Beer encompasses premiumization trend
Brewers tackle volume challenges.
The old saying goes, “There’s no ‘I’ in team.” It’s not too hard to apply that saying to the U.S. beer market as analysts recognize the role different tiers and segments play in the category’s efforts to bring its case and dollar sales positioning back to pre-recession levels. “What we have found is that the multiple tiers that are available in the beer category have helped the overall industry hold dollar sales performance steady, but volume still continues to ride a recession-related roller coaster,” says Jennifer Zegler, beverage analyst with Chicago-based Mintel.
Zegler notes that the U.S. beer industry sold 2.9 billion 2.25-gallon cases of beer for $71.5 billion in 2008 compared with unit sales just shy of 2.8 billion 2.25-gallon cases for $78.1 billion in 2012.
“They’ve increased the dollar sales but not necessarily the volume in between those four years, which is kind of continuing what we’ve seen during the recession that people are buying either more premium-priced beers or just buying less beer,” she says. “And with some of the price adjustments that brewers have made, it has made it so the dollar sales continue to rise but not necessarily the volume sales.”
According to Chicago-based SymphonyIRI Group, the overall beer category accounted for more than $29.1 billion in sales for the 52-week period ending Dec. 30, 2012, in total U.S. multi-outlets including supermarkets, drug stores, mass merchandisers, gas and convenience stores, military commissaries, and select club and dollar retail chains. This was an increase of 5.7 percent, the market research firm reports. In that same time period, the overall beer category sold more than 1.4 billion cases for an increase of 2.6 percent in SymphonyIRI-measured channels.
The largest brewers, Anheuser-Busch InBev (AB InBev), Leuven, Belgium, and Chicago-based MillerCoors, experienced moderate growth in dollar sales at 5.6 and 2.6 percent, respectively, according to SymphonyIRI data. For case sales, performance was moderate to flat with AB InBev registering a 2.1 percent increase while MillerCoors case sales were flat during that same time period.
For overall beer vendors, eight of the Top 10 companies reported dollar sales growth with The Boston Beer Co., Boston, and D.G. Yuengling & Sons, Pottsville, Pa., posting double-digit growth at 18.6 and 24.4 percent, respectively, according to SymphonyIRI. Among the No. 11 to 20 beer vendors, the following also experienced double-digit growth: Sierra Nevada Brewing Co., Chico, Calif.; New Belgium Brewing Co., Fort Collins, Colo.; Gambrinus Co., San Antonio; Deschutes Brewery, Bend, Ore.; Vermont Hard Cider Co., Middlebury, Vt.; and The Lagunitas Brewing Co., Petaluma, Calif.
Among the respective segments — domestic, import and craft — the craft beer market continued to outpace the overall category with a 16 percent increase in dollar sales and an approximately 12 percent increase in case sales for the 52-week period ending Dec. 30, 2012, according to SymphonyIRI.
The more established segments — import and domestic — also had some bright spots in 2012. Import dollar sales increased 6 percent while case sales were just shy of a 5 percent increase in SymphonyIRI-measured channels. The domestic segment also saw increases with dollar sales up approximately 5 percent; however, case sales increases were more moderate at a 2 percent increase during that same time period.
These increases are a positive turnaround for the category, which had experienced contraction in previous years, experts say.
“Total on- and off-premise volume combined was plus 1.7 percent, so all in all, a turnaround from the past four years of decline,” says Bump Williams, chief executive officer and president of Bump Williams Consulting, Stratford, Conn.
Domestic’s super-premium jolt
Although the domestic beer category found itself on more stable ground in 2012, its respective tiers experienced a mixed bag of results.
The premium sub-segment experienced a 2.3 percent increase for $13.5 billion in sales while its case sales were relatively flat for the 52 weeks ending Dec. 30, 2012, in SymphonyIRI-measured channels. AB InBev’s Bud Light brand continued to lead U.S. beer sales at just shy of $6 billion in sales, with 2.8 percent growth, while MillerCoors’ Coors Light brand maintained its No. 2 position with more than $2.3 billion in sales, a 6 percent increase during the same time period.
The domestic premium category saw strong sales numbers from D.G. Yuengling with case sales increasing 22.8 percent and dollar sales up 24.4 percent, according to SymphonyIRI data. Its Yuengling Traditional Lager sales reached approximately $251 million, an 18.3 percent increase; Yuengling Light Lager dollar sales increased 60.3 percent to $53 million; and Yuengling Black and Tan grew 23.4 percent to $22 million, the market research firm reported. Williams notes that the brand’s successful expansion into Ohio in late 2011 has had a notable impact on the U.S. beer market.
