Newsletter · · Ashutosh Agarwal

Gen Z Is Late to Drinking Not Gone as Spirits Penetration Tops 2019 - Beverage Alcohol & Nicotine - Week of October 7, 2026

Beverage Alcohol & Nicotine for the week of October 7, 2026 (podcasts published September 30 to October 7). Southern Glazer's commercial-intelligence chief says spirits household penetration is above 2019 levels and Gen Z is starting later rather than quitting, an investor pegs Zyn's US pouch share down from about 78 percent to 54 percent in 18 months, Stateside's Super Lyte sold a million cases in 142 days, and a federal hemp-THC ban is set for December 11.

Beverage Alcohol & Nicotine

Week of October 7, 2026: Gen Z Is Late to Drinking Not Gone as Spirits Penetration Tops 2019

The best number I heard on the podcasts this week came from someone who actually sees the cases move.

Zach Poelma runs commercial intelligence at Southern Glazer's, the largest wine and spirits distributor in the US. His message was blunt: the share of households buying spirits is higher than before Covid, wine has stopped falling, and Gen Z isn't quitting. They're starting later, because a record number of them still live with their parents.

On the nicotine side, one investor laid out a striking stat: Zyn's share of the US pouch market has fallen from about 78% to 54% in roughly 18 months. Pouches are still growing fast. Zyn isn't growing with them.

TL;DR

  • The biggest US spirits distributor says the drinking slump is a delay, not an exit. Southern Glazer's Zach Poelma: household penetration (the share of households that buy a category at all) is up 8-10 points for spirits and 10 points for ready-to-drink cocktails versus 2019-20. Wine is down only 2-3 points and has been flat for 18 months. He calls the whiskey slump an inventory glut, not lost drinkers, and expects bourbon "at or above where they're at today" in five years. That is a direct counterpoint to the bear case on Brown-Forman (BF.B), Diageo (DEO) and Pernod Ricard.
  • Zyn is losing share in a market still growing 22%. On Yet Another Value Podcast, SaberPoint's George Baxter put the US pouch market at about $6.5B (Nielsen), up about 22% a year. He said Zyn's share fell from about 78% to about 54% and that Zyn plus Zyn Ultra together are growing only about 2%. That is a real question for Philip Morris (PM), and it's why he likes challenger Turning Point Brands (TPB).
  • Spirits in a can are still the growth engine. Stateside's Super Lyte sold 1 million cases in 142 days and is on track for 4 million in year one, against an internal goal of 500,000. Poelma says 8 of the 10 fastest-growing RTD brands since 2022 are spirit-based. The money is in single-serve cocktails, not 750ml bottles.

What's New

1. Southern Glazer's: The Consumer Hasn't Left, the Timing Has Shifted

On Beernet Radio, "Ep. 352 Zach Poelma of Southern Glazer's Wine & Spirits" (Oct 1, 2026), Poelma (an insider, SVP of Commercial Intelligence at the distributor) brought the data that cuts hardest against the "alcohol is in permanent decline" story.

Start with who is buying at all:

"RTDs are up 10 points in terms of household penetration in the last four or five years. You look at wine, it's only down about two or three points and it's actually leveled off, you know, the last 18 months. And then you look at spirits and that's actually up as well versus, you know, 2019 and even the beginning of 2020 levels."

Volumes are down. But fewer people buying less often is a very different problem from people leaving the aisle, and Poelma says the data shows the first one.

His explanation for Gen Z is life stage, not values. Drinking peaks at 35-36 years old, when income finally rises above "scraping to get by." Today's 21-to-28-year-olds are hitting that point later:

"You've got the highest level on record in terms of the younger generation still living at home... there's an overall kind of moderation impact, too, when, you know, you've got people that have to come home to mom and dad at night."

He also says the same fixed beverage budget is now spread across Starbucks, energy drinks, kombucha, "social tonics" and THC drinks. Drinkers aren't walking away; they're dividing their dollars. He expects Gen Z "to look more normalized, probably in the next, you know, three, four or five years."

Other points worth keeping:

  • Whiskey is an inventory problem. "The inventory levels as an industry are definitely higher than they have been in a while." He expects "aged liquid that becomes priced more affordably" over the next few years. That means discounting is coming even as demand holds. Good for drinkers, a margin headwind for brown-spirits makers.
  • His five-year call on bourbon: "I think if we look back five years from now, we're going to see that, you know, whiskey and bourbons are still probably at or above where they're at today."
  • Small formats are winning. 200ml Tetra-pack wine is one of the fastest-growing areas. It's cheaper, unbreakable, and fits a concert or a weeknight in a way a 750ml bottle doesn't. Retailers can just drop a bin on the floor.
  • Non-alc is a complement. "Somewhere around like 90% of the people that are buying non-alcs are also buying alcoholic products," and 75-76% of shopping trips include both. That matches the NielsenIQ 94% figure from last week's issue. Non-alc demand still peaks in January and October, but now sells all year.

