Category Focus: 2010 Beer Report: Sub-premium, crafts lead the way
Information Resources Inc. (IRI), Chicago, measured flat sales for the entire beer category, which reached $23.7 billion for the year ending Dec. 27, 2009, in U.S. grocery, drug, convenience and mass merchandise outlets (excluding Wal-Mart). Sales for Anheuser-Busch InBev, St. Louis, and MillerCoors Brewing, Chicago, remained flat in these measured channels at $12.2 billion and $6.4 billion, respectively, during the time period. Crown Imports, Heineken USA and Diageo Guinness USA all recorded single-digit sales declines for the year in these channels, IRI says.
Standing out in the Top 10 beer vendors are Mark Anthony Brands, Vancouver, and D.G. Yuengling & Sons, Pottsville, Pa. Mark Anthony Brands, the maker of Mike’s Hard Lemonade flavored malt beverages (FMBs), grew 21 percent in 2009 to $177.5 million. D.G. Yuengling, which posted gains for its Yuengling Traditional Lager, Light Lager and Black and Tan, increased 33 percent to $158.3 million for the year, IRI reports. Pabst Brewing Co., Milwaukee; The Boston Beer Co. and North American Breweries, Rochester, N.Y., all posted single-digit gains as well.
The below-premium segment saw tremendous growth for the first time in about seven to 10 years, Lake says.
“I would expect that consumers will trade down to the below-premium segment, but at the same time there are many consumers trading up to the craft segment,” Lake says. “So the beer industry is somewhat bifurcated in that the middle is getting squeezed, whereas when you look at the wine and spirits category, it really is a case of people doing a straight trade down.”
January already was a tough month for the beer category. Case sales dropped 5.2 percent and dollar sales were down 3.5 percent vs. the previous year for the four weeks ending Jan. 31 in U.S. supermarkets, reported Dan Wandel, IRI’s senior vice president of beverage alcohol client solutions during an IRI 2009 Beer Category Overview and Craft Segment Review for the Brewers Association’s PowerHour Teleconference Series in February. Imports were down 9 percent in case sales and 8.8 percent in dollar sales for the four-week period. Domestic premium beers were down 8.2 percent in case sales and 6.1 percent in dollar sales, IRI reported.
The craft segment set a record four-week period in January based on IRI data for case and dollar sales, Wandel says. The craft segment in January was up 6.4 percent in case sales and 9.2 percent in dollar sales in the supermarket channel.
“The segment has gotten off to a really, really fast start,” Wandel says.
Squeezing the middle
Several factors caused the move from premium brands to sub-premium brands.
“As the unemployment rate went up, beer sales have plummeted at the exact same time,” says Roman Shuster, research analyst in Euromonitor International’s Chicago office.
Some of the actions that the brewers took also affected sales in the middle of the segment. “When you bring up 30-packs and 36-packs of below-premium brands and you price them very, very attractively, you’re almost asking the consumer to trade down,” Lake says.
Brewers also have been consumed with cutting costs, including staffing and marketing budgets. While the money they spend on advertising remains fairly constant, marketing and promotional programs are decreasing, Shuster says.
“A-B has really been trying to do a lot of cost savings at the distributor level, and I think a lot of that could really have a negative impact on how distributors promote their products,” he says.
While beer price increases have been fairly standard in the U.S. market, beer price increases also have the potential to affect trading down.
“The price of beer for the past five or six years has grown ahead of the cost of inflation,” Shuster says. “In the past, there were a good many times that the brewers could get away with that. As consumer funds are limited, this is definitely going to be an issue going forward.”
Pricing did hold up in the downturned economy for the 52 weeks ending Dec. 27. Overall in the beer category, the average base price for a case was up 2.7 percent in supermarkets and 2.2 percent in convenience stores, Wandel says. The exception to case price increases were import beers, which were flat in the supermarket channel and slightly down in convenience stores, according to IRI Census Data.
While the beer category continues to hold its own against wine and spirits, beer has a different pricing strategy that could affect the category as well this year.
