It's been dispiriting for investors in the wine and spirits business as companies make strategic adjustments while waiting for the worldwide economy to improve.

The recession has deflated stock prices and cut into recent quarterly financial results, from diverse giants such as Brown-Forman (NYSE:BF-B) to specialty companies such as Central European Distribution (NASDAQ:CEDC).

U.S.-based companies are taking bottom-line hits because the dollar has gotten stronger. Some are reducing payroll or paring brands.

Meanwhile, drinkers are trading down to cheaper brands. A recent Morningstar (NASDAQ:MORN) report says the trend has been exacerbated as customers drink more at home, buying alcohol in stores rather than bars and restaurants.

There are more challenges to come in the U.S. market. Wine and spirits consumption is expected to grow at a slower pace than in recent years, according to a recent presentation by MillerCoors, the U.S. joint venture of Molson Coors (NYSE:TAP) and SABMiller.

Between 2004 and 2008, wine grew at a 2.9% compounded annual rate and spirits grew at 2.7%. For the next four years, wine is forecast to grow at 1.3% annually and spirits at 1.1%.

Diversified versus specialized
For a conservative investor -- or any new investor wanting a core holding in wine and spirits -- you can't go wrong with London-based Motley Fool Income Investor pick Diageo (NYSE:DEO). It has a 3.9% dividend yield and famous brands ranging from Smirnoff vodka to Johnnie Walker scotch. It takes a sip of the beer business with Guinness, among others.

More importantly, the company is well-diversified geographically. Although North America was the greatest source of operating profit and revenue growth in the second half of 2008, Diageo also turned in solid sales and growth gains in the emerging markets of Latin America and Africa.

Diageo often performs like a well-diversified mutual fund that doesn't fall as far or as fast when the S&P 500 stock index declines -- and it doesn't rise as fast when the index makes a quick recovery. Over the long term, however, Diageo outpaces the broader market.

If Diageo is the industry's version of a well-diversified fund, then Central European Distribution is a sector fund with all the volatility of a narrowly focused business. Based in Pennsylvania, it concentrates its efforts on Poland, Hungary, and the Russian Federation.

Central is the leading vodka producer in Poland, as well as the producer of the top-selling brand in Hungary. It distributes other spirits to its Eastern Europe markets, and also exports vodka from these markets.

Recently, Central made a big investment in expanding its operations in Russia, which will give it control of Russia's top vodka producer. Its ability to efficiently integrate and manage its investment in a diffuse vodka market is crucial to future success.

Central's 12-month stock range, from $5.97 to $77.48, provides sufficient warning to investors. The stock is now trading in the mid-$20s, having rebounded since early March.

A big winer
In between the steadiness of Diageo and the volatility of Central is Constellation Brands (NYSE:STZ), which is the world's biggest wine company. It also sells spirits and is a joint-venture partner in Crown Imports, along with Mexican brewer Grupo Modelo. Crown's best-known beer is Corona.

Constellation just announced a 15% drop in revenue for its first quarter ended May 31, versus the comparable period last year. GAAP earnings-per-share of $0.03 trailed the year-ago quarter's $0.20. However, the good news was that, excluding one-time items, its $0.33 EPS beat Wall Street estimates by a penny.

U.S. wine consumption continues to rise, as shown by a recent report from the Wine Institute. However, much of that growth, says industry analyst Jon Fredrikson, reflects a "massive switch down" to cheaper brands.

Constellation has responded to weaker sales by "building must-have brands that return the greatest profits and that represent good value for consumers," CEO Rob Sands said Wednesday. Constellation has sold off some cheaper, "value" spirits brands and some wine brands.

Constellation's strategy is based on the belief that buyers of premium wines will come back as the economy improves. (Among brewers, Boston Beer (NYSE:SAM), the maker of Samuel Adams beers, is staying with its premium brands, even as consumers trade down to other companies' cheaper offerings.)

Know when to say when
Like Constellation, Brown-Forman recently reported quarterly results that were worse than the year-ago period but better than analysts had forecast. Although Brown-Forman sells some wine brands such as Bel Arbor, it's best known for Southern Comfort, Jack Daniel's whiskeys, and Finlandia vodka.

The company has moved away from relying on the U.S. In 1995, the U.S. accounted for 80% of sales, a figure that now sits at 48%. Although Brown-Forman serves traditional overseas markets, the company is trying to expand its presence in emerging markets such as Eastern Europe, Latin America, and Asia.

Like its peers, Brown-Forman is trying to shrug off the trade-down phenomenon by emphasizing premium brands, especially Jack Daniel's, on which it is heavily reliant. It sells some cheaper brands, figuring they will yield a short-term boost in sales due to a weak economy, while offering only modest growth over the long term.

Amid common economic themes, alcoholic beverage companies are using different strategies that give investors a choice -- just like a well-stocked liquor cabinet. This industry isn't recession-proof, but it can still provide a pick-me-up for your portfolio. Just remember to invest responsibly.

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Fool contributor Robert Steyer doesn't own shares of companies cited in this article. Diageo is a Motley Fool Income Investor pick. SABMiller is a Global Gains pick. Morningstar is a Stock Advisor recommendation. The Fool owns shares of Morningstar.