USA: Beer and soft drink makers to benefit as Americans consume less alcohol, analysis says

Soft drink and beer makers stand to benefit as Americans consume less booze.

That's the take of analysts at Morgan Stanley, who on March 25 published a report discussing possible outcomes as alcohol seems out of favor at the moment. The drivers, in short, include an increasingly health-conscious consumer, but also economic pressures that could be short-term.

"With alcohol per capita consumption likely to decline, we see the zero-alcohol segment as ripe for strong growth," Morgan Stanley wrote. "We believe that beer is better positioned than spirits in this regard. We similarly see higher growth for soft drinks, aided by stronger pricing power, and with innovation to better satisfy the 'good for you' criteria increasingly demanded by the younger consumer."

Companies are making decisions informed by the same trends. PepsiCo (PEP) earlier this month agreed to buy prebiotic soda brand Poppi for $1.65 billion. Reed's, a company known for ginger ales that trades over the counter, on a recent conference call discussed a new "multifunctional" line of sodas made with ingredients like organic ginger and mushroom extracts and comparably low calorie counts.

"These beverages cater to the rising demand for health conscious, functional refreshment options and position us at the forefront of the evolving beverage market," Reed's CEO Norman Snyder said on the call, a transcript of which was made available by AlphaSense. Snyder added that "the early response from retailers has been overwhelmingly positive, reinforced by their expansion of shelf space dedicated to the functional and better-for-you beverage category."

Among Morgan Stanley's recommendations: Buy Coca-Cola, avoid Brown-Forman. They're also positive on several European and Asian companies known for their beer offerings.

"We believe that, in developed markets spirits growth will slow, as consumers shift towards lower/non-alcoholic options," the analysts wrote. "For the beer market, we see this as an opportunity."

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