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As the millennial generation enters an age where they can drink legally (or nearly so), beer is increasingly losing market share to a proliferation of alternative liquors and wine.
Producers of hard alcohol can simply expand their production lines, and have been doing so, to meet increasing demand. Doing the same is not as easy for wine producers because of a reliance on the growth of grapes, and a lack of supply could easily put upward pressure on retail prices.
Current supply/demand issues
In the late 1990s in Northern California, a region responsible for 90% of domestic wine production, vineyards experienced a significant increase in the growth of grapes. The glut of supply and the resulting decrease in prices caused many producers to roll back their grape growth and focus on different crops.
However, as more consumers turn to wine as their alcohol of choice over the past decade, Vineyards in California have failed to adjust to this shift in consumer behavior. Between the unexpected demand and the roughly three-year period that it takes for grapes to be planted before coming to maturity, either an increase in retail price or imports of wine seems imminent.
Business section: Investing ideas
Below we have compiled a list of alcohol producers whose share value is likely to be affected by these events. Do you think foreign producers stand to benefit, or will American's turn to other cheaper and more accessible forms of alcohol to imbibe? (Click here to access free, interactive tools to analyze these ideas.)
1. Beam (Nasdaq: BEAM ) : Market cap at $9.65B, most recent closing price at $61.25.
2. Brown-Forman (Nasdaq: BF-B ) : Market cap at $12.6B, most recent closing price at $89.20.
3. Central European Distribution (Nasdaq: CEDC ) : Produces, imports, and distributes alcoholic beverages in Poland, Hungary, and the Russian Federation. Market cap at $227.85M, most recent closing price at $2.89.
4. Diageo (NYSE: DEO ) : Engages in producing, distilling, brewing, bottling, packaging, distributing, developing, and marketing spirits, beer, and wine products. Market cap at $61.76B, most recent closing price at $98.61.
5. Constellation Brands (NYSE: STZ ) : Produces and markets alcoholic beverages primarily in the United States, Canada, and New Zealand. Market cap at $3.62B, most recent closing price at $19.15.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Dan Connelly does not own any of the shares mentioned above.