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A Toast to Alcohol Stocks

14 March 2014 in Trading Ideas

Believe it or not, the US is way down the list on a ranking of countries by global per-capita alcohol consumption.

But that fact matters little to the drink purveyors who continue to vie for share in a market expected to grow to more than $250 billion by 2017.

The expected steady growth – and relative stability — of the US alcoholic beverage market was the idea behind the creation of our new High Spirits motif, a portfolio of stocks of companies that provide a variety of beer, wine and spirits to a thirsty citizenry.

As a recent Gallup poll showed, most of us drink, with 66% of respondents saying they have occasion to consume alcohol, consuming, on average, 4.2 drinks a week.1

According to a report by Ken Research, the US alcoholic beverages market posted a compound annual growth rate of 2.9% from 2006 to 2012, driven by several factors including increasing demand for flavored alcoholic beverages and ready-to-drink cocktails, surging investment in brand-building by the companies, major consolidations, off-premise sales and drinks with low-calorie and low-alcohol content.2

However, what seems particularly impressive about that period of growth is that, as we all remember, that timeframe included a particularly nasty economic recession.

 

But it’s the nature of alcohol’s resiliency to economic hard times that can also make this sector attractive. During the heart of the recession, for example, sales of alcohol grew 10% for the 12 months ended May 31, 2011 – even though the average unemployment rate during that time was more than 9.3%.3

Ken Research has projected that the US market will grow 3.6%, on a CAGR basis, to reach $252 billion in 2017, based on expectations of favorable economic conditions.

This growth is most likely to come from a boom in the flavored beverages and beverages with low alcohol and calorie content, increasing number of wineries, breweries and distilleries, a growing US population of 21 years and above, increasing production of material input used in manufacturing of alcoholic beverages and growing personal disposable income.

Investors who consider the US alcohol market a steady and dependable grower over the next few years may want to consider adding a portfolio of stocks from this industry to their overall investment portfolio.

1Lydia Saad, “Majority in US Drink Alcohol, Averaging Four Drinks a Week,” gallup.com, Aug. 17, 2012, http://www.gallup.com/poll/156770/Majority-Drink-Alcohol-Averaging-Four-Drinks-Week.aspx, (accessed March 12, 2014).

2Ken Research, “The US Alcoholic Beverages Market Outlook to 2017,” September 2013, http://www.kenresearch.com/agriculture-food–beverages/beverages/us-alcoholic-beverages-market-research-report/397-104.html, (accessed March 12, 2014).

3Aaron Smith, “Alcohol Sales Thrive in Hard Times, CNNMoney.com, June 9, 2011, http://money.cnn.com/2011/06/08/news/companies/alcohol_sales/index.htm?iid=HP_LN, (accessed March 12, 2014).

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