Do you most often drink liquor, wine, or beer? That question was asked by Gallup back in 1992. At that time, a commanding 47% of American drinkers answered "beer," versus the 27% who said "wine." Fast forward 21 years later and that same question will elicit a very different response. Today American drinkers' preference for beer is now at an all-time low of 36%, while wine's soaring popularity nearly overtook beer this year at 35%. With such a massive shift in consumer behavior, clearly there is some money to be made here.
The drink of a new generation
This shift away from beer is in large part the result of the 70 million or so 'Millennial' Americans born between 1977 and 1994 (about 62 million of which are of legal drinking age). Baby boomers are still the wine industry's core base of consumers, but growth for this industry is with these Millennials who are adopting wine as their primary drink of choice far faster than their parents' and grandparents' generations. And what's more, the younger Millennials (age 21-26) are drinking more wine than the older members of their generation. With such a favorable demographic of young consumers, this industry has absolutely nothing to 'whine' about (... sorry, terrible pun).
Offering a range of price points from a $135 bottle of Carmin de Peumo to a $5 bottle of Frontera, the Chile-based Concha y Toro (NYSE: VCO ) has the ability to meet this Millennial demand at all income levels. As the world's second largest winery, Concha y Toro is well positioned to profit from this changing consumer trend in the United States and elsewhere in the world. Unfortunately, 2012 and 2013 have been a particularly challenging two years for the company as they deal with the economic uncertainty throughout Europe (their largest export region) and unfavorable currency fluctuations throughout Latin America. But as the company refocuses on premium and more profitable brands and continues their expansion efforts in the United States, the future of this company looks much brighter than its most recent past.
American growth and potential
Wine consumption is on the rise globally and the United States is one of the main drivers of that growth. In 1993, wine sales in the United States were just $11 billion. In 2012, those U.S. sales increased to a record $34.6 billion. Today the United States is the world's largest wine drinking country with 12.54% of all worldwide consumption (slightly surpassing the former world leader, France, at 12.46%).
Despite the record sales and becoming the worldwide wine consumption leader, America still has the potential for massive growth. After all, the United States is only the global leader because its population is so much greater than the much smaller European nations. On a per capita basis, the United States remains far behind the traditional wine drinking nations of the Old World:
|1||Luxembourg||52.46 liters of wine per capita|
|2||France||45.70 liters of wine per capita|
|3||Italy||42.15 liters of wine per capita|
|4||Portugal||41.81 liters of wine per capita|
|5||Switzerland||38.20 liters of wine per capita|
|34||United States||9.42 liters of wine per capita|
At only 4% of fiscal 2013 net sales, Diageo's (NYSE: DEO ) consolidated wine business is rather tiny. But it is Diageo's unconsolidated 34% equity interest in Moët Hennessy that should get everybody's attention. Foreign sparkling wine consumption in the United States has increased more than 87% since 2000. Moët Hennessy, as the world's largest champagne producer, is one of the best ways to play this U.S. growth story. And with luxury ultra-premium brands such as Moët & Chandon and Dom Pérignon, it is one of the most upscale and profitable ways to play this growth as well. Last year, this 34% stake in the company contributed £230 million ($368 million USD) in profit to Diageo, up from £205 million the year before.
Foolish bottom line
Why invest in wine stocks? With a growing trend away from beer, a much envied demographic of young legal drinking age consumers and the potential for European-like consumption growth, there is very little not to like about a possible investment in wine. So when asking yourself "Why should I invest in wine?", the simple answer should be "Wine not!"