Why it matters: this is a distributor with a view across nearly every supplier. When the person reading the shipment data says "consumer exit" isn't in the numbers, the moderation bear case has to lean on the volume decline alone.

2. Zyn's Share Slide, and How a Small Rival Is Grabbing It

On Yet Another Value Podcast, "$TPB: can Turning Point Brands be the third player in nicotine pouches? | Saberpoint Capital" (Oct 1, 2026), host Andrew Walker interviewed George Baxter, founder of SaberPoint Capital. Baxter is a long investor in TPB, so this is investor opinion with a position behind it, not company guidance.

The market numbers:

  • US nicotine pouches are "about a six and a half billion dollar market right now," growing "about 22 percent" per Nielsen, versus a 37-38% average over the past five years.
  • Baxter blames the slowdown on Zyn itself: "at the beginning of the year, I want to say Zyn was something like 78% share. Today, that's down to about 54."
  • The detail that should worry PM holders: "if you take Zyn and Zyn Ultra and add them together, they're growing 2% year over year." His point is that Zyn Ultra mostly takes sales from original Zyn, "which is bad for Philip Morris. Because Zyn is a premium product."

Where is the share going? Partly to Alp, TPB's 50/50 joint venture with Tucker Carlson, which Baxter called "probably the fastest growing consumer product in the United States today." He cited about $208M in annualized revenue, up roughly 300%, with about 11% share in stores that carry it, and no slotting fees paid. (Slotting fees are payments a brand makes to a retailer for shelf space.) TPB's other pouch brand, FRE, paid $1,000-1,200 per store up front. That fee then drops to a rebate of about 50 cents a can after the first year.

Why it matters: the pouch growth story is now a share-shift story. Category growth no longer automatically means Zyn growth.

3. The FDA Quietly Changed the Rules for Nicotine Startups

Same episode. Baxter said the FDA "came out with new enforcement regulation in May of this year." Now, if a company's PMTA (the FDA application to sell a new tobacco product) has been accepted for review, it can start selling before a final decision. He said BAT has already started selling flavored vape pods, and Zyn is launching a 1.5mg product and new flavors that don't have marketing orders yet.

His conclusion is harsh for venture-backed pouch brands like Sesh, Lucy and Juicehead. Their business plan was to win shelf space in big c-store chains and get bought by big tobacco. Now big tobacco can just file its own application and copy what works:

"I think the door has been shut for a lot of these smaller players and it's just a matter of time before they run out of money."

Why it matters: looser enforcement helps the incumbents (PM, Altria (MO), BAT (BTI)) launch faster and squeezes out the long tail. TPB, which has its own sales force and an existing public-company balance sheet, is the one smaller player Baxter thinks survives.

4. Super Lyte: The Fastest Spirits-Based RTD Launch on Record

On Brewbound Podcast, "Stateside's Matt Quigley on Super Lyte Summer as Hard Sports Drinks Explode" (Sept 30, 2026), Stateside Brands president Matt Quigley (an operator) gave numbers that sound made up:

  • 1 million cases in its first 142 days, beating Lucky One's 1 million in year one.
  • About 2.3 million cases since launch, around 500,000 in September alone, and on track for 4 million in year one.
  • The pre-launch success bar: "our expectation is to sell 500,000 cases and we would've deemed that a success."
  • Sister brand Surfside is at roughly 13 million cases year to date, still growing about 50%, at 51.4% weighted distribution. Super Lyte is at just 7.1%, so there's a lot of shelf left to win.

Supply is the bottleneck. Stateside is "reforecasting almost every two weeks," and Quigley says distributors call "at midnight on a Saturday. And when you get that, it's either they're having a great time or they want a truck... And it's usually the latter." Two new brands, Red Tiger and Purple Tiger, start a five-state test in October.

Why it matters: this is the same pattern Poelma described. Spirits-based cans keep producing breakout brands, and that growth is going to independents as much as to the big spirits houses.

5. The Non-Alc Founders: Older Buyers, Constellation Money, and a Lot of "Garbage"

Two founder interviews (both operators) added texture on non-alc:

Why it matters: a big brewer is buying options on functional non-alc, and the actual customer is often an older daily wine drinker looking to cut back. That isn't the Gen Z story the headlines tell.

The Debate

The bull case (moderation is structural, smoke-free wins)

  • Onkey's "permission" framing is the best version of it: non-alc has made drinking less socially acceptable, and that doesn't reverse easily.
  • HiYo going from "horns" to Costco and Constellation backing in five years shows retailers have made permanent room for the category.
  • On nicotine, pouches are a $6.5B category still growing 22%, and c-stores make 25-30% margins on them against 10-11% on cigarettes (Baxter). Retailers have a reason to keep giving pouches more shelf space.

