Key Takeaways:
- US spirits volumes have declined for four straight years, IWSR data shows
- Only 54% of Americans said they drink alcohol in 2025, a Gallup all-time low
- Diageo and Pernod Ricard now trade at valuations comparable to tobacco stocks
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Spirits stocks trade at tobacco valuations as US drinking hits 54%
US spirits consumption has fallen for four straight years, pushing Diageo and Pernod Ricard to valuations normally reserved for tobacco stocks.
Diageo and Pernod Ricard now trade at tobacco-like valuations after US spirits volumes declined for four consecutive years, IWSR data shows. The share of Americans who say they drink alcohol hit an all-time low of 54% in 2025, according to a Gallup poll.
"Gen Z wants to drink, but they want convenience and affordability," said Nadine Sarwat, an analyst at Bernstein. She noted that ready-to-drink cocktails are outperforming traditional spirits.
Diageo's earnings multiple has fallen to 2009 levels. Pernod Ricard trades cheaper than British American Tobacco and Altria on forward earnings. Brown-Forman, the maker of Jack Daniel's, trades at 16 times projected earnings — still cheaper than Philip Morris International. Spirit prices at bars and restaurants have risen 29% over the past five years, Bernstein estimates, with $20 cocktails becoming common in many US cities.
The valuation compression reflects a structural shift in American drinking habits driven by GLP-1 weight-loss drugs, Gen Z wellness trends and the rise of legal marijuana. Diageo's new chief executive is expected to announce a fresh strategy later this summer to revive growth.
The Wellness Shift Reshapes Demand
The decline marks a departure from past downturns. After the global financial crisis, spirits volumes continued to grow in 2009 and 2010 as consumers traded down to cheaper brands and socialized at home. Today, drinkers are cutting back entirely. Younger generations are drinking more moderately, with tracking devices such as Oura rings and Fitbits highlighting alcohol's impact on sleep. People on GLP-1 weight-loss drugs also report reduced alcohol consumption, adding another headwind for distillers.
Canned Cocktails Offer a Contradiction
One corner of the market is booming. Ready-to-drink cocktails are growing 20% to 30% a year in the US, according to Mitch Collett, an analyst at Deutsche Bank Research. A 12-pack of Cutwater Spirits margaritas costs about $25 at Walmart, offering Gen Z consumers convenience and affordability. The category is dominated by beer companies and privately owned spirits makers — Cutwater is owned by Budweiser brewer AB InBev. Traditional distillers have been slow to enter the market, partly because canned cocktails carry lower profit margins than bottled spirits and the category may prove cyclical after the boom-and-bust patterns seen in craft beer and hard seltzers.
Emerging Markets Provide a Hedge
Diageo and Pernod Ricard still see healthy demand in emerging markets such as India, where spirits consumption continues to grow. This international exposure provides some offset to the US downturn. Diageo's new strategy, expected this summer, will be closely watched for signs of a turnaround, including plans to launch products at more affordable prices.
This article is for informational purposes only and does not constitute investment advice.
