Category Focus: Beer raises a glass to rising sales
The beer industry has reason to say “cheers” this year, as sales are on their way up again after several years of struggle. Beer consumption in the United States grew 1.4 percent in 2007, according to the Beer Institute in Washington, D.C. Domestic volumes improved a total of 1.5 percent for the year, with the domestic craft segment up 12 percent. Import volumes increased 1.4 percent.
In addition, beer is gaining back some of its share of the total alcohol beverage market, reports Information Resources Inc., Chicago. In 2007, beer servings were down only 0.5 percent, relative to wine and spirits. The beer industry had been losing nearly 1 percent share of alcohol beverage servings per year since 2003. Likewise, beer’s dollar share of market declined a slight 0.6 percent compared with 1.6 percent in 2006 and 1.8 percent in 2005.
“Beer has stopped the bleeding and softened its decline,” says Bump Williams, head of the wine, beer and spirits practice at IRI. “2007 was definitely a turnaround year for beer.”
Bucking the premium trend of the past few years, several of 2007’s top-selling brands were sub-premium offerings. Whether due to a shaky U.S. economy or more attention from brand owners, that represents a marked change from the past several years when only high-priced brands such as craft beers and imports were growing.
“I’m still seeing signs of trading up as the top five performing beer brands were all high end,” Williams says. “On the other hand, at the end of 2007, we witnessed signs of life in the sub-premium beer category.”
Coors Brewing Co.’s Keystone Light is one example of a sub-premium product on a growth tear. The brand pulled increases of more than 11 percent in food, drug and mass merchandise outlets, and more than 21 percent in convenience stores, according to IRI sales tracking data. Similarly, Busch Light grew more than 10 percent in convenience stores last year, and about 4 percent in food, drug and mass merchandise outlets. Bud Ice increased more than 22 percent through convenience stores.
But premium products still fared well in 2007, and craft beers were the biggest winners. The craft category as a whole picked up an additional 12 percent in volume and 16 percent in dollar sales last year, according to the Brewers Association, Boulder, Colo.
“Craft beers are the darlings of the beer business,” Williams says. He points out that 14 of the top 15 craft products increased sales through measured food, drug and mass merchandise outlets in 2007. More than half grew by double digits. On the convenience side, results were slightly more varied, but even there only three of the Top 20 brands had negative sales results.
This year might be challenging for craft beers, Williams says, indicating that price increases on nearly every raw material, from aluminum to hops, and especially fuel costs, may hit small brewers particularly hard. But he says, “I still expect the craft segment to grow in the high single digits to low double digits in 2008.”
Results for imports were a bit more mixed in 2007, with big gains for some brands and losses for others. The leader in the category, Grupo Modelo’s Corona Extra, saw a 1.3 percent dip in measured food, drug and mass merchandise sales, and a 3.3 increase in convenience store sales, according to IRI. No. 2 Heineken experienced the reverse trend, with a nearly 5 percent increase in food, drug and mass merchandise sales, and a 0.4 percent drop in convenience stores.
Heineken Premium Light continued to gain popularity in its sophomore year, with a 32 percent gain in food, drug and mass sales, and a little more than 8 percent increase in c-stores. InBev’s Stella Artois picked up more than 43 percent in food, drug and mass merchandise outlets last year, despite the potential for disruption that was caused by a switch to the Anheuser-Busch wholesaler system.
By the middle of this year, the U.S. beer industry will narrow from three major players to two when Miller Brewing Co., Milwaukee, and Coors Brewing Co., Golden, Colo., combine their U.S. operations. The merger, which is widely expected to be approved this summer, brings together the second- and third-largest brewers in the country, and represents a little less than 30 percent of the beer market.
Williams says he expects the merger to result in “stronger, focused execution” from the companies, as well as increased efficiencies in marketing and sales. The Miller/Coors joint venture will create a more formidable competitor to Anheuser Busch, he says.
In addition, “We’re going to see a dramatic increase in the consolidation of distributors,” he adds. Miller and Coors already share the same distribution network in about 60 percent of their markets. Many of the remaining wholesalers will decide to consolidate, he predicts.
