Can Beer Recapture its Edge?

May 1, 2005
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Can Beer Recapture its Edge?

The state of the beer industry in 2005 might depend on whether you’re the kind of person who likes to hear the good news or bad news first. But both optimists and pessimists would agree that brewers in the United States are facing a marketplace that is very different than it was even a few years ago.
According to Euromonitor International, U.S. brewer volumes were essentially flat last year, with a decline from 23.892 billion liters in 2003 to 23.888 billion in 2004. More segment-specific figures include those from the Brewers Association, based on data from the U.S. Department of Commerce, which reports that “mass market” beers grew 0.5 percent in volume in 2004, while pricier imports and craft beers gained 1.4 percent and 7 percent, respectively.
Retail trends through April this year are up 1 percent overall, with 4.3 percent dollar growth for “high-end” beers, including imports and craft beers; 2.3 percent growth for premiums; a 10.7 percent dollar decline for domestic specialties; and 1.1 percent drop for sub-premiums, according to Information Resources Inc.
But the measurement that has piqued industry watchers’ interest is beer’s share of the total alcohol beverage market, which has been challenged by wine and spirits. IRI estimates that beer lost a full point of its market share in grocery and drug channels last year, with wine picking up 80 percent and spirits 20 percent of that loss. Overall, U.S. spirits volume increased 3.1 percent in 2004, while wine volume grew 2.7 percent, according to the Commerce Department.
“This isn’t something that’s happened overnight,” says David “Bump” Williams, executive vice president, general manager of the beer, wine and spirits division at IRI. “For the past three or four years, we’ve seen a slowing down of beer category growth and there are a lot of reasons for that.
“We’ve been talking to our clients in the beer industry and saying, ‘You guys had better be advised that the people in Milwaukee or in St. Louis or out in Golden, Colo., aren’t your only enemy. What you need to watch out for are the wine and spirits [companies].”
Demographics are on the side of all alcohol companies, with a wave of new legal drinking age consumers expected to come of age during the next decade. But today’s youth have been trained on sweet beverages and likely will carry that preference into adulthood, Williams says.
“They may try a beer,” he says. “But a beer’s taste profile is very hoppy, very bitter, and that’s something that a lot of new legal drinking age consumers are not accustomed to.”
Brewers are trying to combat this trend with new products such as Anheuser-Busch’s BE, a sweeter, caffeine-enhanced product designed to appeal to new flavor preferences and combat the Red Bull cocktail phenomenon. Molson Coors has followed with Molson Kick, a guarana-enhanced beer, initially only available in Canada.
FMBs backfire
Flavored malt beverages (FMBs) such as Smirnoff Ice and Bacardi Silver may seem like the perfect solution to nabbing new consumers with a sweet tooth, but they appear to have helped the beer category only temporarily while giving spirits the real advantage.
“New consumers came into the malt-based category because of these flavored drinks,” Williams says. But, he says, they were not loyal and bounced from flavor to flavor, and eventually to the spirits brands for which the FMBs were named.
“They want to be unique, they want to stand out in a crowd,” he says. “So they’ll have their bottle of Smirnoff Ice or Bacardi Silver, and they’ll get tired of it and say, ‘I like Smirnoff Ice; I’m going to have a flavored martini.’”
Add to that a newly awakened health-consciousness among older, more traditional beer drinkers, and the influence of “Sex and the City” on America’s cocktail culture, and you have several more reasons consumers have branched out into new beverage categories.
“Young consumers find the [wine and spirits] brands to be fun and interesting, romantic, sexy and stylish,” says Tom Pirko, president of Bevmark LLC. “There are many interesting brands that have deeply penetrated consciousness and their awareness is very high on spirits. And wine is growing for all kinds of other reasons as well.”
But Pirko argues that competition isn’t the only reason beer’s share is threatened. “Even if the wine and spirits industry didn’t exist, you’d be seeing a decline in the beer business because of the problems that are inherent in beer,” he says.
Among those problems are price discounting practices and similar product profiles that have turned domestic beers into commodity products. “For some years now, we’ve been watching Bud, Miller and Coors products all being sold for the same price,” Pirko says. “When you reach a point where all the products are the same price and they taste the same, and you can’t tell the ads apart, you have a major identity crisis.”
Top 10 Beer Brands, Retail Sales
Food, Drug, Mass Merchandise*
BRANDDollar sales% change vs.prior yearCase sales% change vs.prior year
Bud Light$1,347,562,7523.0%82,441,8881.3%
Budweiser$857,706,176-6.8%52,496,764-8.6%
Miller Lite$699,448,7049.8%44,102,6806.4%
Coors Light$492,829,8242.6%31,108,5800.7%
Corona Extra$417,709,760-0.4%15,936,937-6.7%
Natural Light$289,436,704-1.1%24,130,334-3.1%
Heineken$259,906,1442.7%9,903,4180.9%
Michelob Ultra Light$256,114,8322.5%12,877,689-0.1%
Busch Light$197,671,1680.8%15,841,696-0.3%
Miller Genuine Draft$197,447,536-4.9%12,320,990-8.3%
*Excluding Wal-Mart
 
