Bad News for Big Beer's Future?

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The news for Big Beer seems to keep getting worse. Millennials have been blamed for some time for the sales slumps among low-calorie and premium domestic brews, and now it seems the generation right behind them may bode even more poorly for brewers.

A report issued by financial firm Berenberg Research claims that members of Generation Z prefer spirits and wine to beer, something not seen before. The research was first reported in Business Insider.

"Generation Z marks a turning point, being the first generation to prefer spirits to beer," said the report, released late last month.

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Berenberg surveyed more than 6,000 people between the ages of 16 and 22 across the U.S. to determine the generation's approach to drinking. What those below legal drinking age say about beverage alcohol may not be true by the time they begin to legally consume. Like Millennials, the younger generation appears to think the perceived quality of spirits and wine trumps beer, especially those made by large brewers said to lack appeal.

At the same time, Gen Z overall is drinking less alcohol than the generations before it because of health- and hangover-related concerns.

However, that one historically beer-happy group even within Gen Z still prefers beer to other types of alcohol. White men have historically made up most of the American drinking population and drink more alcohol on average than women, as well as more than men who are not white.

That's changing. Berenberg Analysts estimate that Gen Z women drink 24% less than their male counterparts, while Millennial women drank roughly 40% less than Millennial men when they were between the ages 18 and 22. The change seems to be driven by men drinking less, as opposed to women drinking more. In fact, Gen Z is drinking less than the generations before it in general.

Additionally, the U.S. is becoming increasingly diverse. As a result, other racial groups—especially the swiftly growing number of Hispanics—are now crucial for beer companies. Beer companies have historically focused advertising to white men but this strategy must be up for question now, as beer sales slump and women, as well as black and Hispanic men, are now drinking more alcohol compared with earlier generations.

"There will be 27% more 20- to 34-year-old Hispanics in Generation Z than was the case for the Millennials generation," the report states. "Alcohol categories favored by this sub-group will face the greatest demographic tailwind.

Berenberg predicts that, as Gen Zers make up an increasing proportion of Americans who can legally drink, companies that sell products aimed at subgroups that aren't white men have the best chance of growing sales. For example, analysts found that women of all races are more likely to buy flavored spirits, and predict that tequila sales are likely to rise due to Hispanic Americans' more positive attitudes towards the drink.