“The wine and spirits guys are discounting and promoting in a much higher rate than the beer industry and that could have an impact on the beer industry because again if you look at pricing in the beer industry, pricing has been strong all year long,” Lake says. “Retailers have enjoyed higher prices for beer, suppliers have enjoyed higher prices and while promotional activity continues in the category, it’s not near the levels of the wine and spirits industry and we know consumers buy all three.”
Retailers also play a role in the move to trade down. “Automatically to retailers, because we’re in a recession, means what we’ve got to do is bring customers low prices or they’re going to go somewhere else,” Lake says. “That’s the mindset, so if you look into the data a bit, what we found is retailers actually supported below-premium brands at rates they’ve never supported them over the last five years.”
Whether the middle will continue to feel the squeeze this year will depend on how brewers and retailers decide to bring them value, Lake says. In addition, what brewers decide to spend on promotions and advertising to build brand equity to get consumers to trade back up also will play a role, he says.
Brewers’ biggest competition will be each other, Shuster says.
“Overall, I think beer sales in the U.S. are not going to continue to decline,” he says. “I think it’s a fairly static market. Sales will continue to grow in the U.S. anywhere from a decline of negative 1 percent to growing 1 percent … The biggest threat is how can MillerCoors and A-B InBev co-exist in the same environment? It’s a really challenging environment right now. Both companies together control about 80 percent of the market, so to grow without hurting the other is going to be really hard. I think both companies are sharpening their tools and going after each other. I think this is going to continue into the next year.”
Leading with value
Below-premium beer sales made gains in 2009 at the cost of premium and premium light beers. Bud Light, Budweiser and Miller Lite saw respective 2, 8 and 5 percent decreases in sales, according to IRI data from grocery, drug, convenience and mass merchandise outlets (excluding Wal-Mart) for the year ending Dec. 27.
On the other hand, sub-premium priced brands Keystone Light and Pabst Blue Ribbon increased sales 23 percent and 30 percent, respectively, through the same channels and time frame, IRI reports. Other below-premium priced brands, such as Natural Light, Natural Ice, Busch Light, Busch and Miller High Life also all increased in sales.
Consumers’ trading down has helped many of these sub-premium brands succeed, but brewers also have raised the profiles of these brands.
“In the past, brewers were really reluctant to market the economy brands because they didn’t want to lose sales of their core premium and super premium products,” Shuster says. “Now, what we’ve seen recently is the opposite. Miller High Life has been sort of a well-known but stagnant brand, but it’s really taken off in the past few years and it’s been because of advertising. The advertisements are really memorable for that product. We’ve seen the same thing with Keystone. Keystone Light has also been pretty well promoted in several markets. Everyone knows the hipster story with PBR [Pabst Blue Ribbon] that’s given that product the momentum. There is some movement toward economy beer, but I think it’s not just a price motivator, but it’s more promotion and image motivated.”
The improved image of sub-premium brands could create a challenge for brewers moving forward.
“As more people realize cheap economy beers are hip that could really threaten their bottom line for their more profitable products, which is their standard lagers like Miller Lite, Coors Light and Bud Light,” Shuster says.
Another way consumers continue to seek value in the beer category is by gravitating to larger pack sizes. Can package sales trends include sub-premium 30-packs growing 18.2 percent in dollar sales last year vs. the previous year and sub-premium 18-packs gaining 35.5 percent, IRI’s Wandel reported during the teleconference. Premium beer 30-packs increased 6.4 percent, and premium beer 36-packs grew 15.8 percent, he says. For glass, a six-pack of craft beer was up more than 9 percent in dollar sales vs. the previous year and a 12-pack of craft beer increased more than 11 percent. The import 24-pack of 12-ounce glass bottles also grew 18 percent in dollar sales off a very small base, and also likely contributed to the import 12-packs 3 percent decline, Wandel says.
It has also been a hard year for FMBs, which lost a full share point over the years, Wandel says.
