The business of booze: Can Zero be Diageo's comeback story?

The global alcohol industry has long been considered a steady, defensive corner of the market. But in the latest episode of Stocks Neat, Gareth Brown and I unpack why that assumption has been badly tested in recent years, and what, if anything, might revive the sector.

Drawing on Gareth’s recent trip to London and conversations with global drinks giant Diageo (LON:DGE), the episode explores falling consumption and generational change. Plus, the surprising role alcohol-free beer could play in reshaping the industry’s economics.

“You are now entering soft drink economics with alcohol prices.” - Gareth Brown

A sector nursing a hangover

Once prized for its reliability, alcohol has become a difficult place for investors. Diageo’s share price, for example, has more than halved from its 2022 peak. As Gareth explains, Covid accelerated demand for alcohol, but global sales volumes have been falling each year since.

World alcohol volumes have been flat to falling since 2022, with younger generations drinking less, or not at all. “There is a significantly higher percentage of that 18 to 35 bracket that abstain from alcohol,” Gareth notes, as health consciousness and cost of living pressures reshape how younger people socialise. Add to that the rise of substitutes like legalized cannabis in parts of the U.S., which has particularly hit beer consumption, and it’s clear why markets have soured on what was once seen as a “cash machine” industry.

Premiumisation, pressure, and profitability

Gareth’s argument is that beer used to deliver better returns because it can be made quickly, so breweries can reuse the same production assets and working capital more often. But the rise of craft beer and easier access to distribution has increased competition and pricing pressure, which has eaten into beer’s old advantage.

Furthermore, the old moat of mass advertising and sponsorships is largely gone. Today, celebrity-backed spirits and boutique brewers can reach consumers directly, forcing incumbents into a costly game of catch-up.

The Guinness Zero surprise

One of the most intriguing insights from Gareth’s London trip is the resurgence of Guinness, powered in part by Guinness Zero. In UK pubs, Guinness now appears to dominate taps, and alcohol-free Guinness reportedly accounts for a significant share of sales.

During the episode, Gareth and I even conduct a blind taste test between regular Guinness and Guinness Zero. The result? We could both tell the difference, but only just.

“It’s easier to make a complex zero-alcohol beer than a simple one,” Gareth explains, suggesting why brands like Guinness may have an edge as consumers cut back without fully opting out. Crucially, Guinness Zero sells at similar prices to its alcoholic counterpart, without excise taxes, creating potentially attractive economics for producers.

Watching, not rushing

The episode ends on a cautious note. While the sector still generates enormous cash, its future depends on how younger consumers behave if economic pressures ease and whether management teams resist the urge to chase growth through expensive acquisitions.

For now, Gareth and I remain watchful rather than bullish. But as this discussion shows, even a troubled industry can offer insights and even opportunities if you look closely enough.

Listen to the full episode of Stocks Neat for the complete conversation and taste test.

Key moments in the episode

• [00:39] Why Stocks Neat is tackling the “business of booze” now
• [03:17] Gareth on meeting Diageo and why big incumbents still matter
• [05:26] Global alcohol consumption trends—and why volumes may never recover
• [08:13] Younger generations, abstinence, and the cost-of-living squeeze
• [12:23] Cannabis as a substitute: why beer has been hit hardest
• [15:55] Beer vs wine economics and lessons from past industry mistakes
• [21:55] Guinness, alcohol-free beer, and a blind taste test surprise