Cracking the Top 20 was Kräftig Light Lager and Kräftig Lager with $1.4 million and $1.2 million in sales, respectively, for the 52 weeks ending Dec. 30, 2012, in SymphonyIRI-measured channels. Released in late 2011 by independent company William K Busch Brewing Co., which was established by William K. Busch, son of August A. “Gussie” Busch Jr. and great-grandson of Adolphus Busch, the Kräftig brands are all-malt beers brewed from four primary ingredients: pure water, barley malt, hops and yeast. No rice, corn or other added grains are used in the brewing process to reduce costs or alter taste, the company says. Early distribution of the brands focused on the St. Louis metropolitan area, including surrounding counties in Missouri and Illinois. The company announced added distribution in Jefferson City and Columbia, Mo., in early February and announced plans to add Lake of the Ozarks in early April.
Although the premium domestic sub-segment found itself on more stable footing last year, the super-premium sub-segment has been generating a lot of buzz.
With approximately 28 percent growth in case sales and a 31 percent increase in dollar sales for just shy of $2.5 billion, this sub-category has capitalized on the premiumization trends within the U.S. beer market.
Released last year, AB InBev’s Bud Light Platinum claimed the No. 2 spot in the sub-segment with $387 million in sales. With a slightly sweet taste,
6 percent alcohol by volume and a cobalt blue glass bottle, Bud Light Platinum provides beer drinkers an upscale light beer option, the company says.
In the super-premium segment, Bud Light Platinum only trails fellow AB InBev brand Michelob Ultra Light, which saw case sales growth of 12 percent and dollar sales growth of 16.5 percent to just shy of $703 million in SymphonyIRI-measured channels.
Other AB InBev brands that featured double-digit growth were Bud Light Chelada, Shock Top Belgian White Ale, Budweiser Chelada and Shock Top Raspberry Wheat, which was released in 2011. Its Shock Top Seasonal recorded triple-digit growth for the 52 weeks ending Dec. 30, 2012, according to SymphonyIRI.
Earlier this year, AB InBev released Shock Top Honeycrisp Apple Wheat, which combines Shock Top Belgian White beer with cider and spices.
AB InBev also took super-premium influence and asked its 12 Budwesier brewmasters to craft their own version of the premium beer. After 12 recipes, six beers brewed for national sampling and 25,000 consumer opinions, the company released its latest offering: Budweiser Black Crown.
With a blend of two-row caramel malt and four types of domestic hops, Budweiser Black Crown is finished on a bed of Beechwood chips for a smooth, balanced taste, the company says. Featuring more body, color and hop character than the flagship lager, it also has a slightly higher alcohol content at 6 percent alcohol by volume, it adds.
Mintel’s Zegler notes that both Bud Light Platinum and Budweiser Black Crown are taking premiumization to another level within the domestic beer segment and offering consumers a safe way to try something new. Citing Mintel research, Zegler says many consumers have reported they are curious about drinking beer, but consumers also expressed the risks of trying these premium products due to pricing, packaging or unfamiliarity with the brand or country of origin.
“Bud Light Platinum and Budweiser Black Crown really make it a little bit safe for consumers to try something new because it’s a brand that they know and trust, and they’re willing to make that leap a little bit because they have faith that, ‘I know I love Bud Light,’ or, ‘I know I love Budweiser, so let me try this and see if I like it a little bit more,’” she explains.
MillerCoors’ subsidiary Tenth and Blake also has seen innovation and growth within the super-premium domestic segment. Ranking at No. 4, its Blue Moon Belgian White Ale saw case sales increase 10.6 percent and dollar sales grow 12.3 percent to approximately $189 million, based on SymphonyIRI data. It also saw both its Leinenkugel Seasonal releases and Blue Moon variety packs achieve sales growth in the double digits of 67 and 48.1 percent, respectively.
Available in its Blue Moon fall variety pack, Blue Moon released its Caramel Apple Spiced Ale variety last fall. The product was formulated, named and labeled according to the brand’s Facebook fans’ suggestions. Blue Moon Caramel Apple Spiced Ale is made with roasted caramel malts, cinnamon and nutmeg with a blend a fresh apple juice to invoke the tastes of fall, the company says. It features a warm spice aroma of cinnamon and nutmeg with hints of apple and caramel malts, and its flavor profile includes a blend of spice and caramel malts with highlights of crisp apples, it adds.
The Blue Moon variety pack showcased an emerging marketing strategy dubbed “crowdsourcing,” where brands turn to their social networks of crowds and fans to help develop their next beer.
“I think it fosters that creativity,” Mintel’s Zegler says. “It allows consumers — they could be completely novice consumers, or they could be home-brewers who are very aware of how things work and how those ingredients and recipes should be put together — but it’s really giving consumers an ownership in that process, and I think it also helps a little bit to give them the motivation to go out and find this product because they had a little bit of ownership in making it.”
