The beer business has been hit surprisingly hard by COVID-19, despite the fact that liquor store sales seemed to surge in the early days of the pandemic. As the world has entered more of a steady state in the last few months, it seems beer consumption has declined as it becomes harder to meet up with friends at a local pub or restaurant. 

Consumer discretionary stocks like Molson Coors (NYSE:TAP) have suffered along with other brewers, and Molson Coors' stock price is down 36.5% so far this year with no sign of a recovery in sight. So is this a buying opportunity or a new normal for the brewer? Let's take a look at the business with a long-term view in mind. 

Five beer glasses on a bar.

Image source: Getty Images.

Beer trends were already changing

The last decade has been defined by large changes in the beer business. Regional breweries, microbreweries, and taprooms that began to grow in the 2000s exploded in the last decade, nearly quadrupling in numbers to over 8,000 in the U.S. alone, according to the Brewer's Association. 

Even after all of this growth, craft brewers were only 13.6% of the market in 2019. And they kept growing, increasing volume sold by 3.6% last year as overall beer sales fell 1.6%. 

Molson Coors and other large brewers have been losing market share, and with it they're losing distribution and pricing power in the market. That has led to consolidation among big brewers to shore up their market position, but hasn't fundamentally changed the fact that demand for their products was already starting to fall. 

And then the pandemic hit

With that backdrop in mind, Molson Coors has been facing falling revenue, declining margins, and falling profitability for years now. But in 2020, the company actually swung to a loss. 

TAP Revenue (TTM) Chart

TAP Revenue (TTM) data by YCharts

The pandemic won't last forever, and eventually bars and restaurants will open again. But supply at those places will likely decline as locations have closed across the country. I think we'll see big brewers like Molson Coors bounce back when locations open, but it may take a while given a likely slow recovery in the service industry. And even with that bounce, the company may be in a phase of structural decline. 

Opportunities to adapt

As bad as it's gotten for big brewers, small breweries arguably have it worse. Taprooms are closed and with beer consumption down in 2020, it has become hard for some to keep the lights on. Those closures could create an opportunity for Molson Coors to take back some market share or buy up the assets of innovative brewers who could expand the company's reach. 

The challenge is that acquisitions by big brewers into the microbrewery scene have been challenging. It can lead to a revolt by customers, who want to support local brewers, and bigger brewers naturally want to scale the companies quickly. 

There aren't any easy answers to how to adapt to today's environment. Maybe a few small acquisitions of regional brewers could make sense, but they're not a guarantee to lead to a financial windfall for Molson Coors long term. Add it up and the company is stuck between a rock and a hard place as it adapts to a new reality. 

No great options

Let's cover the big themes in the big beer business today. Beer consumption is declining, craft brewers are taking market share from Big Beer, and there's little room to cut costs or raise prices after years of consolidation in the beer industry. That's the long-term picture, and it looks bleak.

Meanwhile, the pandemic has shut down bars and restaurants, a big source of demand, leading to more revenue losses and even a net loss for Molson Coors. Short term, there's no clear recovery coming. 

Add it up and I don't like the position Molson Coors is in at all. The business is being squeezed from all sides with no clear way out. Big beer's best days are likely in the past, and I'm even adding a thumbs down pick on my CAPS page, indicating that I think the stock will underperform the market long term.