‘Dry January’ turns into ‘damp Monday’ for Waitrose shoppers, grocer reports

Waitrose reported a mid-January rebound in alcohol purchases—labeling January 12 as “damp Monday” after wines, beers and spirits sales rose 11% week-on-week—and observed that the January alcohol sales decline versus other months narrowed from 42% in 2022 to a 25% drop this January. Premium Argentinian and Chilean wines jumped 25% and 27% year-on-year, with online searches for “Argentinian wine” up 300%, “red wine” up 63% and “Chilean wine” up 18%, reflecting a shift from strict abstention toward moderated “damp January” consumption; industry data cited ~31% of the public choosing reduced intake rather than full abstinence. Management frames the change as a durable consumer-behavior shift—benefitting both premium alcoholic and no/low alternatives—rather than a short-term bounce.

Analysis

Market structure: The data signals a rebalancing from “all-or-nothing” no/low to moderation + premiumization — Waitrose saw a mid‑month alcohol uplift (+11% week-on-week) and the January alcohol shortfall narrowed from -42% (2022) to -25% (2026), implying ~17 percentage‑point reversion toward normal demand. Winners: premium grocers (Waitrose, M&S), large beverage houses with multi‑category exposure (Diageo) and South American wine exporters; losers: small mono‑brand no/low producers and low‑margin pure online grocers if in‑store premium basket spend accelerates.

Risk assessment: Tail risks include UK alcohol duty hikes (policy shock), a poor Chile/Argentina vintage (supply shock), or renewed cost‑of‑living deterioration cutting premium spend. Time horizon: immediate (days/weeks) sees promo‑driven volatility; 3–12 months could embed higher mix margin for grocers; multi‑year structural shift is toward ‘damp’ moderation and premiumization. Hidden dependencies: retailer promotions, listing changes and FX (CLP/ARS) amplify imported wine price moves. Key catalysts: UK Budget (March) and South American harvest reports (Mar–May).

Trade implications: Favor listed beverage majors and premium supermarket exposure while underweighting capital‑intensive online grocers. Use equity and defined‑risk option structures to capture priced‑in conservatism; look for 5–15% upside windows over 6–12 months driven by margin re‑rating. Reassess after March Budget and Q1 grocery alcohol sales prints.

Contrarian angles: Consensus may over‑allocate to permanent no/low secular growth; history (post‑lockdown 2021–22) shows partial reversion to prior drinking patterns and premium uptrades. Mispricing risk: beverage majors with no/low SKUs (e.g., Diageo/Seedlip) are underappreciated for de‑risked demand resilience; unintended consequence — stronger alcohol mix could mask weakening food margins, producing earnings surprise risk for grocers.

Key Decisions for Investors

• Establish a 2–3% long position in Diageo plc (LSE: DGE) within 30 days to capture premium + no/low exposure; target +15% in 12 months, set tactical stop‑loss at -10%; if preferring options, buy a 12‑month 10% OTM call and sell a 20% OTM call to cap premium (size = 0.5% portfolio risk).
• Initiate a 1.5–2% long in Tesco PLC (LSE: TSCO) to play higher alcohol basket spend; hold 3–9 months, take profits if UK same‑store alcohol growth <5% over next two quarters or cut position by 50% on gross margin compression >100bp.
• Run a relative‑value pair: Long TSCO 2% / Short Ocado Group PLC (LSE: OCDO) 1.5% to exploit shift to in‑store premiumization; rebalance if the spread widens >15% or after Q2 UK grocery sales release (target window 3–6 months).
• Execute a defined‑risk options trade on Diageo: buy a 6–12 month call spread (buy 10% OTM, sell 20% OTM) with max cost ≤0.5% portfolio to lever upside while limiting drawdown; alternatively sell 3–6 month covered calls on existing DGE exposure to monetize elevated basket momentum.
• Contingency trigger: Monitor UK Budget (expected March). If government proposes a real‑terms alcohol duty increase ≥2%, reduce Tesco position by 50% within 7 days and consider establishing a 1% short position in DGE to hedge policy risk.