays" like Diwali or Chinese New Year, he invites alc bev marketers to consider ways to develop brand relevance for consumers choosing "me time" and "intimate social gatherings" as well as first dates and social events among "aging consumers." Take a page out of the "Hallmark playbook," he advised, turning every holiday or minor celebration into a purchase oppy. And while he also thinks more can done be toward "re-creating out-of-home experiences at home," he also instructed distribs and retailers to consider brand activations that get folks to shift at-home behaviors into the on-premise, like viewing parties for viral TV/streaming sensations like Love Island.What's Working for Busch Light, Mich Ultra, Guinness & More Nik and co concluded with plenty of kudos for brands that are succeeding with "some combination of consistent and relevant marketing, strong social media engagement, strong perceived value (defined more than just price), and cater[ing] to on-trend macro factors." For instance, Busch Light is winning lately with "authentic marketing" and a focus on value. And while the usual Busch Light drinker is much more likely than the average beer consumer to be a Boomer, middle income, rural and white, the limited time Apple release attracted a new group of mostly younger legal age drinkers. Meanwhile, Mich Ultra has a "clearly defined identity" that it's never strayed from, recently riding the health & wellness wave including with non-alc innovation that's aligned with core brand attributes, Nik pointed out. Guinness also leverages authenticity and clear "social media appeal," while Pacifico's more youthful consumer base bucks suggestions that young adults don't drink. So do BeatBox and BuzzBallz, by the way, attracting folks with variety, flavor, higher ABVs and viral imaging.

Don't Lose Hope: Cyclical or Structural, Problems Facing Alc Bevs Largely Solvable, Nik Sez

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