UBS Outlines Three Reasons For Sober Revolution Crushing Spirits Market

There are just thirteen days until Christmas. Friends and family are gathering; eggnog, spiked with bourbon, dark or spiced rum, or cognac, is flowing, and Christmas music fills homes, restaurants, and bars, blaring from speakers tuned to holiday playlists.

But this Christmas season, like the last few, the spirits market in North America is extraordinarily weak and, according to UBS analysts led by Zuzanna Pusz, unlikely to rebound in 2026.

Pusz outlined three main drivers behind these structural headwinds: generational shifts as Gen Z drinks less and adopts healthy habits; substitution from GLP-1 drugs and legalized cannabis, including Delta-9 THC beverages; and severe wholesaler overstocking that has left the industry flooded with inventory, the worst seen in years.

As the analyst explained:

Three key reasons for continued weakness of US Spirits

The expert discussed several factors behind the continued US Spirits challenges, which in his view are: (1) a generational shift, with Gen Z moving away from alcohol and adopting different drinking habits compared to previous generations (e.g., the “1:1 rule,” i.e. alternating between alcoholic and non-alcoholic drinks all night); (2) the impact of GLP-1 usage and cannabis legalisation, including the rise of Delta-9 THC drinks; and (3) the persistent issue of overstocking, driven by wholesale commitments, which prevents normalisation even as consumer demand softens (e.g., the holiday season so far is said to have been disappointing, with current inventory levels among the worst seen in years).

Apparently, there’s no bottom in sight for the spirits market:

US Spirits market unlikely to see a material improvement

As part of last week’s 4th US Luxury Field Trip (see more), we held our regular meeting with an experienced industry consultant to gain insights into the dynamics of the US Spirits market, which is relevant for LVMH (Buy, W&S ~7% of EBIT and the US ~34% of divisional sales). Similarly to the past three years, during which the expert was rightly significantly more cautious on a potential rebound in the market, the meeting reiterated the uncertain growth outlook for 2026. Looking beyond, the expert stressed increasing evidence that in the mid to long term the US Spirits market may not return to historical levels of +MSD growth and instead stabilize at +LSD. That said, he sounded more positive on the cognac category, which in his view seems to have bottomed out, with trends expected to improve from here and the category likely being flattish in the US next year, which we believe would be positive for LVMH’s Hennessy.

However, the outlook for cognac shows stabilization:

Cognac likely to hit bottom in 2025

Despite the overall cautious outlook for the US spirits market in 2026, the expert’s tone on cognac sounded the most positive in years. In his view, the category is finally bottoming out as cognac begins to attract new customers, thus addressing one of the industry’s biggest challenges, i.e., its inability to “speak” to younger generations. This is why he expects performance to be broadly flat in 2026, compared to the wider spirits market still trending down low single digits. For LVMH specifically, the speaker highlighted an interesting collaboration with Bad Bunny aimed at recruiting new consumers and expressed admiration for the strong performance of LVMH’s champagne despite challenging category conditions (UBS +1.5% organic sales growth for W&S in 2026).

As we have outlined this year, a sober revolution has swept the country:

• Republican Alcohol Consumption Plunges, While Democrats’ Drinking Remains Steady Amid Ongoing Anxieties

• A Sober Revolution Is Sweeping America… And Markets Are Responding

• Last Call? How Gen Z Is Changing The Drinking Landscape

The industry is roiled:

• The Great Agave Bust Unfolds As Tequila Oversupply Worsens

From boozing during the pandemic to today’s sober revolution, the pendulum has swung sharply in the opposite direction in the era of MAHA.