Diageo, the global drinks giant behind brands like Guinness and Johnnie Walker, has faced a steep decline, with its share price halving since early 2022. A mix of shifting consumer preferences, economic headwinds, and competitive pressures has disrupted what was once a stable industry. As younger generations drink less, Diageo and other major alcohol brands are struggling to adapt. This article explores the factors driving Diageo’s decline and what the future holds for the industry.
Despite being the producer of the popular stout Guinness, Diageo’s share price has halved since the beginning of 2022. This decline reflects a range of challenges facing the company, from shifting consumer trends to broader economic pressures. Diageo’s sales contracted last year for the first time since 2016 (excluding the pandemic-hit 2020), marking a stark shift for a business long regarded as a stable consumer staples pick.
Declining Alcohol Consumption: A Generational Shift
One of the primary drivers behind this decline is the long-term shift in global alcohol consumption. Younger generations are drinking less, driven by a greater focus on health and wellness. According to the Office for National Statistics, the proportion of 16-24-year-olds who abstain from alcohol rose from 18% in 2005 to over 26% in 2022. The US tells a similar story, where Gallup data shows the number of adults aged 18-34 who drink alcohol fell from 72% in 2001 to 62% in 2023.
Another factor impacting consumption levels has been the emergence of weight loss drugs like Ozempic and Wegovy, manufactured by Novo Nordisk. These medications mimic the GLP-1 hormone, which slows digestion and reduces appetite and cravings, including for alcohol. The number of people taking GLP-1s for obesity and weight loss in the US increased by 700% between 2019 and 2023 to a total of 6% of the population, likely chipping away at demand and posing a structural threat to future consumption as these drugs become more widely available.
Rising Competition: Craft Distilleries and No-Alcohol Alternatives
At the same time, Diageo is facing rising competitive pressures. The rise of craft distilleries and the rapid growth of no- and low-alcohol beverages have captured a growing share of the market, particularly among health-conscious younger consumers. The no and low segment of the market has experienced huge growth in the US in recent years, more than doubling between 2018 and 2022 at a compound annual growth rate (CAGR) of 25%. This compares to a CAGR of only 3.7% and 0.6% for spirits and wine respectively, demonstrating the scale of the shift away from traditional alcoholic beverages.
Another challenge for Diageo came from one of its previously high-growth categories: tequila. Once seen as a major opportunity, the company was caught off guard by a mix of market oversupply and strategic missteps. Diageo’s high-profile partnership with Sean “Diddy” Combs around the DeLeón tequila brand collapsed amid a public legal dispute in 2023. Diageo accused Combs of damaging the brand with inconsistent involvement and negative publicity, while Combs sued the company for racial discrimination. Meanwhile, as tequila soared in popularity during the pandemic, producers rushed to ramp up supply. By 2023, the market was saturated, and prices fell sharply, compressing margins and leaving Diageo overexposed in a once-hot segment.
Economic Pressures and Rising Costs
Economic headwinds have added further pressure. Persistent inflationary pressures have pushed up production costs across packaging, transportation, and raw materials. At the same time, consumers have reined in discretionary spending, especially on premium products, a segment Diageo heavily relies on. With inflation showing no signs of returning to pre-pandemic levels and potentially exacerbated by a looming global trade war, Diageo are likely to see margins continue to compress or be forced to pass on the price burden to already stretched consumers.
However, it seems as if Diageo is not alone. Industry peers have also struggled. Anheuser-Busch InBev has seen a turbulent two years, particularly in the US following consumer boycotts surrounding a marketing campaign. Heineken has warned of slowing volumes, especially in Asia, and Pernod Ricard, owner of brands like Absolut and Chivas Regal, has also faced sales declines in North America and China. Both companies suffering share price declines like Diageo.
The story across the industry is similar, premium alcohol brands are facing threats from shifting consumer trends and preferences, and economic pressure. Throw Donald Trump’s 200% tariffs on European wine and spirits into the equation amidst a broader global trade war, and the industry has a perfect storm to contend with.
The Future of Diageo: Can It Adapt?
As Diageo navigates this new landscape, there is no clear path back to consistent growth. The headwinds from declining alcohol consumption and health-driven consumer behaviour to rising costs may not fade anytime soon. The future for Diageo and others depends on their ability to adapt. Innovating product lines, expanding into health-conscious categories, and managing global supply chains more efficiently are all key. For now, the world’s drinking habits are changing, and even the biggest names are being forced to reckon with it.
Capital at risk.