What Lockdown Means for Alcohol Stocks

pandemic.” data-reactid=”13″>Alcohol sales have surged in the United States as people try to raise their spirits or pass the time while stuck at home during the pandemic.

Minibar Delivery — a website and app that facilitates home delivery of alcohol — has been riding this wave. From March 11 through April 13, Minibar saw overall sales rise by nearly 150% compared to the previous month as orders more than doubled and new customers grew by nearly sevenfold.

“People are trying to make occasions to drink,” Minibar CEO Lindsey Andrews says.

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It’s not just online alcohol sales that are up. Total domestic liquor sales at retail outlets like grocery and package stores — which does include alcohol ordered online — were up 25% in the week ending April 4 compared with a year ago, according to market research firm Nielsen. That’s ahead of the 22% surge in retail sales the firm estimates would be necessary to replace sales from the collapsed market that includes restaurants and bars.

sell-off. These stocks haven’t fully recovered, though. While the dip may have created a bargain opportunity for some, it also reflects uncertainty for the shares of producers including Anheuser-Busch InBev (ticker: BUD), Diageo ( DEO), Constellation Brands ( STZ), Brown-Forman Corp. (BF.A, BF.B) and Molson Coors Beverage Company ( TAP).” data-reactid=”18″>That’s a good sign for alcohol producers, which have seen their shares rebound in the days following the mid-March sell-off. These stocks haven’t fully recovered, though. While the dip may have created a bargain opportunity for some, it also reflects uncertainty for the shares of producers including Anheuser-Busch InBev (ticker: BUD), Diageo ( DEO), Constellation Brands ( STZ), Brown-Forman Corp. (BF.A, BF.B) and Molson Coors Beverage Company ( TAP).

“Those mainstream companies are probably good buys now,” says Louis Terminello, partner with the Greenspoon Marder law firm, where he provides legal services to the alcoholic beverage industry. “They will climb their way back to the top.”

Tim Bain, chief investment officer at Spark Asset Management Group, has recently bought shares of Constellation for a few clients. “I think Constellation will weather any near-term recession and offers good growth potential,” Bain says.

While alcohol stocks may look attractive right now — and some companies could in fact make good buys today — investors should weigh recent success against the long-term outlook for this industry.

Here are a few things to keep in mind:

— Alcohol stocks tend to do well in down times.

— Current sales may not be sustainable.

— The perks of being an “essential business.”

recession-resistant because people drink no matter how the economy is performing.” data-reactid=”27″>Alcohol stocks tend to be recession-resistant because people drink no matter how the economy is performing.

“People drink in good and bad times,” Terminello says.

economic cycles, says Dan Ahrens, chief operating officer of AdvisorShares, which runs the AdvisorShares Vice ETF ( ACT) that includes alcohol makers.” data-reactid=”29″>While a diversified basket of alcohol stocks will perform well regardless of the economy’s health, liquor sales go through phases that are linked to economic cycles, says Dan Ahrens, chief operating officer of AdvisorShares, which runs the AdvisorShares Vice ETF ( ACT) that includes alcohol makers.

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SAM) and Brown-Forman, at the expense of sales of "low-rent beer," Ahrens says.” data-reactid=”31″>In the last decade, as the economy has been in growth mode and the bull market in stocks made a historic run, there has been a shift toward more expensive craft beer and higher-end liquor and wine. This has benefited companies like Boston Beer ( SAM) and Brown-Forman, at the expense of sales of “low-rent beer,” Ahrens says.

That atmosphere appears to be changing today. A pandemic-sparked recession would shift that equation toward cheaper beer that sells better when people earn less money, Ahrens says.

Despite the recent bump in overall alcohol sales in the U.S., the outlook for these companies is still uncertain as a global curtailment on travel reduces drinking on planes and trains, restaurants and bars remain closed and the impact on international markets will be significant.

Diageo has reported that it’s unclear whether the pickup in retail-store sales in North America and Europe will be sustained. Indeed, the latest Nielsen sales number for the total U.S. retail alcohol market is markedly lower than the 55% year-over-year growth recorded in the week ended March 21.

A key factor is how much of the buying is related to stockpiling versus immediate consumption. People who have stocked up on booze may not need to return to the liquor store or order more online for some time.

panic-buying amid the "toilet-paper-and-whisky syndrome," some are from restaurants selling to-go alcohol along with food as well as from people drinking more as they have more time on their hands, Terminello says.” data-reactid=”37″>While some of the increased domestic booze sales are from panic-buying amid the “toilet-paper-and-whisky syndrome,” some are from restaurants selling to-go alcohol along with food as well as from people drinking more as they have more time on their hands, Terminello says.