The alcohol industry is suffering as consumers sober up – is it still worth investing in the sector?

For decades, alcoholic drinks businesses have been prized by investors for their remarkable consistency. These were companies built on enduring brand value, deep-seated customer loyalty and seemingly unshakeable demand. This made them a reliable bedrock in many a portfolio. This is changing. What were once considered dependable investments have, over the last few years, delivered substantial losses. In the UK, Diageo has long been hailed as the cornerstone of quality-titled portfolios. Yet investors who bought shares in early 2021 are now sitting on losses of around 50%. The pain is acute, but Diageo’s slump is merely a microcosm of a sector battling on multiple fronts.

Elsewhere, the damage is even more dramatic. Brown Forman, the family-controlled owner of Jack Daniel’s, has lost about two-thirds of its market worth. This left shareholders needing a 200% rally just to get back to previous levels. Among the global brewing businesses, only Asahi escaped the mania for “quality” equities that flourished while interest rates were at rock-bottom levels. And what of the largest of them all, AB InBev? The owner of Stella and Budweiser has generated a moderate five-year total return. Yet even this giant is a lamentable investment over any meaningful time horizon. The shares sit at roughly half their 2015 peak.

The broader market has seen a re-evaluation of “quality” stocks, with higher interest rates making risk-free returns far more attractive. But the industry’s problems go beyond the economic cycle. Structural shifts are changing the way people drink. This is hitting the bottom lines and valuations of its biggest businesses.

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A confluence of challenges facing the alcohol industry

The industry is contending with four interconnected headwinds that are collectively dampening demand and forcing a strategic rethink across boardrooms globally. These range from drug usage, both recreational and pharmaceutical, to altering attitudes to health.

First, the liberalisation of certain narcotics, most notably marijuana, is creating a direct substitution effect. In Canada, for example, alcohol sales have seen a discernible decline following the legalisation of adult-use cannabis, with Nova Scotia experiencing an initial 2.2% dip. Statistics Canada further corroborates this, reporting declines in alcohol sales during 2023-2024, whilst adult-use cannabis sales simultaneously rose. Sixty per cent of cannabis users admit to consuming the substance to reduce their alcohol intake. This trend is particularly impactful on beer sales, whereas spirits sales remained largely unaffected. In US states such as Colorado, Washington and Oregon, post-legalisation beer sales fell modestly while spirits sales actually rose.

Second, younger generations are simply drinking less. Generation Z, those born between 1997 and 2013, has been dubbed “sober curious”, and with good reason. Their alcohol intake is far lower than that of older cohorts. Millennials (1982–1996) were already drinking less than Gen X and the Baby Boomers, but Gen Z has pushed the trend further. Many are actively rejecting alcohol in favour of wellness, mental health and balance. In the US, around half of Gen Z adults (21+) are reported to have never had a drink. Those who do tend to consume only occasionally or in moderation. Concerns about health, sleep quality and mental wellbeing are all part of the shift. The boom in “mindful drinking” and in low- and no-alcohol alternatives is a direct response to Gen Z’s demand for healthier ways to socialise without the downsides of heavy drinking.

Third, governments are using alcohol duty both to raise revenue and to change behaviour. Research shows a clear link between price and demand. When prices rise, consumption falls. A 10% price increase is estimated to cut demand by about 5%. In the UK, stronger drinks now face higher rates of duty. Australia applies a “wine equalisation tax” and excise duties on beer and spirits; both are tied to alcohol content and adjusted twice a year for inflation. Canada has an annual “escalator tax” that rises with inflation. As a result, taxes make up around 50% of beer prices, 65% of wine and 75% of spirits. These measures hit high-alcohol by volume (ABV) products the hardest, creating serious pressure for producers and the hospitality trade.

Finally, the rapid rise of GLP-1 weight-loss drugs such as Ozempic and Wegovy is a new threat to the alcohol industry. These medicines were first developed to treat type 2 diabetes. They are now widely used for weight management. Evidence suggests they also change behaviour. Clinical trials and anecdotal reports show they can reduce alcohol cravings. A 2025 study by the University of Southern California found that patients on semaglutide, the key ingredient in Ozempic, drank less often, consumed fewer drinks and were less likely to binge. Another 2025 study, from University College Dublin, showed regular drinkers cut intake from 23 units a week to just eight, a fall of more than 65%. GLP-1s copy a natural hormone that controls appetite and blood sugar. They also affect the brain’s reward system, making alcohol and food less appealing. The impact goes beyond alcohol. Users report eating fewer snacks, consuming less sugary drinks and avoiding other impulse purchases. That could hurt drinks firms and any business that relies on indulgence.

Which segment of the alcohol industry is most vulnerable?