Convenience stores
Bud Light$3,063,013,12017.7%165,633,58415.0%
Budweiser$1,946,556,1606.2%106,043,6164.0%
Miller Lite$855,078,08015.7%48,365,27213.2%
Coors Light$628,982,3369.9%35,023,0408.1%
Natural Light$596,587,7125.5%44,553,9923.6%
Busch$516,765,4405.3%37,825,9644.2%
Corona Extra$429,959,87211.1%14,683,8456.7%
Busch Light$335,773,4404.4%24,818,9723.9%
Heineken$293,706,75216.5%9,873,00713.4%
Keystone Light$291,519,1369.5%19,374,1968.7%
Source: Information Resources Inc. for the 52 weeks ending April 17, 2005
According to IRI’s Williams, the deep discounting practices among the major brands is “a very dangerous tactic… How are you going to rebuild that brand equity and brand value again when all these years you’ve been talking about the quality and now it’s getting deep discounted?” he says.
On the high end
So where does that leave the beer optimist? Well, imports and craft beers have been growing and they have largely been spared the retail discounting practices of the more mass market brands, Williams says.
“I don’t see craft beers getting promoted or discounted all that much. Yet craft continues to grow,” he says. “I don’t see imports getting discounted, and imports continue to grow. So people don’t mind paying a premium price.”
Mexican and European imports lead the import beer segment, with 46 percent and 38.4 percent of the category, respectively. And Mexican imports grew 2.2 percent last year in dollar sales, while European brews gained 5.1 percent, according to IRI. Canadian and Australian imports both lost sales — 2 percent and 9.8 percent, respectively.
Latin American brands start from a small base of 1 percent, but enjoyed a 17.5 percent sales increase in 2004, and the category of “all other imports” jumped almost 24 percent.
“If I take out the big three brewers, I have positive growth in the category on a dollar and case basis,” Williams says. “People are not walking away from imports, they are not walking away from craft beers. FMBs have had a resurgence because of new flavors and variety packs and increased merchandising support. So people are buying these super-premium-priced beers.”
Another bright spot for beer is light products. Six of the top 10 beers sold at retail are light beers. The No. 1 beer in America, Bud Light, grew 3 percent in dollar sales through food, drug and mass merchandise channels for the year ending April 17, 2005, and almost 18 percent in convenience stores, according to IRI. Miller Lite increased 9.8 percent in food, drug and mass outlets, and 15.7 percent in convenience stores.
The full-calorie counterparts did not fare as well. Budweiser dropped 6.8 percent in food, drug and mass merchandise, and Miller Genuine Draft lost 4.9 percent of sales in those channels. MGD lost another 4.3 percent in the convenience segment, but Budweiser managed a 6.2 percent increase.
Despite sales increases for some of those top brands, beer continues to lose valuable shelf space, says IRI’s Williams.
“One of retailers’ biggest concerns is not just profitability or margin, but what they call ‘preventing leakage,’” he explains. “If you always shop at my store, I want to keep you coming back to my store. One of the things I use as a draw card is new products — if you want to see all the new stuff that’s out there, you come to my store.
“There is fixed shelving so I can’t just extend the walls of my store to add new footing,” he continues. “What happened is a lot of fast-turning categories got cut back a little bit and beer is one of them. Beer lost shelf space last year.”
One of the keys to fixing the retail problem, he says, is to fill distribution voids, including out of stocks, which occur more often when shelf space is eliminated, and are 3 to 5 percent higher for beer than other categories.
It also is crucial to keep shelf space in convenience stores, which are beer’s strongest outlets with 10 percent growth, but are nonetheless hinting at cutbacks, says Williams.
The retail issues make the on-premise market an important target. According to Euromonitor, the retail trade will account for more than $39 billion in sales this year, while on-premise sales will hit $37.6 billion.
“On-premise is the single biggest opportunity for the beer category,” Williams says. “For years, the spirits and wine companies have dominated that on-premise environment. It’s a target-rich environment and the beer companies have let that slip through their fingers a little bit.”
New packaging such as aluminum bottles are helping brewers bring excitement to bars and restaurants. Budweiser Select and Molson Kick’s new aluminum bottles both are offered exclusively in on-premise locations.
Top 10 Brewers, Retail Sales
Food, Drug, Mass Merchandise*
CompanyDollar sales% change vs.prior yearCase sales% change
vs.prior
year
Anheuser-Busch$3,571,753,728-1.7%228,305,488-3.4%
Miller Brewing Co.$1,590,883,5840.1%111,284,088-2.4%
Molson Coors$899,455,0401.7%57,026,816-1.1%
Grupo Modelo$601,212,6722.7%23,091,418-3.6%
Heineken USA$432,726,2723.3%18,122,5701.0%
Diageo Guinness USA$261,673,96817.5%9,108,44116.6%
InBev USA$255,581,4404.7%12,495,4002.6%
Pabst Brewing Co.$222,857,712-5.2%20,085,816-7.1%
Boston Beer Co.$96,070,8487.6%3,790,2097.2%
Mark Anthony Brands$91,334,63212.5%3,174,60410.4%
FDM total$8,610,417,6641.0%512,039,616-1.8%
*Excluding Wal-Mart
 
