Is Beer Back?

April 1, 2006
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Is Beer Back?
by Brian Sudano
The popular wisdom these days is that beer has recovered after several years of uninspired performance and share losses to wine and spirits. This is being driven by domestic beer’s early 2006 growth of 3.4 percent in January and 1.9 percent in February, along with imports 17 percent growth in January and February. At the same time, wine and spirit growth slowed in 2005, especially in the back half of the year.
Does this suggest beer is on the mend?
In order to answer the question better, it is best to look at the total performance of the beverage alcohol marketplace over the past several years. First, beverage alcohol per capita consumption has risen since 2000 at a pace not seen in nearly two decades, at around 1 percent per year. Consumer repertoires and occasions have also expanded, which is healthy for the continued growth of total beverage alcohol. For example, no longer is a beer consumer who is experiencing beer fatigue leaving beverage alcohol for non-alcoholic beverages at the same rate experienced in the 1990s.
Beverage alcohol marketing also has become much more product focused, informational and responsible, resulting in far less anti-alcohol sentiment among regulators vs. the late 1980s and early 1990s. The quality of product has gotten better and beverage alcohol is contributing a greater percentage to retailers’ profitability. These factors will continue to drive the market for years to come.
There are clear signs that beer is expanding its penetration into certain consumer occasions. We see imports and crafts consumed in greater numbers in more high-end, on-premise accounts  vs. spirits and wine than we have seen in recent years. This longer term trend is good for the overall beer market as it enhances beer’s image, and there is no question that it is contributing to the acceleration of high-end beer growth. Another positive is that we have seen beer’s value position improve vs. alternative beverage alcohol segments. On the other hand, we have seen significant acceleration of declines in regular premium domestic beer over the past three years at -5 percent to -6 percent vs. 3 percent declines in 2002; domestic light beer growth also has slowed.
So back to our question, is beer on the mend?
We think the overall beer industry has bottomed out over the past three years and that its performance will improve, albeit slowly, over the next few years. We are forecasting the beer market to grow near 1 percent in 2006. We view the expanding penetration of imports and crafts as a positive catalyst for expanding beer’s penetration in the high-margin and image (i.e. hip) segment of beverage alcohol. However, imports and crafts unlikely will result in share gains for the beer market over the next couple years.
With a 56 percent share of the total beverage alcohol market and consumer repertoires expanding, it only makes sense that the beer industry would have lost share over the past several years.  So why have the domestic beer numbers looked so good early on in 2006? Because of one-off circumstances such as easy year-to-year comparisons, inventory adjustments and better weather, none of which reflect a build in business momentum at this time. On the other hand, imports and craft continue to maintain strong momentum, indicating that beer’s image is solidifying on the high end, similar to spirits in the early and mid-1990s before spreading to the rest of the category. Therefore, we foresee a recovery in slow increments, and only if beer marketers continue to maintain a relevant message and image vs. the lowbrow humor of the past.
Brian Sudano is managing director of consulting services at Beverage Marketing Corp., New York.

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