1 00:00:02,560 --> 00:00:10,399 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. I'm Caroline Hebge, and 2 00:00:10,440 --> 00:00:13,800 Speaker 1: this is His Why, where we take one big story 3 00:00:13,840 --> 00:00:16,320 Speaker 1: and explain it in just a few minutes with our 4 00:00:16,360 --> 00:00:17,960 Speaker 1: experts here at Bloomberg. 5 00:00:20,400 --> 00:00:22,480 Speaker 2: We're hearing more and more about young people not drinking 6 00:00:22,520 --> 00:00:25,760 Speaker 2: as much, this idea of like you know, dry January 7 00:00:25,760 --> 00:00:28,880 Speaker 2: actually lasting the entire year. We're in a backdrop right 8 00:00:28,880 --> 00:00:31,880 Speaker 2: now where alcohol companies and spirits makers in particular have 9 00:00:31,960 --> 00:00:35,080 Speaker 2: been facing you know, weakening demand from consumers who aren't 10 00:00:35,120 --> 00:00:38,800 Speaker 2: drinking as much or they're switching to less expensive spirits. 11 00:00:39,080 --> 00:00:41,400 Speaker 1: Now we know that the alcohol market has been challenged 12 00:00:41,440 --> 00:00:43,720 Speaker 1: recently because people are kind of, you know, teetotaling. 13 00:00:43,760 --> 00:00:45,839 Speaker 2: They're pushing off some of these alcoholic drinks. 14 00:00:46,080 --> 00:00:49,239 Speaker 1: For years, the world's biggest alcohol companies were raising a 15 00:00:49,280 --> 00:00:53,200 Speaker 1: glass to steady growth. Drinking was embedded in social life 16 00:00:53,200 --> 00:00:56,640 Speaker 1: in many parts of the world, Beer, wine, and spirit 17 00:00:56,800 --> 00:01:01,200 Speaker 1: sales looked resilient, and investors treated the industry as a 18 00:01:01,280 --> 00:01:05,040 Speaker 1: reliable bet. But now consumers are pulling back. People are 19 00:01:05,120 --> 00:01:09,280 Speaker 1: drinking less frequently and in lower quantity. Health warnings are 20 00:01:09,360 --> 00:01:14,520 Speaker 1: mounting and becoming stricter. Younger drinkers are changing habits, and 21 00:01:14,600 --> 00:01:18,200 Speaker 1: the companies behind some of the world's biggest alcohol brands 22 00:01:18,480 --> 00:01:23,559 Speaker 1: are scrambling to adjust. So here's why alcohol companies face 23 00:01:23,720 --> 00:01:29,839 Speaker 1: a sobering reality. Jennifer Creary covers retail and consumer goods 24 00:01:29,959 --> 00:01:33,319 Speaker 1: for Bloomberg and she joins me, now, good to see you, Jenny. 25 00:01:33,959 --> 00:01:39,360 Speaker 1: How fast is alcohol consumption falling globally? What's driving the 26 00:01:39,440 --> 00:01:40,960 Speaker 1: shift in drinking habits? 27 00:01:41,280 --> 00:01:44,000 Speaker 3: Drinking has been falling for quite some time now. So 28 00:01:44,040 --> 00:01:47,680 Speaker 3: if we look at capita consumption, alcohol volumes have been 29 00:01:47,720 --> 00:01:50,480 Speaker 3: declining for about a decade. If we look at the 30 00:01:50,520 --> 00:01:53,000 Speaker 3: more recent figures, if we look at kind of a 31 00:01:53,120 --> 00:01:57,120 Speaker 3: compound annual rates, it's been declining two percent. And this 32 00:01:57,480 --> 00:01:59,480 Speaker 3: is measured in terms of servings or it gets a 33 00:01:59,480 --> 00:02:02,040 Speaker 3: bit technical, but this is between twenty nineteen and twenty 34 00:02:02,120 --> 00:02:05,320 Speaker 3: twenty five. All of that is to say, we tend 35 00:02:05,360 --> 00:02:08,040 Speaker 3: to think of the pullback in drinking as a post 36 00:02:08,040 --> 00:02:10,880 Speaker 3: COVID phenomenon, and while there is some truth that, there's 37 00:02:10,880 --> 00:02:13,920 Speaker 3: also a bit of nuance. So obviously, during the pandemic, 38 00:02:14,040 --> 00:02:17,280 Speaker 3: a consumption rose. It rose two point three percent from 39 00:02:17,320 --> 00:02:20,440 Speaker 3: twenty twenty to twenty twenty one. Suctually people drank more 40 00:02:20,480 --> 00:02:23,320 Speaker 3: while isolated and bored at home, and then there was 41 00:02:23,360 --> 00:02:27,000 Speaker 3: a contraction afterwards. But it wasn't simply because people suddenly 42 00:02:27,040 --> 00:02:30,119 Speaker 3: got healthier after the pandemic. It was in the context 43 00:02:30,240 --> 00:02:32,800 Speaker 3: of this multi decade decline in drinking. 