Ed Elson (25:09)
That was Robert Moscow, managing director at TD Cohen. This all goes back to that great Jim Boxtale quote, which we love to repeat on this podcast. The former CEO of Netscape, he said, quote, there's only two ways I know of to make money, bundling and unbundling. And that's exactly what we're seeing here. We had the bundling back in 2015. We bundled Kraft and Heinz together, and 10 years later, we are now entering the unbundling phase. We are going to unbundle the two companies. But this does raise this bigger question, which is what does any of this actually solve? And Robert kind of hinted that there in this interview. I mean, you merge two, find synergies, and then you unmerge to find focus. You merge, you unmerge, you bundle, you unbundle. But does any of this actually solve the problem? Does any of this sell more lunchables? Does it sell more Mac and cheese? I don't know. But I would imagine that somewhere in between all of these financial engineering strategies, somewhere you have to think the customer kind of gets forgotten. I think Warren Buffett put it best. Yesterday he was asked what he thinks about the unmerger and he said, quote, it certainly didn't turn out to be a brilliant idea to put them together, but I don't think taking them apart is going to fix it. The stock is down 7%. We'll see how it trades throughout the week. But I think that we can say that right now the market agrees with it. Constellation Brands fell more than 6% after the company slashed its full year outlook. The company, which distributes beer brands like Modelo and Corona and Pacifico in the US they now expect to see a decline of 4 to 6% in net sales this year. They had previously expected that sales would remain roughly flat. In a statement, the CEO said, quote, we continue to navigate a challenging macroeconomic environment that has dampened consumer demand and led to more volatile consumer purchasing behavior since our first quarter of fiscal 2026. So Constellation Brands, the distributor of all your favorite beer brands, they are selling a lot less beer and they expect that to continue into the future. Sales were expected to flatline into fiscal 2026. Now they're expected to drop by up to 6%. So something is going pretty wrong at the company and at a very bad time, the Stock is down 32% year to date. So what is going wrong? Well, according to the company, it's a couple of things. First, the macro environment, the fact that prices are rising, inflation is ticking back up, and so the consumer is a little bit stretched right now. And I think that is certainly true and certainly contributing to this. The second issue they cited is a drop off in demand among the Hispanic community, which, by the way, makes up half of US Beer sales for the company. Why is this drop off in demand happening? According to Constellation, a lot of this is due to concerns about immigration and the potential job losses that that might create, and therefore the Hispanic consumer is pulling back. And again, I think that is probably true. I'm sure it is probably contributing in part to the losses here. But there are other forces at play here, forces that are distinctly less cyclical than the ones I've just described. Forces that are not being mentioned by the company, but that are certainly affecting the business and not just of Constellation, but every other alcohol company right now. I mean, you look at all of the big alcohol stocks. Diageo down 13% this year. Molson Coors also down 13%. Boston Beer down 28%. United Spirits down 30%. The alcohol industry as a whole is suffering. And it could be that it is simply these cyclical macro headwinds. Tariff policy, immigration policy, et cetera. Or it could be a victim of something more secular, something more structural, something that will last a long time. And I really think if you want to understand those trends, then the best place to look is young people, because those are the consumers of tomorrow. And when you look at young people right now, what you will find is that there is a social transformation occurring that is fundamentally changing the way we interact with each other and also the way we drink. Put simply, we are the antisocial generation. We are the lonely generation. We've discussed this before. We don't go out. We don't party. We don't really drink. And this isn't an anecdotal observation. This is proven in the Data. Americans ages 15 to 24 spend 70% less time at parties than they did 20 years ago. Only 25% of Gen Z is still interested in going out to a club. Essentially, any activity that requires young people to leave the house is becoming less popular. We eat out at restaurants less than previous generations. We go to sporting events less than previous generations. We even have sex less than previous generations. Just 30% of teens today are having sex compared to more than half three decades ago. So you know, what you're dealing with here is a completely different type of person. A person that doesn't want to go dancing and taking shots with their buddies on a Saturday night. This is a person that wants to watch a live stream at home in their bedroom. And if they are touching substances, I mean, let's be real, they're probably not touching alcohol. They're probably touching a vape. And that might sound cartoonish, but again, this is all borne out by the data. This is what young people are doing. We are more antisocial than ever before. And so is it any surprise, really, that we're not drinking now? If you're a regular listener, you know where we stand on this. We believe loneliness is the most important trend in America right now. We believe it explains pretty much everything. We talked about it as it relates to OnlyFans last week. We've talked about it as it relates to social media. We talked about it as it relates to politics. But we should be clear this also has a big part to play in the story of the consumer, too, and yes, the story of alcohol. Because this doesn't just affect the way we spend our time, it also affects the way we spend our money. Lonely people, young people, they're not buying handles and 12 packs. And if four and five young people are lonely, and that is what the data is telling us, then realistically, that's four and five fewer customers. So maybe this is cyclical. Maybe. Maybe this is to do with the policies that we're seeing, and maybe those policies could change. But it's also very possible that this is secular. It's also very possible that young people, the target consumer of alcohol, it's also possible that they're just not driving the growth anymore. And for now, yeah, the data is clear. The consumers of tomorrow are not drinking. And until we put the phones down and get back to partying, I don't think there's any real reason to think that this is gonna change. Okay, that's it for today. This episode was produced by Claire Miller, edited by Joel Patterson and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Our research team is Dan Shalon, Isabella Kinsel, Kristen o' Donoghue and Mia Silverio. And our technical director is Drew Burroughs. Thanks for listening to Prof. G Markets. If you liked what you heard, give us a follow. I'm Ed Elson. I'll see you tomorrow.
