1 Million Reasons To Buy Diageo plc, Tesco PLC And J Sainsbury plc

Alcohol producers and retailers alike were given a boost last weekend by a report that revealed a change in the way British drinkers buy their booze.

The Guardian reported that sales of ‘quarter’ (18.75cl) bottles of wine hit the 1 million milestone at supermarket giant Tesco (LSE: TSCO) during 2014, a robust 10% year-on-year increase. Meanwhile, J Sainsbury saw demand for these products surge by more than a fifth last year.

It’s not the size of the package…

This trend mirrors that seen across other Western markets, too, as health concerns prompt shoppers to reign in the number of units they consume. Indeed, many retailers have even taken to selling wine ‘by the glass’.

These changing drinking habits are good news for alcohol producers and retailers, as the amount they can charge for these smaller bottles is ‘pound for pound’ more expensive than what they ask for larger volumes — Tesco sells an 18.75cl bottle of Jacob’s Creek Shiraz Cabernet for £2.19, for example, while a full-sized 75cl bottle clocks in at £7.49.

And for retailers such as Tesco and Sainsbury’s, the amount of space freed up by stocking a range of smaller bottles allows them to furnish stores with a greater range of labels, in turn boosting their appeal to seasoned wine enthusiasts as well as casual sippers.

Producer poised to crack open the bubbly

Naturally, this trend also bodes well for wine manufacturers such as Diageo (LSE: DGE).

The business is perhaps most famous for its portfolio of spirits such as Johnnie Walker whiskey, and to a lesser extent beer labels like Guinness and Red Stripe. But Diageo also has a notable presence in the wine market, and counts the popular Blossom Hill and Chalone brands — as well as Dom Pérignon and Moët & Chandon champagnes — amongst its stable.

Although its Wine division counts for just 4% of net sales, Diageo is ramping up its investment in this area to catch rising consumer demand. Although reduced consumer spending power more recently caused net sales in this sector to flatline during July-December, revenues rose 2% in the US thanks to product innovation and expansion in the premium segment. And solid demand for its Yellow Tail drink caused net sales in Europe to tick 1% higher.

And like the rest of Diageo’s line of market-leading products, I believe that revenues from the firm’s wine labels — boosted by the rising popularity of smaller bottles — should ticker decidedly higher once current retail weakness in key markets abates.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK owns shares of Tesco. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.