44 00:02:33,400 --> 00:02:38,480 Speaker 1: Okay, that's interesting. Younger consumers then are sometimes called the 45 00:02:38,560 --> 00:02:43,680 Speaker 1: sober generation. How is that also reshaping the industry? Is 46 00:02:43,720 --> 00:02:45,840 Speaker 1: it a story about global youth? 47 00:02:46,760 --> 00:02:48,720 Speaker 3: So the idea that gen Z doesn't drink is a 48 00:02:48,720 --> 00:02:51,000 Speaker 3: bit of an exaggeration. So gen Z is that these 49 00:02:51,040 --> 00:02:53,720 Speaker 3: are people aged between fourteen and twenty seven, or in 50 00:02:53,760 --> 00:02:56,400 Speaker 3: this case from the legal drinking age to twenty seven. 51 00:02:56,639 --> 00:03:00,160 Speaker 3: Research tells us that they're more mindful about drinkings. So 52 00:03:00,680 --> 00:03:03,720 Speaker 3: it points to a growing divide between generations and a 53 00:03:03,800 --> 00:03:07,160 Speaker 3: different kind of generational thinking and approach to drinking. So 54 00:03:07,560 --> 00:03:10,360 Speaker 3: one survey we looked at showed that only about thirty 55 00:03:10,520 --> 00:03:12,800 Speaker 3: percent of gen Z drinkers say they drink every week. 56 00:03:13,080 --> 00:03:16,000 Speaker 3: This is versus forty five percent of older cohorts. And 57 00:03:16,080 --> 00:03:18,720 Speaker 3: another survey showed us that about fifty three percent of 58 00:03:18,720 --> 00:03:22,560 Speaker 3: gen Z drinkers said they engage in intermittent absences. So 59 00:03:22,760 --> 00:03:25,720 Speaker 3: what does this mean? Well, yes, young and consumers tend 60 00:03:25,760 --> 00:03:28,160 Speaker 3: to moderate, but when they do drink, it will be 61 00:03:28,200 --> 00:03:31,120 Speaker 3: for an occasion, so they'll save it for a special event, 62 00:03:31,600 --> 00:03:34,040 Speaker 3: or they'll do something like, for example, zebra striping. So 63 00:03:34,080 --> 00:03:36,560 Speaker 3: this is when you switch between alcoholic drinks and non 64 00:03:36,640 --> 00:03:41,040 Speaker 3: alcoholic drinks. And they're also less loyal to single beverage categories, 65 00:03:41,080 --> 00:03:43,680 Speaker 3: so there's a greater willingness to explore different flavors and 66 00:03:43,840 --> 00:03:46,960 Speaker 3: varieties such as RTDs, so these aren't ready to drink. 67 00:03:47,120 --> 00:03:50,600 Speaker 3: Oftentimes you can to cocktails, beverages like you know, buzzballs, 68 00:03:50,680 --> 00:03:53,560 Speaker 3: things like that, so that there's a different approach to 69 00:03:53,640 --> 00:03:54,760 Speaker 3: drinking nowadays. 70 00:03:54,760 --> 00:03:57,760 Speaker 1: Really interesting from a country of course, well known for 71 00:03:57,800 --> 00:04:02,200 Speaker 1: its pub associations for alcohol. It's all kind of transforming, 72 00:04:02,280 --> 00:04:06,000 Speaker 1: isn't it over the years. So how are major drinks 73 00:04:06,120 --> 00:04:09,120 Speaker 1: companies trying to adapt them to a world where people 74 00:04:09,440 --> 00:04:11,920 Speaker 1: may simply consume less alcohol. 75 00:04:12,440 --> 00:04:14,840 Speaker 3: There are a couple ways, right, So if you look at, 76 00:04:14,960 --> 00:04:16,320 Speaker 3: you know, the share price of a lot of these 77 00:04:16,400 --> 00:04:19,279 Speaker 3: drinks companies, I mean they're clearly under pressure at the moment. 78 00:04:19,279 --> 00:04:21,440 Speaker 3: There was this big spike during the pandemic and now 79 00:04:21,480 --> 00:04:25,120 Speaker 3: they're now they're declining, and so obviously you know, companies 80 00:04:25,160 --> 00:04:27,280 Speaker 3: are finding ways to remedy that, and that could be 81 00:04:27,320 --> 00:04:31,840 Speaker 3: through immediate measures like restructuring, cutting costs, you know, laying 82 00:04:31,839 --> 00:04:35,200 Speaker 3: off staff. For example, Heineken plans to cut cut seven 83 00:04:35,200 --> 00:04:38,680 Speaker 3: percent of its global workforce of about eighty seven thousand 84 00:04:38,760 --> 00:04:41,719 Speaker 3: people over two years, and this is mostly in Europe. 