## SHOW NOTES

### Key Themes This Week:

- **U.S. demand showing modest improvement** but still negative; off-premise total alcohol -1.2% (improved from -3.4%)

- **RTD/Prepared Cocktails remain the clear winner** at +7.4% dollar growth

- **Wine DTC in structural decline**: -15% volume, -$230M value, average bottle price up 11% to $56.78

- **Distribution disruption accelerating**: RNDC losing major suppliers; Delicato, Johnson Brothers, Breakthru expanding

- **Inventory overhang persists**: wholesaler levels ~45% above 2019 average

### Notable Deals & Moves:

- **AB InBev acquires 85% of BeatBox** for $490M (implies ~$575M valuation)

- **ABC Fine Wine & Spirits acquires Applejack** (Colorado) — first out-of-state acquisition in 90 years

- **Sazerac partners with Piedmont Distillers** for Midnight Moon distribution

- **Columbia Distributing acquires Point Blank Distributing** in Portland

- **Scribe Winery acquires Arrowhead Vineyard** (150 acres, Sonoma)

### Supplier Earnings Signals:

- **LVMH Moët Hennessy**: Q4 organic sales implied at -9%; Cognac & Spirits -12% for the year

- **Diageo**: Potential Q3 destocking risk; H1 organic sales outlook -2.2%

- **Campari**: Q3 organic sales +1.3% projected; holiday season slower than expected

### Regulatory & Legal Updates:

- **Chicago permits hemp THC beverages** (up to 10mg/12oz) at licensed venues; United Center to sell

- **Federal HEMP Act introduced** to place CBD under FDA oversight

- **Retailer shipping cases** seeking Supreme Court review (Arizona, Indiana)

- **Wynn Resorts** under federal probe for alleged liquor-contract issues

- **McIlhenny (Tabasco) sues Stoli** over pepper vodka trade dress

- **Uncle Nearest** remains in receivership; Feb. 9 court hearing scheduled

### Consumer & Market Data Points:

- Only **54% of U.S. adults** say they drink alcohol (Gallup) — lowest in 90 years

- Wine drinkers reducing: **46% cite calories, 39% cite sugar**, only 21% cite cancer risk

- Gen Z = **4% of alcohol sales**; Gen X + Boomers = **70%**

- Super premium beer now **40.7%** of beer volume

- High-ABV products **+11% YoY**; Non-alcoholic **+26% YoY**

- California wine crush estimates: **~2.1-2.25M tons** — potentially smallest since 1980

### Key Takeaways:

1. **The market is stabilizing, not recovering** — growth requires activating specific occasions and channels

2. **On-premise is the relative bright spot** — experience-led occasions showing better price elasticity

3. **Wine's challenge is as much perception as consumption** — sugar/calorie misconceptions driving substitution

4. **Distribution is a strategic lever** — realignments creating winners and losers

5. **The competitive set is expanding** — hemp THC, NA, and high-ABV all claiming occasion share

- **Theme of the week:** Stabilizing demand signals, but rising execution risk—driven by value-conscious consumers and major distribution disruption.

- **Wholesaler signal:** NBWA’s January Beer Purchasers’ Index rebounded sharply vs. December, with **below-premium** reaching an expansion threshold—though overall conditions remain cautious.

- **Beer pricing reality:** Industry leaders say the era of dependable annual price hikes is fading; focus shifts to **pack/price architecture** and tighter value ladders.

- **Moderation & substitution:** Dry January and longer-run data point to sustained moderation; **NA beer and RTDs** remain key beneficiaries.

- **RTD momentum:** RTDs continue to capture occasions and attract investment, reshaping innovation priorities.

- **Wine split:** Off-premise remains pressured while on-premise—especially fine dining—acts as a stabilizer; California supply may tighten later after a sharply lower 2025 crush.

- **Spirits overhang:** American whiskey faces heavy inventory and declining shipments, driving production/asset decisions and increasing the odds of future price pressure.

- **Big route-to-market story:** **RNDC exits California**, triggering rapid supplier and brand realignments (including Tito’s and Brown-Forman moves) and creating near-term service risk—and competitive opportunity.

- **California regulatory updates:** Expanded **DTC spirits shipping** (for qualifying craft distillers) and new **mandatory EFT payments** from retailers to wholesalers starting 2026; compliance scrutiny rising around kratom products.

- **Adjacent adult products:** Hemp-THC regulation pressure builds; Curaleaf exits hemp-THC, and retailers push for federally regulated, age-gated frameworks.

- **Macro undercurrent:** Private label and value retail expansion continue to pressure pricing power and reward operational excellence.

- **Theme of the week:** A “K-shaped” U.S. alcohol market—headline declines, but strong growth pockets in NA beer, RTDs, and select super-premium brands

- **Beer 2025 wrap:** Total beer finished down in dollars and volume; **domestic premium weakened** while **domestic super premium and NA beer grew sharply**

- **Channel signal:** Convenience stores are holding up better for beer, with **NA beer surging** and seltzer stabilizing relative to broader retail

- **On-premise vs off-premise:** Alcohol pricing **away from home is rising faster** than at-home inflation, reinforcing the battle for occasions and mix

- **Distribution disruption risk:** RNDC uncertainty and supplier exits are accelerating wholesaler consolidation; **route-to-market stability is now a P&L issue**

- **Demand + inventory backdrop:** Moderation trend remains strong; elevated inventories increase the risk of shipment volatility and promo pressure

