It's the corporate equivalent of ordering too much alcohol for a house party where half the guests turn out to be dry. Except with billions of dollars at stake and a no-returns policy.

Distillers' warehouses are crammed with barrels of aging spirits laid down in better times that fewer people want to drink these days. The problem doesn't only affect bourbon in the U.S. There is a global glut of cognac, Irish whiskey and Scotch whisky too. Investors tempted by alcohol companies' low stock-market valuations should look at their saturated balance sheets first.

When aged-spirits distillers are deciding how much new stock to lay down each year, they have to make an educated guess about what demand will look like when the alcohol matures. "Barrels in a warehouse are physical forecasts that were made years ago," says Koryn Ternes, a consulting director at IWSR, an industry data provider.

For a VS cognac, that means projecting what will happen in two years. A higher quality XO cognac requires foresight of at least a decade. Maturing inventories show up as assets on distillers' balance sheets until they are bottled and sold.

Forecasts have been wildly off lately. Major drinks companies invested heavily in stocks between 2021 and 2024 when the industry was booming. Then demand fell off a cliff. Sales at Rémy Cointreau, the owner of Louis XIII Cognac, have collapsed 40% since peaking in the company's fiscal year that ended in March 2023. Makers of spirits that don't need aging like vodka also face lower demand, but they have been able to adjust production to the new reality.

Some of the reasons for lower alcohol demand, such as tariffs, were out of the industry's control. Canada pulled American-made drinks off the shelves as part of its trade war with the U.S. Similarly, President Trump's tariffs on EU imports are hurting European distillers like Diageo and Rémy Cointreau that have high exposure to the U.S. market. Demand for posh cognac also has collapsed in China where consumer sentiment is weak.

But rapid changes in attitudes toward alcohol have also caught distillers off guard. Moderation is in fashion and the share of Americans who say they drink alcohol hit a record low of 54% in 2025, according to a Gallup poll. The shift to sobriety is jarring considering alcohol consumption was so high during the pandemic.

The tastes of the next generation of drinkers aren't an ideal fit for distillers of aged spirits, either. Gen Z consumers are gravitating toward sweet, mixed beverages like ready-to-drink canned cocktails. They drink earlier in the day and outside traditional settings like bars, favoring music festivals or picnics instead.

They increasingly opt for low-alcohol drinks, or practice "zebra striping": alternating between alcoholic and nonalcoholic drinks on nights out to limit overall intake. None of this plays to the strengths of fine cognac and whiskey, which is traditionally served neat. However, distillers are experimenting with new formats like flavored spirits and RTDs that appeal to younger drinkers.

Major alcohol companies have massive gluts on their balance sheets. Pernod Ricard, the maker of Jameson whiskey and Martell cognac, had maturing inventory worth EUR7.2 billion sitting in barrels in warehouses at the end of June, or $8.4 billion. That is up 78% from levels at the end of 2019.

Cognac giant Rémy Cointreau has EUR1.9 billion of inventory on its books, which is equivalent to three-quarters of the company's entire market capitalization.

The risk for investors is that the aged-spirits glut sparks a price war as alcohol companies try to unload the excess. For now, the big names are scaling back production rather than cutting prices.

Diageo is reducing the amount it distills by 50% over the next three years, while it works through an $8.5 billion backlog of aging inventory. Carrying that much stock is expensive, so the company is trimming costs where it can.

A silver lining is that free cash flow at listed distillers should improve as they invest less in laying down new barrels. Bernstein analysts point out that Rémy's free cash flow conversion was as low as 5% in years when the company was heavily stocking its warehouses.

The shares of alcohol companies are cheap at the moment. Diageo and Pernod Ricard are trading at earnings multiples last seen during the global financial crisis. Patient investors who believe that demand for aged spirits will eventually recover might be tempted to own these stocks.

An analysis of maturing inventories expressed as a percentage of annual sales provides some clues about which companies are likely to work through their glut fastest-although demand for different categories of aged spirits and how many innovative new products they launch will play a role too.

Diageo and Davide-Campari Milano look healthiest on this metric. The aging stock on their books is worth 31% and 39% of their last full-year sales, respectively. Inventory at Brown Forman and Pernod Ricard is worth more than 60% of sales. Rémy Cointreau's maturing inventories are double its latest annual sales tally.

A look inside distillers' warehouses can help investors to pick their poison wisely.