85 00:04:41,760 --> 00:04:43,520 Speaker 3: In the US, you know, it's the same thing. So 86 00:04:43,560 --> 00:04:46,920 Speaker 3: in Kentucky, Brown Foreman, the maker of Jack Daniels Whiskey's, 87 00:04:46,960 --> 00:04:49,720 Speaker 3: also announced a plan to reduce its headcut worldwide by 88 00:04:49,760 --> 00:04:52,920 Speaker 3: twelve percent. And then you have some companies that are 89 00:04:52,960 --> 00:04:56,320 Speaker 3: trying to kind of downsize operations. So Jim Beam, the 90 00:04:56,320 --> 00:04:59,880 Speaker 3: bourbon maker, which is owned by Sunaori, the Japanese alcohol giant, 91 00:05:00,240 --> 00:05:02,479 Speaker 3: is pausing production in one of its main distilleries in 92 00:05:02,560 --> 00:05:05,919 Speaker 3: Kentucky to basically ride out the storm. So there are 93 00:05:05,920 --> 00:05:08,560 Speaker 3: a lot of immediate kind of stopgap measures. You're also 94 00:05:08,600 --> 00:05:13,280 Speaker 3: seeing an uptick in consolidation discussions. So for example, Perdo 95 00:05:13,360 --> 00:05:17,120 Speaker 3: Ricard and Brown Foreman entered discussions over a potential burger. 96 00:05:17,200 --> 00:05:20,640 Speaker 3: Those discussions broke down. Brown Foreman is also in discussions 97 00:05:20,640 --> 00:05:24,800 Speaker 3: with Sazarac, but Sasaac's latest bid was rejected by Brown Foreman. 98 00:05:24,920 --> 00:05:27,640 Speaker 3: So that might not go ahead, but there's definitely more 99 00:05:27,839 --> 00:05:30,400 Speaker 3: more talk and interest over consolidation. 100 00:05:30,760 --> 00:05:34,320 Speaker 1: So that's very interesting, isn't it. It's such a global story, 101 00:05:34,400 --> 00:05:37,200 Speaker 1: is effectively what you're saying. So I wonder then also 102 00:05:37,839 --> 00:05:42,560 Speaker 1: how important health concerns are globally when it comes to 103 00:05:42,600 --> 00:05:45,480 Speaker 1: this sort of consumer behavior. I mean, I was thinking 104 00:05:45,520 --> 00:05:48,560 Speaker 1: about the mocktail that I was offered recently in a 105 00:05:48,560 --> 00:05:52,760 Speaker 1: London restaurant twelve pounds fifty for quite a sugary drink, 106 00:05:52,880 --> 00:05:56,279 Speaker 1: and it did make me wonder, is this also being 107 00:05:56,360 --> 00:06:00,720 Speaker 1: driven by margins for the sale of non alcoholic beverages. 108 00:06:01,680 --> 00:06:06,080 Speaker 3: There's definitely a discussion around wellness and moderation, and that's 109 00:06:06,440 --> 00:06:09,640 Speaker 3: very much been driven by consumers. And we talked before 110 00:06:09,680 --> 00:06:11,800 Speaker 3: about gen Z and gen Z's kind of a different 111 00:06:11,839 --> 00:06:16,440 Speaker 3: approach to drinking. This is particularly pronounced in markets like 112 00:06:16,480 --> 00:06:20,320 Speaker 3: the US, Europe developed markets, and that's led to a 113 00:06:20,360 --> 00:06:24,760 Speaker 3: particular uptick in low and no alcohol beverages. So consumption 114 00:06:24,800 --> 00:06:28,160 Speaker 3: by servings of non alcoholic beer, wine, spirits, insider as 115 00:06:28,160 --> 00:06:30,640 Speaker 3: well as RTDs grew at a compound annualrate of eight 116 00:06:30,640 --> 00:06:33,960 Speaker 3: percent from twenty nineteen to twenty twenty four. So that's 117 00:06:34,000 --> 00:06:37,640 Speaker 3: you know, considerable growth. There are some sort of market 118 00:06:37,720 --> 00:06:42,280 Speaker 3: specific factors as well. So China, for example, there's kind 119 00:06:42,279 --> 00:06:44,440 Speaker 3: of greater discussion over health and wellness, but it's also 120 00:06:44,520 --> 00:06:49,200 Speaker 3: being influenced by government actions like cracking down on extravagance, 121 00:06:49,279 --> 