Breewing up business: beer industry execs offer their take on what's Brewing

Cheers, Nov-Dec, 2002 by Michael Sherer

Early last year, beer industry executives were predicting decent growth among favorable conditions. That was before the economic downturn intensified, and certainly prior to the tragic events of September 11. Still, in spite of all that, beer sales bounced back in the fourth quarter, and the industry posted its sixth consecutive year of growth. Although the 8.9 million-case gain was the smallest in those six years, it suggested better times ahead given the circumstances that had contributed to the slower pace.

This year is turning out much the same -- while beer sales could be better, they could be a lot worse. Slow growth, everyone agrees is better than no growth, but there is no lack of challenges. That may be what makes the industry so interesting, and, for some, fun.

"Where we're headed is not a lot different from where we've been," said Bill Hackett, president of Barton Beers, Ltd. "The segment that continues to grow for domestic brewers is light beer. The non-light premium segment has lost interest with consumers. There are more things capturing their interest like imports which offers great value."

Light beer sales last year grew 2.5% bringing light's share of market To more than 45%. The gains have come largely at the expense of the regular sub-premium and premium segments as consumers trade up and look for products with a healthier image and lighter taste profile.

"Budweiser is a good example," said Jim Koch, president of Boston Beer Co. "It's had the world's best ads for the past 15 years, a great wholesaler network, marketing support from the world's largest brewer. In spite of all that, Bud will have its 14th consecutive year of sales declines."

Anheuser-Busch, of course, has more than made up the loss in sales of Bud with the growth of Bud Light, up more than 8% last year. Bud Light now outsells the King of Beers by more than 13 million 2.25-gallon cases. Coors Light, the number three brand overall, also continues to offset declining sales of Original Coors. Volume is now ten times that of the brand that made Coors a national player. Miller Lite sales were off again last year; but the brand has slowed its rate of decline in recent years, and is still a strong number four with nearly a 9% share of the domestic beer market.

The other growth segment in the industry has been imports. Other than a short dip in 1992, import beer sales have seen annual growth for the past 30 years. With people traveling less as a result of events last fall, imports rate of growth cooled to single digits in 2001. Volume was up about 8.6% last year, giving imported beer a 10.9% share of the U.S. market. The only brands in the top 25 that didn't post gains last year belonged to Molson and Grolsch.

"The long-term trend is toward higher-end products," said Paul Shipman, president of Redhook Ale Brewery Co. "There's less consumption, but higher end consumption and a greater variety of products."

Imports offer consumers heritage and authenticity and an upscale image. That shift to above-premium products is happening in a variety of consumer goods categories, from cars to food, wine and spirits as well as beer. Now some brewers are hoping to capitalize on both the growth trends in the industry.

"We're trying to marry the two trends that continue to drive the business --lights and better beer," said Koch. Boston Beer has been cautiously expanding distribution of Sam Adams Light after seeing good results in test markets.

Once considered an oxymoron, full-flavored light beers are contributing to the bottom line of several importers as well. Amstel Light, long the only imported light beer, has seen growth of 20% or more in many markets the past few years and 12.7% growth nationally last year. Labatt Blue Light also is on fire, growing more than 30.6% last year. Corona Light also saw close to 20% growth last year.

"It's a new area for people to compete on," said Dave Perkins, president of Molson USA. "I suspect that consumers are looking more and more for drinkable products and lighter flavor. At the same time, there's been a rapid growth of imports because of people trading up, so it makes sense that the same shift to lights would happen in the import category."

DEMOGRAPHIC ADVANTAGES

One of the trends brewers had counted on to help fuel industry growth has proved to be somewhat unpredictable The 1990s saw the key 21- to 27 year old population decline. That demographic group has been growing again for the past few years, and is expected to swell by more than 5 million by 2010.

"While they represent only 13% of the adult population, they account for 26% of consumption and are a key driver of industry volume growth," said August Busch IV, president of Anheuser-Busch Co. "These entry-level drinkers are vital to our long-term success. In addition to the significant volume they represent, many of their long-term brand loyalties are established during this time frame."

Not only are there more of these consumers entering the market, but they are more sophisticated, more brand conscious and more well off financially than any previous generation at the same age. Part of what has fueled the growth of products like imported beer, ultra-premium spirits, specialty coffee and a host of others is consumers' willingness to pay higher prices for quality.