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I’ve evaluated countless startups this year.

Most of them don’t make the cut for one reason or another.

I have a specific set of criteria I use when evaluating them.

Think of it as my startup evaluation formula, if you will. 

One thing I’m looking for is…

TIMING.

Is the market ready for this product?

Is there a strong market need for it?

  Are there any trends in the market?

My partners and I just invested in a company we’re calling the “Red Bull of the Alcohol Industry.”

Their line of alcoholic drinks is the perfect alternative to beer.

And their massive expansion couldn’t come at a better time.

There’s a paradigm shift underway right now in the alcohol industry.

 

The Decline of Beer

In the U.S., beer sales have been in decline since 2015. From 2018 to 2019 alone there were 1.4 million fewer beer barrels shipped and the entire beer market dropped by 2.3%.

Beer has been such an institution in American drinking culture and still will be for some time, but looking at the most recent data, we can safely say that traditional beer won’t be able to keep up with changing consumer preference. 

This article isn’t about celebrating the decline of beer. From an investors point of view, I want to show you what’s happening so you can find opportunities in the changing adult beverage market.

New types of drinks are coming up, beer is going down, and there is loads of opportunity for the angel investor who knows the trends in this industry. 

 

What’s Brewing?

Domestic beer has been hit the hardest. Over the past few years, the only types of beer that saw any growth were craft and imported beers. Big American brands’ long-time staples just aren’t doing it for drinkers like they used to. 

The flagship products of these large breweries have perhaps suffered the worst. While Anheuser-Busch InBev still leads the domestic segment with 43% of domestic beer sales, it is slowly losing market share, mostly due to its under-performing flagship brand, Budweiser. 

And things are even worse for Molson-Coors. A 3% year-over-year decline on its entire portfolio with an additional 2.4% decline on its flagship brand, Coors, has sent out a warning shot to the rest of the “traditional” beer industry.

What is causing this? Are Americans drinking less alcohol across the board or are they choosing different drinks? 

Based on the data, it’s clear that traditional beer brands are failing to stimulate consumers changing preferences. Meanwhile, newer and more exciting options are being welcomed into the market.

And yet, as it stands, beer is still America’s favorite alcoholic beverage. The question arises — are we witnessing a momentary dip in beer’s popularity or a full-on paradigm shift?

 

Consumers are Drinking More and Spending More on Drinks

We can rule out a decline in drinking in general as the cause of beer’s decline. In fact, between 2018 and 2019, there was a 0.3% increase in alcohol consumption. What’s more, Americans are spending significantly more on their alcohol — over the same period, alcohol spending increased by 2.5%.

Brandy Rand, chief operating officer of IWSR Drink Markets Analysis, says that these trends are a “clear indicator” that U.S. consumers are willing to pay for more premium products. 

What’s causing them to pay more? 

Rand points towards “the rise in low-and no-alcohol products” and “trends towards health and wellness,” as the answer. 

To further unpack this, we first need to see what are the root causes of beer’s decline — what do consumers want in a drink that beer just doesn’t give them?

 

Reasons for Beer’s Decline

Consumers are moving towards low-calorie, low-sugar options. Products that follow health trends and support weight loss are taking precedent. Beer just doesn’t fit into this category.

When asked about beer, consumers report beer as the highest-calorie drink. It has been baked into the cultural consciousness that beer is heavy and unhealthy, even though many beers are relatively low-calorie. A quarter of beer drinkers specifically admit to cutting back because of health concerns.

While beer companies are trying to adapt and bring healthy and trendy beers to market, other types of drinks still beat them out on health.

Baby Boomers, a critical demographic for beer, have more health concerns than any other group of beer drinkers. As they get older and face these problems, products like beer are likely to be at the top of the list of what to cut out.

Millennials are still engaged with beer, being the group that drinks the greatest range of beers and enjoys it more frequently, but their preference leans towards craft, true-craft, flavored, and blended beers. 

Meanwhile, Gen Z is a tricky market to capture. They are the most likely to drink daily but also the most likely to not drink at all.

Both Millennials and Gen Z follow trends more than older generations. Generally, they aren’t loyal to one brand and are open to new drinks advertised on social media. 

Young companies with modern marketing tactics have built their brands from the ground up targeting them. While big American brewers are hurriedly trying to captivate this audience with blended beers and the like, they still haven’t cracked the code. 

Lastly, lifestyle changes are bogging down beer. 

As a part of a general shift in consumer behavior, people are eating more at home and prefer casual socialization. Because of this, on-premise beer consumption is declining. Places like restaurants and bars have seen a dip in beer sales. 

And consumers aren’t just taking beer home with them, off-premise beer consumption is shrinking too, just not as quickly.

 

Other Drinks on the Rise

The biggest challenge for beer is competing with the new, competing products and new preferences of drinkers.

 

RTDs

At the top of this list are RTDs or ready-to-drink beverages. RTDs have quickly grown into an $8 billion industry. 

What exactly is an RTD? These are pre-packaged mixes and cocktails like hard iced teas, alcoholic fruit juices, alcopops (sodas mixed with alcohol), and hard seltzers. 

But the belle of the ball of the RTD movement is hard seltzer. Hard seltzers make up 43% of the entire RTD category. In 2019 the volume of hard seltzers went up nearly 50% and by 2023 it’s expected that consumption will triple.

 

Spirits

While beer sinks, spirits like whisky, vodka, tequila, rum, and gin are becoming more popular. 

These drinks grew 2.3% last year. At the same time, niche spirits are breaking into the mainstream, and craft products are gaining an edge. This can be seen by the recent passing of torches in the vodka world, as craft-brand Tito’s Handmade Vodka knocked Smirnoff out of its top spot. 

This aligns with the happenings of the beer industry — newer brands that bring something fresh to market are thriving.

 

Craft, Foreign, and Non-Alcoholic Beer

While beer as a whole declined, craft, low-alcohol, and no-alcohol beer consumption is growing. 

Non-alcoholic beer dollar sales grew 23% in 2019 and craft consumption increased by 4.1%.

Consumers want healthy, different, and craft products. Even those who love beer don’t get that from flagship products so they are looking for alternatives. 

 

A Changing Market, New Opportunities

It remains to be seen whether beer is in for a lengthy decline or if it’s only dropping a few points while the market shifts its weight.

What’s clear is the opportunity for entrepreneurs to stake out a claim in the market while the big brands play catch-up. 

Investors that bet on hard seltzer a couple of years ago are now making a killing. Hard seltzer and the rest of the RTD segment are still on fire, with plenty of room for competition. 

The gap left behind by beer needs filling. And in the fight for market share, startups that focus on health, flavor, and quality are especially fit to win.

 

This Alcoholic Beverage Company Is The Boardroom’s Highest Revenue Investment Ever. Get instant access to our complete Investor Package, analysis of the company’s upsides and risks, and investing portal.

Author:
Chris Graebe

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