The impact of these trends is far from uniform across the industry. Different segments exhibit varying degrees of vulnerability, creating a complex landscape for investors to navigate. Beer is the largest segment, accounting for more than 40% of overall global market share and appears to be the most exposed. Its lower price point and traditional role as a social lubricant make it a more direct substitute for cannabis. Furthermore, younger generations’ shift towards moderation and non-alcoholic alternatives disproportionately affects mainstream beer, which has historically relied on high-volume consumption. While the global beer market is still projected to grow in the years from 2025 to 2030, this growth is expected to be driven mostly by the trend to drink more “craft” and premium brands. This is masking declines in traditional mass-market lagers, which predominate in listed firms.

While also facing headwinds from GLP-1 drugs and progressive duties, spirits demonstrate greater resilience, particularly in their premium and luxury sub-segments.

The global spirits market is projected to continue growing as more parts of the world adopt middle class lifestyles. Consumers are increasingly choosing to drink better, not more, leading to a strong “premiumisation” trend, where higher-quality, often more expensive, spirits maintain, or even increase in, value. This allows spirits companies to command higher price points, offsetting some volume pressures.

Wine occupies a middle ground. Like spirits, it benefits from premiumisation. The global wine market is also projected to grow over the next several years. However, wine can be particularly susceptible to progressive duties, as it often falls into higher tax brackets because of its alcohol content. Tariffs, such as those imposed by the US on European wines, have also demonstrably reduced cross-border sales, with French wine imports falling by 54% in response to 25% tariffs. This highlights its vulnerability to trade policies and specific regional economic shifts.

The non-alcoholic and low-alcohol categories represent a significant growth opportunity and a potential safe haven. As a niche, this market is booming. More people are embracing non-alcoholic beers, wines and ready-to-drink “mocktails”. At the same time, drinks that claim to promote energy, focus or hydration are gaining traction. These trends highlight a clear shift in consumers’ tastes. These products resonate strongly with younger generations and are well placed to capture market share as GLP-1 drugs reshape alcohol consumption habits. Companies proactively investing in, and marketing, these alternatives are best placed to capture this expanding market segment.

Key players in the alcohol industry

The strategic responses, portfolio composition and market exposure of individual companies will dictate their resilience and future share-price performance in this evolving landscape. Anheuser-Busch InBev (NYSE: BUD), as the world’s largest brewer with around 500 beer brands, is the most vulnerable to the substitution effects of cannabis and the broader decline in beer consumption among younger demographics. The company has acknowledged these challenges.

It has also come close to an ambitious goal for its no- or low-alcohol beer products to represent at least 20% of its global beer volume by the end of 2025. The benefits to shareholders are, however, less clear, given the lacklustre performance of the shares. Are its investments driven by a desperate need to defend the business rather than a true opportunity? The company remains heavily dependent on traditional beer and recent brand perception issues present major obstacles. The Bud Light saga is a clear example, in which a controversial, politically correct advertising campaign alienated much of its core customer base.

Diageo (LSE: DGE), an international manufacturer and distributor of premium drinks with approximately 200 brands, is better positioned thanks to its luxury portfolio, including Johnnie Walker whisky and Don Julio tequila. There is a long-term trend of consumers shifting from beer and wine to spirits, which drives value growth for its portfolio. Diageo is expanding its non-alcoholic offerings, having launched Captain Morgan Spiced Gold 0.0% in 2023. It also recognises “zebra striping” – alternating between alcoholic and non-alcoholic beverages – as a key consumer trend. The emergence of GLP-1 drugs remains a potential headwind, leading some fund managers to sell their stakes, most notably Terry Smith of Fundsmith, because of concerns about the entire drinks sector.

Heineken (Amsterdam: HEIA) is the world’s second-largest brewer and owns Amstel, Strongbow and Birra Moretti. It has been an early leader in the low- and no-alcohol (Lono) category, investing and innovating since 2017. Lono products now account for more than 4% of its portfolio, and the company achieved its goal of having a zero-alcohol option for at least one strategic brand available in 90% of its business by the end of this year. Its flagship Heineken 0.0 is the world’s number one non-alcoholic beer brand, and its “0.0 Reasons Needed” campaign directly addresses the social stigma around choosing non-alcoholic options, particularly among Gen Z. This proactive and consumer-centric approach positions it well to navigate generational shifts and the potential impact of GLP-1 drugs.

Constellation Brands (NYSE: STZ) is the largest provider of alcoholic beverages across beer, wine and spirits in the US. Yet it derives a significant 84% of its revenue from Mexican beer imports such as Modelo and Corona. It also has a large number of wine companies in its stable. But the heavy concentration in beer makes it susceptible to cannabis substitution. A key strategic move is its substantial stake in Canopy Growth, a Canadian cannabis producer, representing a direct hedge against declines in traditional alcohol sales.

