While Wall Street obsesses over Soho House's potential sale and shifting development strategies, there's a silent, powerful force at play that could redefine the company's trajectory: the rise of the sober-curious consumer.

Buried within the Q1 2024 earnings call transcript is a seemingly innocuous comment by CFO Thomas Allen. He notes a 'shift away from alcohol sales in the quarter, most notably in January,' attributing it partially to Dry January. However, he goes on to say that the trend continued, with a 'much bigger spike in non-alcoholic beverage consumption' than ever before.

This isn't just a blip. It's a seismic shift in consumer behavior, particularly among the affluent millennial and Gen Z demographics that form Soho House's core membership. The 'sober-curious' movement, a conscious decision to reduce or eliminate alcohol consumption, is gaining momentum, driven by wellness trends, changing social norms, and a desire for greater control over one's life.

Soho House's own data confirms this. While like-for-like in-house revenue was down mid-single digits for the quarter, the decline was most pronounced in January, the heart of Dry January. As the quarter progressed, and presumably as members emerged from their self-imposed sobriety, in-house spending improved, reaching down low-single digits in March and April.

The implications are staggering. Soho House, long synonymous with chic cocktail bars and late-night revelry, could become a haven for the sober-curious, capitalizing on a burgeoning market that's largely untapped by traditional hospitality players.

Imagine this: expanded non-alcoholic beverage menus featuring craft mocktails, innovative alcohol-free spirits, and unique kombucha and elixir offerings. Wellness-focused events centered around mindful drinking, breathwork workshops, and sound baths. Partnerships with leading non-alcoholic beverage brands and wellness influencers.

The numbers support this hypothesis. According to a 2023 NielsenIQ report, non-alcoholic beverage sales in the U.S. surged 20.6% year-over-year, reaching $395 million. Globally, the market is projected to reach $1.6 trillion by 2025.

Soho House is uniquely positioned to capture this market. Its existing membership base, comprised of individuals who value experiences, community, and self-improvement, is fertile ground for the sober-curious movement. By embracing this trend, Soho House can not only solidify its position as a cultural trendsetter but also drive significant revenue growth and margin expansion.

Consider this: in-house revenue is highly sensitive to beverage sales. By offering premium non-alcoholic options priced similarly to their alcoholic counterparts, Soho House can maintain, or even increase, average check values while catering to a broader clientele.

Furthermore, non-alcoholic beverages typically have higher profit margins than alcoholic beverages. As Soho House expands its non-alcoholic offerings, it can expect a positive impact on its overall F&B margins, contributing to the company's ambitious goal of achieving 20% plus EBITDA margins in the long term.

This potential revenue boost comes at a critical time. While Soho House is experiencing robust growth in membership revenue, driven by its recurring subscription model, in-house spending remains a wildcard, subject to macroeconomic headwinds and evolving consumer preferences. The sober-curious movement provides a compelling antidote to these challenges, offering a sustainable path to growth and profitability.

The success of this strategy hinges on Soho House's ability to seamlessly integrate the sober-curious ethos into its existing brand identity. This requires more than just adding a few mocktails to the menu. It demands a genuine understanding of the sober-curious consumer, their motivations, and their desires.

Soho House needs to create an environment that's inclusive and welcoming to both those who imbibe and those who abstain, without sacrificing the sense of community and stylish sophistication that has defined the brand for nearly three decades.

Perhaps, then, the most intriguing question facing Soho House isn't whether it will be sold, but whether it will become the global hub for a new generation of conscious consumers seeking connection and community without the hangover.

In-House Revenue Trend: Q1 2024

The following chart, based on commentary from CFO Thomas Allen in the Q1 2024 earnings call, illustrates the sequential improvement in Soho House's in-house revenue throughout the first quarter.

"Fun Fact: The term 'mocktail' first appeared in print in 1916, long before the rise of the sober-curious movement. Originally, it referred to a 'horse's cocktail' - a mixture of medicines given to horses. It wasn't until the 2000s that the term took on its modern meaning of a non-alcoholic mixed drink."

Soho House & Co Inc. (NYSE:SHCO) Q1 2024 Earnings Conference Call

May 10, 2024 9:00 AM ET

Please find the Q1 2024 earning call transcript below. Reference: Seeking Alpha - SHCO