“When you look at what the folks at Mark Anthony Brands, which is Mike’s Hard Lemonade, were able to do â€” up 12.5 percent in supermarkets â€” that’s really an impressive number when you look at how that segment has been declining,” he says.
While the beer category was down in the convenience channel, for FMBs it was up nearly 5 percent in 2009, Nielsen’s Lake says. Across all other channels, FMBs were down. The growth in the convenience channel was driven by industry’s leading player, he says.
“What Mike’s Hard Lemonade has done is they’ve brought a lot of innovation to that segment,” Lake says. “In fact, they saw growth in that segment during the recession, which is driven by new products and innovation. That segment is really driven by new flavors and excitement, and they continue to invest even during the economic downturn and it has certainly paid off in their results.”
New product results
New product introductions by the domestic brewers have generated mixed results. Bud Light Lime, which launched in 2008, generated $351.8 million in sales for the 52 weeks ending Dec. 27 according to IRI, but its sales declined 4 percent for the last 13 weeks of 2009 compared to 2008. Budweiser American Ale grew sales 103 percent to $25 million in 2009 but was down 65 percent for the last 13 weeks of the year compared to 2008. Bud Light Golden Wheat, which launched in 2009, generated $21.5 million last year during its initial launch, IRI records.
On the other hand, ultra-light beer MGD Light 64 grew 158 percent in 2009 to $123 million, and its sales increased 61 percent during the last 13 weeks of the year compared to 2008, IRI reports. During its launch in 2009, Budweiser Select 55 generated $9 million in sales, IRI says.
“Certainly Bud Light Lime and Bud Light Golden Wheat serve up strongly, but they certainly moderated to a great degree,” Lake says. “I don’t know if I would go as far as to say that they’re in a decline, but they’ve certainly flattened out. When you look at the ultra-light segment, MGD 64 and Bud Select 55, those are brands that have real high consumer appeal because they play into a key consumer need of health and wellness that while we’ve been in a recession, there are some key underlying consumer trends that never went on vacation and health and wellness is one of them.”
Similar to premium beers, import beer sales have suffered during the recession. The import category’s sales declined nearly 4 percent for the year ending Dec. 27, IRI reported. Flagship brands Corona Extra and Heineken slipped 8 and 11 percent, respectively, and light versions Corona Light posted flat sales while Heineken Premium Light Lager sunk 15 percent, IRI reports.
“The problem for the import beer category is that the top two brands in the category, Heineken and Corona, reached the peak of their sales about two or three years ago,” Shuster says. “They got there by being these sort of cool, unique innovative brands … So now because you’re so well-known you’re no longer that cool, unique cache brand. Those two top brands are going to continue to struggle to grow. I think the best they can really do is sort of maintain their position right now. From the import category, what is really going to be successful are these relatively young, emerging brands â€” the Mexican brands.”
Building on the future success of Mexican brands in the United States, in January, Heineken N.V., Amsterdam, offered to acquire the beer operations of Fomento Económico Mexicano S.A.B. de C.V (FEMSA). The transaction combines FEMSA Cerveza’s beer brands, including Dos Equis, Tecate and Sol, with Heineken’s global portfolio. Heineken currently distributes FEMSA beers in the United States, but also gains market positions in Mexico and Brazil. Tracking the consolidation of the global beer market, Heineken also bought Scottish & Newcastle operations in 2008, the same year Belgium’s InBev bought Anheuser-Busch.
Brands such as Modelo Especial, Dos Equis XX Lager Especial and Stella Artois Lager have avoided the declines seen by the rest of the category because U.S. consumers are still discovering these products, Shuster says. “You have sort of a ‘new’ experience of drinking these products,” he says.
Dos Equis, which at a 27 percent sales increase saw the largest gains in the import category for the year, also benefitted from its creative advertising campaign.
“It is arguably the most recognizable beer advertising in the industry,” Lake says. “‘The Most Interesting Man in the World’ campaign has been absolutely phenomenal. It’s built awareness, brand equity and you talk to anyone and they can probably recite that advertising.”
Modelo, Dos Equis and Stella Artois also benefitted from growing their U.S. distribution, Lake says.