Pernod Ricard (Paris: RI) is a global powerhouse in wines and spirits, boasting a comprehensive portfolio of more than 240 premium brands. These include Jameson Whiskey, Absolut Vodka, Beefeater Gin and Perrier-Jouët Champagne. Its strong focus on premium spirits positions it favourably to capitalise on the global premiumisation trend. The company has embarked on a significant restructuring programme, aiming for €1 billion in savings by 2029, to streamline operations and cut costs amidst depressed sales. Pernod Ricard faces significant geographical headwinds, with sales of its flagship Cognac brand, Martell, plummeting in China because of anti-dumping duties and shifting consumer preferences. This highlights its vulnerability to geopolitical tensions and regional economic downturns.

Asahi Group Holdings (Tokyo: 2502), a dominant force in Japan’s beer market with a 37% share, is proactively responding to moderation trends by expanding its Lono line-up. As well as Asahi beer, it also owns Peroni, Grolsch and London Pride. The company aims for Lono drinks to account for 20% of its sales by 2030. The group is also making a significant strategic pivot towards wellness and health science, with a long-term vision to become a global leader in “CSV” products – ie, those that supposedly “create shared value”. This will include stepping up investment in pharmaceuticals, health food and cosmetics businesses. This broad diversification offers substantial insulation from direct declines in alcohol consumption.

Carlsberg Group (Copenhagen: CARL B) is a major brewer that is actively addressing the moderation trend. It has set an ambitious goal for its Lono brews to constitute 35% of its global portfolio share by 2030. Currently, Lono accounts for a much smaller fraction of total volumes. A significant strategic move for Carlsberg was the acquisition of Britvic, a British beverage company, expanding its footprint into the broader soft drinks market as a strategy for resilience against shifting dynamics. The company is also a beneficiary of the move towards craft beers. Many of its brands are very small, covering everything from English pale ale to Estonian mead.

Brown-Forman (NYSE: BF.B), known for its Jack Daniel’s family of brands and Woodford Reserve, holds a leading position in the premium American whiskey category. Its strategic focus revolves around portfolio premiumisation. The company has also seen success in the ready-to-drink category, with the launch of Jack Daniel’s and Coca-Cola cans. Operational adjustments, such as a global workforce restructuring plan aimed at generating significant annualised savings, further position it to navigate the evolving market. However, while cost cuts may help in the short term, they do not address the industry’s deeper problems. By contrast, moves such as Carlsberg’s takeover of Britvic go further. Brown-Forman may need to be bolder.

The best bets in the sector

The global alcoholic beverage industry is undoubtedly undergoing a profound transformation. The era of predictable, consistent growth for traditional alcoholic beverages is giving way to a more nuanced and challenging market. The rise of cannabis, the moderation embraced by younger generations, the disruptive influence of GLP-1 weight-loss drugs, and the increasing burden of progressive taxation are collectively reshaping consumer behaviour and industry dynamics.

For investors, the implications are clear: the future success of companies in this sector hinges on their agility, innovation and portfolio management. Those that are proactively diversifying their offerings, investing in premiumisation and embracing the burgeoning non-alcoholic and wellness categories are better positioned to capture new growth opportunities and mitigate risks. This includes expanding into health and energy drinks, exploring strategic partnerships or investments in alternative substances, and adapting marketing strategies to resonate with health-conscious and moderate consumers.

Some companies focus heavily on traditional alcoholic beverages and are slow to adapt to changing consumer preferences. These companies face a risky future. Their revenue and profits will likely face ongoing pressure. This pressure could negatively affect their share values for a long time. To succeed, companies must innovate beyond traditional products. They need to embrace new distribution channels, such as in e-commerce, while navigating complex regulations. The market rewards adaptability and punishes inaction. The industry is rapidly changing, which presents clear challenges. Companies that boldly innovate and embrace new consumer values will thrive. Those strategically repositioning themselves are best suited for our sober-curious world.

Ultimately, investments made in the sector have to be more attractive today than they were at the much higher share prices of a few years ago. The winners of the future are likely to be those who embrace the change rather than shy away from it. This means adapting to a reality of reduced, high-volume, mass-market consumption. Carlsberg starts from a difficult position as a predominantly beer-focused business, but is being very proactive and could be interesting for those who are comfortable with heightened risk. Diageo and Pernod Ricard are already well-positioned for the move towards the “drink better, not more” movement, and both have share prices offering much better margins of safety than in the past. Finally, for those willing to back a smaller business, with a large family shareholding, Brown-Forman looks attractive and has an unusually generous dividend yield for a US-listed company.

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