Convenience stores
CompanyDollar sales% change vs.prior yearCase sales% change vs.prior year
ANHEUSER-Busch$7,409,629,69610.5%431,145,5367.9%
Miller Brewing Co.$2,033,590,2726.6%131,739,6085.1%
Molson Coors$1,089,137,7928.1%63,085,4886.3%
Grupo Modelo$531,760,28815.8%18,637,59212.1%
Heineken USA$379,239,10415.8%13,704,79013.2%
Pabst Brewing Co.$283,606,8481.7%22,031,170-0.7%
Diageo Guinness USA$271,863,87226.1%8,920,70825.1%
InBev USA$151,032,4804.4%7,203,292-1.4%
Steel Brewing Co.$81,341,46453.5%5,486,66553.3%
Mark Anthony Brands$66,359,320-9.3%2,164,605-14.3%
Convenience total$12,570,612,73610.2%715,190,9767.4%
Source: Information Resources Inc. for the 52 weeks ending April 17, 2005
Bevmark’s Pirko feels innovations in the beer industry have been slow to arrive, but he points to Anheuser-Busch’s Michelob Ultra, with its active lifestyle imagery, and Budweiser Select’s “clean finish” flavor profile as two product concepts that have broken new ground.
“We were really happy with Ultra because not only did it bring more women in, but it stole the images of the sports drink market and Nike, and really looked at a way to go one more step into the light category,” he says.
Total U.S. Beer Sales by Variety

(Total volume, millions of liters) (Total value,U.S. $ millions)
Variety20042005*2004 2005*
Lager23,175.70 22,979.50    
-Premium lager4,413.504,610.7020,339.0022,966.90
-Imported premium lager2,924.403,146.6014,400.1016,473.70
-Domestic premium lager1,489.201,464.105,938.906,493.20
-Standard lager13,912.7013,662.5039,088.5040,729.90
-Domestic standard lager13,912.7013,662.5039,088.5040,729.90
-Economy lager4,849.504,706.2011,740.3012,038.30
-Domestic economy lager4,849.504,706.2011,740.3012,038.30
Dark beer470.3488.82,281.10 2,472.40
Stout112.2115.9606.0 664.4
Non-/low-alcohol129.7122.8251.5 237.1
Total beer23,888.0023,707.0074,306.40 79,109.00
* Projected
Source: Euromonitor International, Chicago — Global Alcoholic Drinks IMIS, 2005. euromonitor.com
“I don’t think there is any doubt that markets are cyclical and beer is in hard times,” he comments. “But that doesn’t mean there aren’t still good opportunities and that beer won’t have a resurgence. Part of that depends on companies coming up with new products, new images for their products and getting away from this sort of commodity approach.” BI

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