St Louis - A Morgan Stanley report based on a survey of 1 400 alcoholic beverage drinkers 
concludes that sales of wines and distilled spirits will continue to take business from the 
beer industry. "Beer (is) likely to continue to lose share to wine and spirits due to health 
and demographic trends," Morgan Stanley analyst William Pecoriello said in discussing the report,
which was published on Wednesday. 

"Spirits have built strong image and share among 21- to 27-year-olds, which bodes well for 
future growth," he said. And, "wine is the main beneficiary of health and aging trends. "Wine 
consumption actually increases for people on a diet," Pecoriello said. 

In addition to the health and demographic trends, "women are increasingly likely" to drink 
wines and spirits and have "more-negative views on beer," according to the report. The 
proprietary survey was conducted in November, Morgan Stanley said, and included only US adults 
ages 21 to 65 who had consumed alcohol in the past seven days. 

Wines and spirits have been gaining a bigger share of the alcoholic beverage market since the 
late 1990s. Beer is the most popular alcoholic beverage in the US, but its market share has 
dropped from 59.5% in its peak year of 1995 to 56.7% in 2003, based on alcohol content. 

Morgan Stanley said, based on the survey and other research, it expects sales of distilled 
spirits to grow 2% a year, and wine 3.5% a year, over the next five years. In contrast, 
Pecoriello said: "We expect beer consumption to grow 0.5% per year over the next five years, 
losing share to both spirits and wine." Pecoriello also concluded that "slower beer industry 
growth will likely keep the cost of doing business high." 

To combat the gains of wines and spirits, the beer industry has been spending more money on 
marketing and promotions, including what they call on-premise spending. That means in bars and 
restaurants and other places where drinks are consumed on the premises - and where distilled 
spirits have sold especially well among younger drinkers. The survey leads Morgan Stanley to 
believe that promotional spending won't be enough. 

"Beer continues to lose share on-premise to spirits, but it also needs to defend 'at home&apos' 
occasions" from incursions by wines and spirits, the survey said. Brewers need to "innovate to 
reach women and older consumers," the report said, and noted, "this has been difficult in the 
past." 
www.news24.com 24/03/2005 1