For their part, Miller and Coors expect the union to offer $500 million in total synergies, according to a recent analyst presentation. Coors goes into the merger with a net sales gain of more than $6 billion, or 5.9 percent, last year.
“In 2007, Molson Coors Brewing Co. delivered on the promise of the 2005 merger between Molson and Coors,” company President and Chief Executive Officer Leo Kiely said of the year-end results. “… We achieved these results while facing a very difficult cost environment and investing substantially in our brands. Indeed, our strategic brands showed robust growth in the fourth quarter and throughout the year, despite challenging competitive and economic conditions. Coors Light, our flagship brand, showed solid growth on a global basis.
“The U.S. business gained market share and increased operating income more than 28 percent during 2007, while overcoming significant cost challenges,” he added.
The Miller Coors merger, he said, “represents a huge step forward in our quest to become a top-performing global brewer.”
Coors’ Blue Moon brand has been a shining star for the company, with volume growth of 77 percent last year, according to the company’s analyst briefing. IRI’s Williams calls Blue Moon a “recipe made in heaven,” naming it the top performing beer brand of 2007. In addition, Coors Light volume was up 4.5 percent, the company reported. Innovations to the flagship brand last year included a new cold-activated bottle and a new vented widemouth can lid for smoother pouring.
SABMiller reported Miller Brewing’s adjusted domestic sales to retailers were up 4.4 percent for the first three quarters of its 2007 fiscal year. Miller Lite’s adjusted sales to retailers were up 2 percent for the period, and the company’s “worth-more” brands, including craft beers and imports, were up 30 percent, it said. Full-year results were not complete at presstime.
Miller entered a new beer category in 2007 with the release of Miller Chill, a beer flavored with lime and salt. The product expands the company’s reach to women and Hispanic consumers, and prompted a similar release early this year from Anheuser-Busch, St. Louis. A-B announced it will roll out new Bud Light Lime next month, backing the brand with $35 million in advertising. The product will carry a slightly higher retail price than flagship Budweiser products.
In addition to Bud Light Lime, A-B this year introduced Budweiser & Clamato Chelada and Bud Light & Clamato Chelada, which blend beer with Mott’s Clamato juice. According to the company, the concept actually came from the marketplace, where consumers, mostly Hispanic, were mixing the two beverages on their own.
Anheuser-Busch reported worldwide volumes grew 2.7 percent to 128 million barrels in 2007. Net sales for the year were up 6.2 percent. Overall, A-B holds 48.5 percent of the U.S. beer market. “We achieved strong earnings growth and broadened our beer portfolio to enhance our participation in the high-end segment,” President and Chief Executive Officer August Busch IV said of the results.
In addition to its own brands, A-B’s agreement with Belgium’s InBev, which partnered up the world’s two largest brewers, also went into effect last year. Brands such as Stella Artois, Beck’s and Bass moved into the A-B system and prompted speculation that the two brewers eventually will develop a full-fledged merger of their own.
More changes ahead
The beer industry’s improved fortunes in 2007 likely were the result of brewers taking a close look and responding to changing consumer dynamics. The industry rolled out new products and promotions that clearly targeted new demographics groups. And according to a report from ACNielsen, the new, responsive attitude comes just in time. The company studied alcohol beverage preferences of Millennial consumers and found they frequently seek new products. In keeping with the trend of the past several years, these consumers also are willing to pay a premium for alcohol beverages.
“The Millennials are primed to be an extremely influential group,” said Richard Hurst, senior vice president of beverage alcohol at ACNielsen, in a statement. “At the beginning of their careers, Millennials are discovering the world and have control over their money and time in ways their predecessors never did.”
Beer is still the most-purchased alcohol beverage among younger consumers -- even among those who drink wine and spirits, beer is most often cited as their favorite product. But today beer accounts for 47 percent of alcohol purchases in the 21 to 30 age group, whereas 10 years ago, it made up 57 percent.
Millennials also are more likely to experiment with different flavors and varieties. They are more inclined to purchase imported products and craft beers.
“One might expect that as consumers grow older and their income levels rise, they would naturally trade up,” Hurst says. “In fact, economy beer purchases are much more common among older generations. Craft and import beers have a receptive audience in Millennials who clearly are open to new tastes in beer and are willing to pay more to try something different.”