Six years after ride-sharing as we know it emerged, and some years before autonomous cars climb on to our roads, Morgan Stanley is drooling at the potential prospects for the alcoholic beverages industry. The investment bank has come up with a consumption model that suggests the global market for alcoholic beverages could spike by up to $250 billion over the next decade, and boost the fortunes of beverage giants Constellation Brands and Brown Forman, besides restaurant chains such as BJ’s Restaurants and Buffalo Wild Wings, and automaker Tesla.
“Shared and autonomous vehicle technology could help address the mutual exclusivity of drinking and driving in a way that can significantly enhance the growth rate of the alcohol market and on-trade sales at restaurants,” Morgan Stanley said in a research note titled, “Shared Autonomous Mobility: The Solution to Drinking and Driving?”
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Globally, people spend an estimated 600 billion hours in cars annually, and a separate 380 billion hours on drinking because they can’t do it together. But the growing popularity of ride-sharing – the U.S. market alone is expected to be worth $31 billion this year, and growing at 21.8% annually – and the expected launch of self-driving cars could enable the two activities to be carried out together.
Morgan’s research projections are buoyed by a close correlation between ride-sharing and DUI rates. In San Diego, for example, Uber’s launch in 2012 was associated with 14% and 8% declines in DUI arrests in the subsequent two years.
“…we believe greater prevalence of shared mobility (i.e. ride-sharing) in the next 10 years can add 80 bps to the annual growth rate of the alcohol market (currently ~2.2%),” the note produced by the bank’s Autos & Shared Mobility and Global Beverages teams said. The estimate is based on a modest assumption that the joint population of drivers and those who drink will consume one additional drink per week on average.
The analysts note that the report was compiled by activists from the famous organization MADD, also states:
In a joint report with Mothers Against Drunk Driving (MADD), Uber claimed that Uber’s entry into Seattle “was associated with a 10% decrease in DUI arrests.”
MADD stats are quoted throughout the report.
According to Morgan Stanley’s estimates, the current total addressable market for alcoholic beverages is worth $1.5 trillion – 1.14 trillion drinks at an average value of $1.33 per drink. In its model, each incremental drink consumed by the current drinking population grows the TAM by $98 billion.
Beyond 2025, the potential for growth could be even higher with the expected arrival of semiautonomous and fully autonomous cars.
So, which companies are most likely to benefit from the emerging scenario?
Among beverage makers, Morgan tips Constellation Brands (OW, PT $218). We view Constellation Brands as best positioned. Its leverage to the U.S. (100% of beer sales) is a positive given the high percentage of drinkers and licensed drivers in the country. Morgan’s U.S. consumption model points to a potential 75bp lift to STZ’s 10-year volume CAGR, assuming US licensed drivers consume an incremental one drink per week. Even though spirits are seen as less conducive to growth than beer, Brown Forman (UW, PT $47) is expected to benefit because of its premium spirits portfolio.
European makers seen winning include Diageo PLC (OW, PT 2,700 GBP) and Anheuser-Busch InBev (OW, PT €125). Both have strong exposure to the U.S. market where ride-sharing is seen enjoying a bigger play. In China, Yanghe Brewery (OW, PT 105 CNY) and Kweichow Moutai (OW, PT 548 CNY) are seen best positioned.
In the auto industry, likely winners include electric-car maker Tesla Motors (EW, PT $317) and Delphi (UW, PT $78). In Europe, Continental (EW, PT €185) and Autoliv (OW, PT $120) are seen better positioned than the others.
Specifically, the report notes:
Key enablers from the auto industry include Tesla, Continental, Delphi and Autoliv due to their expertise in sensors and software/hardware integration for autonomous and semiautonomous technology.
The report specifically concludes with the following about Tesla:
Tesla has unique attributes to make good on its recent announcement in shared mobility: (1) vehicle design and engineering; (2) leadership in connected car; (3) autonomous cars/software expertise; (4) battery/electric powertrain expertise; and (5) proprietary infrastructure network. CEO Elon Musk has also recently foreshadowed the idea of a music streaming service, demonstrating the potential focus for the company on in-vehicle experience in an autonomous world.