00:06:52,279 Speaker 3: and so that's gifting of expensive spirits like Baijio, which 122 00:06:52,320 --> 00:06:55,440 Speaker 3: is the country's national spirit. So it's kind of more 123 00:06:55,760 --> 00:06:58,320 Speaker 3: complex and simply you know, people are trying to be healthier, 124 00:06:58,320 --> 00:06:59,760 Speaker 3: there are also other factors at play. 125 00:07:00,440 --> 00:07:03,359 Speaker 1: And does the industry then think that any of this 126 00:07:04,080 --> 00:07:07,520 Speaker 1: is temporary? If you look at the different companies, the 127 00:07:07,560 --> 00:07:11,320 Speaker 1: different countries, different types of alcohol that are all under pressure, 128 00:07:11,800 --> 00:07:13,640 Speaker 1: do businesses think that it's temporary? 129 00:07:14,200 --> 00:07:16,720 Speaker 3: I mean, that's a million billion dollar question. Really is 130 00:07:16,760 --> 00:07:19,640 Speaker 3: you know, is this cyclical i e. Is it going 131 00:07:19,680 --> 00:07:21,960 Speaker 3: to just you know blow over? Or is it structural 132 00:07:22,080 --> 00:07:24,480 Speaker 3: i e. Is it here's to stay? I mean, if 133 00:07:24,520 --> 00:07:26,760 Speaker 3: you look at the measures that companies are taking now, 134 00:07:27,800 --> 00:07:29,920 Speaker 3: it's sort of in the short term that they're going 135 00:07:29,960 --> 00:07:32,360 Speaker 3: to have to find a way to address these issues, 136 00:07:32,400 --> 00:07:36,200 Speaker 3: whether or not they're temporary or long term, because ultimately, 137 00:07:36,280 --> 00:07:39,800 Speaker 3: you know, it's having very real, tangible implications for these companies. 138 00:07:40,560 --> 00:07:42,200 Speaker 3: You know a lot of a lot of people have 139 00:07:42,200 --> 00:07:45,320 Speaker 3: been saying, you know, is this Alcohol's big tobacco moment? 140 00:07:45,480 --> 00:07:48,920 Speaker 3: Is this something that's here to stay? The thing is, 141 00:07:48,960 --> 00:07:51,400 Speaker 3: you know, the headwinds they are facing the drinks industry. 142 00:07:51,520 --> 00:07:54,040 Speaker 3: It's a lot more different than tobacco industry. It's kind 143 00:07:54,080 --> 00:07:57,320 Speaker 3: of what well, of course, they're subject to regulatory challenges. 144 00:07:57,440 --> 00:08:01,480 Speaker 3: You know, it's alcohol is still very popular are among consumers, 145 00:08:01,600 --> 00:08:04,480 Speaker 3: and it's not so much a case that across the 146 00:08:04,520 --> 00:08:07,600 Speaker 3: board consumption is falling. We're seeing areas of growth, so 147 00:08:07,680 --> 00:08:11,040 Speaker 3: for example in emerging markets, so in Latin America and 148 00:08:11,120 --> 00:08:13,600 Speaker 3: India in particular, they're bright spots for a lot of 149 00:08:13,640 --> 00:08:17,280 Speaker 3: these drinks companies. So they are asking areas of growth. 150 00:08:17,320 --> 00:08:19,760 Speaker 3: The question is whether or not they can adapt to 151 00:08:20,520 --> 00:08:21,320 Speaker 3: meet those needs. 152 00:08:21,600 --> 00:08:25,440 Speaker 1: Yeah, it's going to be fascinating to see how that progresses. 153 00:08:25,480 --> 00:08:28,200 Speaker 1: And such a big change, isn't it for the drinks industry? 154 00:08:28,480 --> 00:08:30,880 Speaker 1: As you say, Jennifer, lovely to see you, Thank you 155 00:08:30,920 --> 00:08:34,160 Speaker 1: for speaking to me. That is Bloomberg's Jennifer Creary, who 156 00:08:34,160 --> 00:08:38,000 Speaker 1: covers retail and consumer goods, talking us through the latest 157 00:08:38,040 --> 00:08:41,400 Speaker 1: on the drinks industry. Now for more explanations like this 158 00:08:41,440 --> 00:08:44,200 Speaker 1: one from our team of three thousand journalists and analysts 159 00:08:44,200 --> 00:08:47,920 Speaker 1: around the world, go to bloomberg dot com slash explainers. 160 00:08:49,640 --> 00:08:52,840 Speaker 1: I'm Calaine Hepka. This is his why. We'll be back 161 00:08:52,880 --> 00:08:55,240 Speaker 1: with more next week. Thanks for listening.