Understanding the alcohol & spirits industry
Are companies like Diageo, Campari and Pernod Ricard doomed? Or is there more going on? Find out!
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Enjoy today’s article on the alcohol & spirits industry, a sector that has recently gone out of favor but may be offering opportunities.
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A toast to history
Alcohol is as old as civilization itself. Workers in ancient Mesopotamia were paid in beer. Philosophers in Greece and Rome debated over wine. By the 15th century, distillation had spread across Europe, boosted by the printing press, and stronger drinks like whiskey and brandy became part of culture.
Fast-forward to today: some of the world’s oldest operating businesses are distilleries. Scotland’s Glenturret has been running since 1775. In the Netherlands, Lucas Bols has been distilling since 1575. Like luxury goods or fine art, spirits carry the weight of tradition and brand heritage.
That heritage matters. It’s why Scotch whisky and Cognac can sell for millions at auction. In 2023, a bottle of Macallan 1926 sold for $27 million. For some, they are more than just beverages; they can also be considered investments or assets.
And yet, the industry has been struggling. Big names like Diageo, Pernod Ricard, Campari, and Brown-Forman are all down 50% or more from their highs. What happened to these giants that once dominated the world with their strong brands?
The pandemic created a strange surge. With bars closed, people drank more at home. Spirits companies ramped up investment to meet that demand. But as economies reopened, consumption normalized. Inventories piled up. Add to that a weaker Chinese consumer (who had been a key driver of premium spirits growth), new tariffs, and macro uncertainty, and you get today’s depressing headlines.
Industry dynamics investors need to know
The global alcoholic beverages market is huge. It’s much bigger then most people realize. In 2024 the market reached $2,4 trillion in total sales, which grew to $2,5 trillion in 2025. Experts and industry insiders expect the market to reach $3.9 trillion in 2032, despite people drinking less.
The alcohol industry, covering all types of beverages such as beer, wine, spirits, and other alcoholic drinks, is an old sector with important dynamics that investors need to understand before investing. A few examples:
Local tastes dominate: People usually stick to what they know. Culture and religion shape those choices. Take Baijiu, for example: it’s the best-selling spirit in the world, yet almost unheard of in Europe or the U.S. Six of the global top eight spirit brands are Chinese Baijiu. To put that in perspective, Baijiu sells more than whiskey, vodka, gin, rum, and tequila combined. Alcohol demand is deeply regional.
Regulation risk: Alongside tobacco and gambling, alcohol is one of the most heavily regulated industries in the world. Key areas of regulation include age restrictions for sales, limits on promotional activities and discounts, requirements for age verification in distance sales, and mandatory health warning labels in some countries. Alcohol is harmful to health, so a broader shift away from it would be positive for society.
Distributor model: Most alcohol brands can’t sell directly to consumers. Instead, they’re required to go through distributors under the three-tier system. Distributors often have exclusive territories, giving them monopoly power in certain regions. That makes them the gatekeepers of the industry, controlling market access and using their position, sales force, and capital to secure favorable terms from both suppliers and retailers.
Consolidation: Despite new brands popping up (often celebrity-backed), most get acquired by giants like Diageo, Pernod, or Campari. The industry is dominated by a handful of players.
Premiumization vs. volume: Even as overall consumption declines (a trend since the late 1800s), consumers are trading up to higher-quality spirits. ‘Premiumization’ refers to the trend where consumers are choosing to buy higher-quality, more expensive products even if they are consuming less overall, meaning they are prioritizing quality over quantity, essentially drinking less but better.
Three scenarios for the industry
🐂Bull case
One of the bright spots for the industry is premiumization. Even though people might be drinking less overall, they’re often spending more when they do, trading up to higher-quality spirits that carry better margins. Add in the rise of middle classes in places like India, Latin America, and Africa, and you get decades of potential growth. India alone already produces four of the world’s best-selling whiskeys, and as incomes rise, many of those consumers may shift toward global brands like Johnnie Walker.
There’s also room for innovation. Categories like hard seltzers, low-calorie options, and even non-alcoholic spirits (Diageo owns Seedlip) show that these companies can adapt to changing tastes. And with valuations sitting at 10-year lows, contrarian investors willing to look past today’s struggles could find attractive opportunities if the cycle turns.
🐻Bear case
The bear case is pretty straightforward: demand may never come back the way investors hope. Younger generations, especially Gen Z, are drinking less, and if that becomes a lasting shift, the industry will face a structural decline. Add in new health trends and the rise of GLP-1 drugs from companies like Novo Nordisk and Eli Lilly, which are already curbing appetite and alcohol intake, and you start to see real pressure on consumption.
On top of that, substitutes like cannabis or other lifestyle trends are competing for the same discretionary dollars. Governments could pile on with higher taxes or tighter rules, making alcohol pricier and less accessible. And in the short term, margins are under strain as companies discount heavily to work through bloated inventories, which risks eroding brand value that took decades to build. No matter the valuation, this would be bad, even at current valuations.
Like most things in life, the outcome or truth is usually somewhere in the middle.
🦁Base case
We think overall consumptions will decline over the very long-term, but emerging markets offset much of the volume drop. Western countries are more likely to start drinking less but spend more on quality, whereas emerging economies should start drinking more. Growth settles into the low single digits (3–5% per year) and grows will overall GDP.
Working through excess inventory may take 2–3 years, but once normalized, companies like Diageo or Campari can return to stable, predictable growth. Investors will not see fast returns. Returns are more likely to come from dividends, buybacks at today’s valuations, and modest growth could compound into high single-digit returns annually. Like Coca-Cola in the 1990s, the sector faces headwinds, but history suggests strong brands survive shifts in consumer preference.
Final thoughts
Alcohol isn’t essential. Society could live without it. But history shows it’s unlikely to disappear. As with tobacco, declining volumes don’t necessarily mean declining profits, if pricing power and brand strength hold.
If you’re a contrarian, valuations may be interesting today. If not, it may simply be a sector to watch rather than buy.
Fan of whisky’s? Check out Whisky Craft from our friend Sonny. (Not sponsored!) And follow his investing Substack.
Want to learn more about the global spirits’ industry? Here are two great articles from
and .
Have a wonderful day,
The Dutch Investors