But not all tiers within the domestic segment performed well. Sub-premium domestic case sales were down approximately 2 percent even though dollar sales were relatively flat at approximately $5.3 billion, SymphonyIRI reports.
Although most brands experienced contraction, Los Angeles-based Pabst Brewing Co.’s Pabst Blue Ribbon grew approximately 24 percent in dollar sales for $262.5 million. Its case sales also increased 22.8 percent during that same time period. Claire Moulin, lead analyst for Chicago-based Euromonitor International, says the brand has benefited from the millennial consumers that are drawn to its authentic, rough image.
Moulin adds that the company’s Old Milwaukee brand also has benefited from a similar image profile. “They used Will Ferrell in their ad, and that has really helped to boost the sales, because it’s an economy domestic brand and it uses a bit of an ironic twist a bit along the lines of some of the success of [Pabst Blue Ribbon], which is reaching a hipster consumer with Will Ferrell, who’s a famous actor [and] comic and has helped to make it a more [identifiable] beer brand to give it a different image,” she says.
Old Milwaukee case sales decreased nearly 12 percent while its dollar sales were down 11.5 percent to just more than $34 million for the 52 weeks
ending Dec. 30, 2012, in SymphonyIRI-measured channels.
Due to its higher-end image, the import category did well in the U.S. market, Moulin says.
Chicago-based Crown Imports, currently a 50/50 joint venture between Mexico City-based Grupo Modelo and Constellation Brands, Victor, N.Y., saw case sales increase 7.6 percent while its dollar sales grew 8.2 percent to $1.9 billion, according to SymphonyIRI data.
In June 2012, AB InBev announced plans to acquire the remaining stake of Grupo Modelo for $20.1 billion. Tangentially, Constellation Brands signed an agreement with AB InBev to purchase the remaining
50 percent interest in Crown for $1.85 billion. However, on Jan. 31, the U.S. Department of Justice (DOJ), Washington, D.C., filed a civil antitrust lawsuit challenging AB InBev’s proposed acquisition of total ownership and control of Grupo Modelo.
As a result, in February the companies announced a revised agreement that would establish Crown as a fully owned entity of Constellation and provide Constellation with independent brewing operations, Grupo Modelo’s full profit stream from all U.S. sales, and rights in perpetuity to the Grupo Modelo brands distributed by Crown in the United States. As part of AB InBev’s acquisition of the half of Grupo Modelo that it does not already own, AB InBev agreed to sell Compañia Cervecera de Coahuila, Grupo Modelo’s brewery in Piedras Negras, Mexico, and grant perpetual brand licenses to Constellation for $2.9 billion, subject to a post-closing adjustment.
According to SymphonyIRI data, Crown Imports’ Corona Extra brand led the import category at $1.1 billion in sales, while its Modelo Especial brand, No. 3 in the category, accounted for $461 million in sales, a 27.6 percent increase.
Also helping to build up the import category, Heineken USA, White Plains, N.Y., saw case sales increase 6.3 percent with dollar sales growing 6.5 percent for $1.3 billion. Its name-sake brand experienced just more than a 3 percent dollar sales increase as well as a 3.2 percent case sales increase. However, the company’s Dos Equis Lager Especial saw strong double-digit growth with 32.6 percent for case sales and 35.6 percent for dollar sales in the 52 weeks ending Dec. 30, 2012, according to SymphonyIRI data.
The import company also was busy with marketing, packaging and new product releases. Last summer, Heineken USA released Indio, a dark Mexican beer, in seven key markets in California and Texas. The Heineken brand also partnered with the latest James Bond film “Skyfall”
for its theater release.
“It spiked a lot of interest because James Bond is famously known for his cocktail habits,” Mintel’s Zegler says. “I think almost everybody knows that ‘shaken, not stirred’ line, so I think it’s something that caused a lot of commentary, but by the time the movie was released, by the time they had the accompanying marketing program and the packaging notification, it seemed like consumers embraced Bond as a beer drinker, and it didn’t seem as wild as it did when they first announced the partnership.”
Zegler adds that the partnership could present an opportunity for Heineken to embrace at-home consumption where the brand could encourage consumers to throw “Skyfall” watch parties by buying a pack of Heineken and inviting friends over for a James Bond marathon.
At-home consumption encour-agement is a strategy that wine and spirit companies have embraced that also could prove beneficial for the beer market, she adds.
“I think it’s something that we haven’t seen beer companies do a lot of, and it’s something really outside of watching sports and backyard barbeques in the summer,” Zegler says. “I think there’s a lot more opportunity for beer brewers to go after that at-home market and offer suggestions for brands or even parties, you know things they can align with.”