The bear case (the alcohol dip is cyclical, nicotine re-rating gets capped)

  • Poelma is the strongest voice here, and he's an insider: drinking peaks at 35-36, Gen Z is delayed by living at home, and spirits penetration is above 2019. On this view, volumes come back as Gen Z ages, and RTDs and small formats are carrying the industry in the meantime.
  • On nicotine, the bear argument this week was about competition, not regulation: the category leader's growth is down to about 2%, challengers are winning on price and personality, and a looser FDA lets everyone launch faster. That combination caps how much pricing power the incumbents can keep.

The Names in Play

Philip Morris (PM). The bear point is Baxter's 2% combined growth for Zyn and Zyn Ultra, and his view that Ultra is cannibalizing the premium original. The counterpoint, from the same episode: the May FDA change lets Zyn ship new flavors and a 1.5mg product right away. The next test is whether US Zyn shipments show the share loss slowing.

Turning Point Brands (TPB). Baxter's bull case is a cost story. A can costs about $1.40 today, air-freighted from India with a 16% tariff. Making it in TPB's Louisville plant would drop that to "about 65 cents and possibly lower." He estimates "an incremental 90 to a hundred million EBITDA" once production moves fully to the US. The catch: the Louisville line is "running to spec" but sitting idle until the FDA approves the US manufacturing site, which Baxter expects "at the latest in the second half of next year." Meanwhile EBITDA is guided down from $120M in 2025 to about $75M because of slotting fees and growth spending. His long-range math, roughly 10% share by 2030, gets to "a thousand dollar stock at about 36 times earnings... For a $60 stock today." Treat that as one long investor's upside case. Key risks: Alp's dependence on Tucker Carlson, and the timing of the FDA decision.

Brown-Forman (BF.B), Diageo (DEO), Pernod Ricard. Poelma's view cuts both ways: whiskey drinkers aren't leaving, but the industry has too much aged stock, and he expects it to get "priced more affordably" for a few years. Demand holds; margins don't.

Constellation Brands (STZ). Small, but noted: its stake in HiYo, a functional non-alc brand aiming for over 1 million cases this year.

Read-Throughs

  • Distributors. Southern Glazer's is leaning into occasions and small packs rather than accepting the decline story. Super Lyte shows the other side of distribution: when a brand takes off, the distributor network can't get trucks fast enough.
  • C-stores (Couche-Tard, Casey's, 7-Eleven). Two signals. Baxter says buyers prefer three or four core pouch brands because sales per item go up with fewer choices, and pouch margins are 25-30% versus 10-11% for cigarettes. Meanwhile CPG Week by BevNET & Nosh, "Recess Staffs Up & Inflation Keeps Pressure On Grocery" (Oct 1, 2026) cited a Jefferies analysis of NielsenIQ data showing c-store foot traffic down 2% in August, with soft drinks down 3.4% and bottled water down 5.7%. That makes the high-margin pouch shelf even more important to c-store profits.
  • Cannabis and THC drinks. On Blunt Business, "Last Call for Legal THC: Mainstream Media Sounds the Alarm on the Looming Federal Hemp Ban" (Oct 7, 2026), the host (a commentator) put the effective date of the federal hemp-THC ban at December 11, with a cap of 0.4mg total THC per container. That's effectively a ban for drinks. He cited Whitney Economics' estimate of $28.3B in lost retail sales and 225,000 jobs, and the U.S. Hemp Roundtable's estimate that 95% of hemp-derived products fall outside the new definition. The alcohol angle: he said Total Wine & More has used "sales of cannabis seltzers" to help "offset the falling alcohol sales." If the ban holds, some of that spending could come back to beer, wine and spirits.
  • Relaxation and functional drinks. The same CPG Week episode noted SPINS data showing mood-lifting drinks up 42.2% for 2025, and said THC-drink brands are already pivoting to cannabinoid-free "calming" versions ahead of the December cliff. Recess positions its mocktail line "as much an alcohol alternative as anything else." Expect a crowded relaxation-drink shelf in early 2027.
  • Nicotine ingredient and contract manufacturers. TPB's air-freighted Indian supply chain (about $1 per can paid to the co-packer, plus 20-25 cents of freight and a 16% tariff) shows how much margin is tied up in where pouches are made. The FDA approving US plants is a shift in volume away from overseas co-packers.

What Changed

  • The moderation debate got an industry insider on the cyclical side. Last week the evidence was that non-alc buyers still drink. This week the biggest wine and spirits distributor said spirits household penetration is above 2019 and Gen Z's delay is about living at home.
  • The pouch story moved from "category growth" to "who's taking share." Earlier issues treated Zyn and pouches as one thing. This week Zyn's share was put at about 54%, down from about 78%, with combined Zyn growth near 2%.
  • The FDA's May enforcement change became a competitive weapon. It's now being described as helping incumbents launch faster and closing the exit door for venture-backed pouch brands.
  • The hemp ban date firmed up. Last week's sources said December 12; this week's said the effective date is December 11, with the 0.4mg per container cap spelled out.