The bright spot in the beer category certainly is the craft segment as it continued to grow. While the beer category was flat in dollar sales for the year ending Dec. 27 in U.S. grocery, drug, convenience and mass merchandise outlets (excluding Wal-Mart), the craft segment was up 12 percent, according to IRI.
“I really do think the craft segment’s success has reached an epidemic proportion,” Wandel says. “It was the sixth straight year that the segment has outperformed the beer category as a whole. It was also the fourth straight year that the segment has achieved double-digit dollar sales growth in supermarkets.”
Several factors are driving craft beers, Lake says.
“The consumer taste profile has changed, so people just like craft beer, and in general they’re becoming more and more interested in beer just as a segment,” Lake says. “I believe that craft beers open up room for a lot of experimentation. The second thing that has helped the craft industry is you’ve got a couple of big craft brewers like Sam Adams, Sierra and New Belgium who have enough equity and enough cache where they help the rest of the industry. The third thing that you’ve got going on is good retailer support. They’re a high-margin product, and retailers are leaning into the category.”
In addition, several other consumer trends are coinciding with what craft brewers represent, including an increased emphasis on local products, says Paul Gatza, director of the Brewers Association, Boulder, Colo.
“There are more and more people in this down economy that are a little alienated by what they are seeing with big business in the world, so I think that attraction of a small independent company goes pretty far right now,” he says.
Consumers also are drinking a little bit less.
“People in drinking a little bit less are drinking stuff with a little more flavor, which fits with what craft brewers are doing,” Gatza says.
Seasonals are starting to pull further ahead in craft beer styles as well. In 2009, total craft seasonal sales accounted for 17.1 percent dollar share of the total craft segment, with pale ales at 15.7 share, amber ales with 10.5 share and IPAs with 9.8 shares, for total U.S. grocery, drug and convenience channels, IRI reports. IPA is one of the fastest growing segments in supermarkets, Wandel says.
New Belgium Seasonals are up substantially (40 percent) in sales for the year in addition to Sierra Nevada Seasonals up 22 percent and Samuel Adams Seasonal and Variety Packs growing, 11 and 15 percent, respectively, in U.S. grocery, drug, convenience and mass marketers (excluding Wal-Mart), IRI says.
It was a big year for some new products in the segment, which certainly contributed to the success of the segment, Wandel says. Sierra Nevada Torpedo Extra IPA generated $3.9 million in sales and Widmer Drifter Pale Ales produced $2.9 million followed by Samuel Adams Imperial White with $755,928 and Sierra Nevada Kellerweis with $684,806 for the 52 weeks ending Dec. 27, according to IRI Census Data in U.S. supermarkets.
IRI tracked 2,060 craft beer UPC codes in U.S. supermarkets last year, which was an increase of 243 from 2008. Forty-five is the average number of craft items per supermarket, which is an increase of 7 percent vs. 2008, IRI says. The number of new craft UPCs is 312 in supermarkets in 2009, which is up 198 vs. 2008, it says.
With the number of new entries and items handled by retailers growing during the past five years, some SKU rationalization for the craft segment is expected.
“It’s a segment that retailers have to look long and hard at and understand that there are big craft brands that I would call national craft brands, things like Blue Moon, Sam Adams, Sierra and Fat Tire,” Lake says. “You have to anchor with those national brands and come in with some regional and local brands.”
Craft is anticipated to have another strong year.
“Consumer interest in the craft segment and especially beers in general is really, really strong,” Lake says. “With the margins, I don’t see retailers supporting it less this year than they did last year.”
The biggest threat to craft brewers is going to be from A-B InBev and MillerCoors, which both offer lines of craft-style beers, Shuster says.
Analysts expect 2010 to be another tough year for the entire beer segment, but there are moves brewers can make to improve their chances.
“I would go back to standard marketing 101 and first and foremost brand equity,” Lake says. “Second, I would say partner with your key retailers and put the retailers at the center of your plan and work with the retailer to get it in front of the consumer.” BI