Tip your cap to craft
When other segments in the beer market struggled during the recession, the craft beer segment flourished, according to experts.
“Craft beer has been on fire,” Zegler explains. “It’s been performing extremely well and it continues to refine recessionary trends that we’re seeing in the beer industry.”
During a time period in which the other segments struggled, craft beer nearly doubled in both dollar and case sales between 2007 and 2012, she adds.
Zegler notes that although craft beer comes from a smaller base — Mintel estimates that for 2012 it will account for $12 billion of the $78 billion U.S. beer market — it is introducing new consumers to new taste options and profiles, and it is challenging the domestic and import beer categories to compete with those offerings.
The craft beer category saw nearly all of the Top 20 brand families experience case and dollar sales increases with the Lagunitas Brewing Co.’s name-sake brand cracking the Top 10 by posting the largest gains with a 56.6 percent increase in dollar sales and 55.6 percent growth in case sales.
This year also has seen a number of craft brewers expand their distribution networks. Earlier this year, Deschutes Brewery expanded into Illinois with four of its popular brews: Red Chair NWPA, Mirror Pond Pale Ale, Chainbreaker White IPA and Black Butte Porter. In January, the company also announced expanded distribution in South Dakota to the western portion of the state, encompassing areas such as Rapid City and Chamberlain. The beers available will mimic its Illinois launch except swapping Chainbreaker White IPA for Inversion IPA. This spring, Deschutes also will release a new year-round beer, Deschutes River Ale, which will be available in the western United States and Canada in six-packs and on draft.
Goose Island Brewery, which was acquired by AB InBev in 2011, also recently announced expanded distribution plans. The brand announced national distribution of four of its beers: 312 Urban Wheat Ale, Honker’s Ale, India Pale Ale (IPA) and a seasonal rotation. The seasonal rotation will feature Mild Winter in February and from November through December, Summertime from March to August, and Harvest Ale from September to October of this year.
To meet increasing demand from the national launch, 312 Urban Wheat Ale, Honker’s Ale, IPA and the seasonal offerings will be produced at Anheuser-Busch breweries in Fort Collins, Colo., and Baldwinsville, N.Y. Led by Goose Island brewmaster Brett Porter, Goose Island brewers will oversee the production of all the beers at the new facilities, it says.
Craft brewers also have been embracing crowdsourcing marketing strategies. Mintel’s Zegler notes that The Boston Beer Co.’s Samuel Adams brand hosted a project that used a Facebook app to have fans help create a beer that was served at the South by Southwest Festival, and Dogfish Head, Milton, Del., partnered with the Grateful Dead to create a beer called American Beauty. To bring the beer to fruition, consumers sent submissions for a specific ingredient that was inspired by a Grateful Dead story to win a chance to help brew the beer.
Dogfish Head and the Grateful Dead worked together to review and select the winning ingredient and then invited the winning contestant to Delaware this spring to help brew a test batch, Zegler says. “It’s really giving people an intrigue into it but also investing them not only into the product but, in the case of the Dogfish Head collaboration, it may be something that they’re really passionate about and have a good memory tied to,” she explains.
DuClaw Brewing Co., Bel Air, Md., also hosted its second annual H.E.R.O. home-brewing contest where it asked home-brewers to submit their own beers. The winning beer — Chocolate Chipotle Stout by Vincent and Suzanne Powers of Nottingham, Md. — was distributed by DuClaw in kegs and a limited run of 22-ounce bottles available in select markets where its beer is sold. The promotional beer also features a donation component. All sales were donated to The Alysha Miller Harris Baby Fund, benefiting the wife and child of Ben Harris. Ben, an employee of the Redhook Brewery in New Hampshire, died when a plastic keg that he was cleaning exploded.
Mintel’s research estimates that volume fluctuations will not restrict dollar sales from growing annually through 2017 due to price adjustments, ongoing development and premium-priced brands, Zegler explains. However, the market research firm forecasts fewer case sales through 2014 and then will begin to see an annual uptick due to the increasing number of craft breweries as well as the number of innovations taking place across the U.S. beer market, she adds.
But when it comes to helping beer’s future, educating that curious consumer might be the key to assisting all beer segments.
“I think one of the main opportunities for brewers across all segments would be education,” Zegler says. “They need to be encouraging consumers, giving consumers the opportunity to try something, whether it’s as small as a retail tasting where someone just intercepts you at the grocery store … or as large as a beer festival, but it seems that a lot of consumers are thinking about broadening their horizons when it comes to beer but aren’t quite sure what their taste preferences are or what they like or what they don’t.”