- **Hemp tightening:** Federal and state actions are narrowing the intoxicating hemp playing field—**higher compliance costs, fewer gray areas**

- **Wine watch:** Ongoing off-premise softness plus new sourcing/transparency scrutiny (including “American” labeling proposals)

- **Big takeaway:** Growth is available, but it’s concentrated—winning in 2026 means aligning portfolio bets with the right occasions, channels, and distributors while staying ahead of regulation

Holiday sales delivered a short-term lift, but total U.S. alcohol demand remains down ~5–6% YoY across beer, wine, and spirits

RTDs and prepared cocktails remain the clear growth engine, growing dollars despite softer volumes

Beer declines continue, but super-premium, import, and non-alcoholic segments are gaining share

Spirits face mounting pressure outside of RTDs, with visible financial stress among smaller operators

Wholesaler inventories remain elevated, driving tighter SKU discipline and cautious buying into 2026

Supplier distribution strategies are shifting toward regional and mid-tier partners for better execution

Health-and-wellness narratives, moderation, and substitution (NA beer, THC beverages) are now structural demand factors

Wine demand is increasingly bifurcated, with growth concentrated in imports and sparkling wines

Bourbon enters a normalization phase as Jim Beam pauses distilling in 2026 amid record barrel inventories

Major suppliers shift to margin protection and inventory management over capacity expansion

Constellation Brands expected to hold earnings despite beer depletions near -4%

U.S. consumers still spend big on alcohol, but value and occasion-based trade-offs are accelerating

RTDs dominate growth both on- and off-premise; NA beer emerges as a quiet winner

Wine DTC volumes slide hard, but ultra-premium Cabernet remains resilient

New York supermarket wine proposals and cannabis competition raise route-to-market risk

Kroger and Instacart developments highlight rising stakes in e-commerce economics and transparency

Demand remains soft, especially in spirits; beer is pressured but more resilient, and shipment/depletion optics may still overstate true consumption.

Promotion strategies are diverging: spirits promo depth rising; beer promos more measured; non-alcohol promo behavior varies by segment.

American whiskey is retrenching output amid elevated inventories—raising the stakes on inventory agility and long-term capacity planning.

Wine is the week’s clearest stress point with debt-impaired outcomes and major impairments signaling a reset—while premium and sparkling show relative resilience.

RTDs stay hot with standout brand growth, drawing continued capital and leadership attention.

Craft beer faces structural pressure in grocery, pushing more “third space” and lower-ABV experimentation.

On-premise remains choppy, with traffic/value sensitivity and tourism headwinds affecting higher-margin occasions.

E-commerce opportunity is real but maturing: growth shifting to omnichannel and on-demand, while DTC looks flatter.

Cannabis policy volatility surged with a Schedule III push; longer-term risk is stronger cannabis competition via improved economics (potential 280E relief).

Industry rationalization continues: portfolio optimization, distribution digitization, and beer capacity rebalancing signal a market adjusting to a new baseline.

Big deal / “Beyond Beer”

• AB InBev moves to buy 85% of BeatBox (up to $490M, close expected Q1 2026), reinforcing RTD/FAB consolidation.

Beer remains soft, but share battles intensify

• Beer shipments down YoY; analysts see stabilization in pockets but continued declines overall.
• Category winners focus on execution, price/mix, and channel strength.

Spirits: trade-down + RTD boom

• Premium pressure shows up in tier data; meanwhile prepared cocktails/RTDs surge with standout brand growth.

Wine: supply correction + major WA ownership change

• Wyckoff Farms buys Ste. Michelle Wine Estates; broader U.S. wine still working through excess inventory and reduced crush expectations.

Channel shifts

• Value retail (Dollar General expansion) and grocery-policy debates point to distribution battlegrounds heading into 2026.

Regulatory watch

• Hemp-derived intoxicants face tighter scrutiny and a ticking clock toward Nov 2026, with competing proposals to define national standards.

Macro backdrop: Record holiday shopper traffic and higher spending per person collide with weak confidence and soft core retail sales—consumers are still going out, but they’re laser-focused on value and promotion.

Beer check-in: October shipments down ~3–4% YoY, but scanner data show a holiday rebound; non-alcoholic beer and super-premium brands like Michelob Ultra, Pacifico, Guinness, and White Claw lead growth while core segments remain soft.

Spirits snapshot: Slight volume declines overall, with Tequila and RTDs still growing; whiskey is bifurcating—premium and export strong, value segments weak—against a backdrop of tariffs, craft bankruptcies, and ongoing M&A and capital raises.

Wine under pressure: Off-premise wine is down mid-single digits; Treasury Wine takes a ~$450M impairment on its U.S. business, while premium and DTC pockets stay resilient and Millennials become the largest wine-drinking cohort.

Channel shifts: Dollar stores and private label emerge as key pressure valves for value-seeking shoppers; delivery platforms and B2B marketplaces (DoorDash, Instacart, Provi) keep reshaping discovery and fulfillment.

Non-alc & energy momentum: Non-alcoholic beer and energy drinks post double-digit growth, with robust innovation pipelines targeting moderation, function, and flavor-forward occasions.

Cannabis interplay: New recognition of cannabis hyperemesis and fresh evidence of cannabis-alcohol substitution underscore how cannabis is reshaping some drinking occasions.

Regulatory and legal watch: Heightened scrutiny on pay-to-play, underage sales, ultra-processed foods, gig-worker rules, and non-competes; New York’s wine-in-grocery push could materially change off-premise wine distribution in 2026.