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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