The rise of high-price

Modern Brewery Age, July 19, 1999

International brewers have seized the high ground and high margins.

Imported beer brands are enjoying an unprecedented heyday in the American beer market. The boom economy has created new demand for luxury products of every sort, and beer sellers are along for the ride.

Imported beers seized the high ground in the U.S. beer market early, and have held it almost uncontested ever since. For a few years, their position was beleaguered, and it looked like the high-priced beer market might become the province of domestic specialty brewers. But too many careless craft brew entrants sullied the waters, and importers are now running away with the game.

The importers of yesteryear were small independent companies with limited marketing resources. They sold in the big metro markets, and appealed to a circumscribed consumer base. Now, with few exceptions, top importers are owned by large international brewers. These companies have access to topflight marketing talent and substantial marketing budgets. They are using both tools to wicked effect.

With the high-price beer market (import and craft) just above 10%, now people are talking about a high-price category that could reach 15, 17, even 20%. This kind of growth will depend on factors outside the purview of beer marketers, not least continued boom-times for the U.S. economy. But with a bombproof economy and a new cohort of 21 consumers poised to enter the market, the pieces are in place for continued high-price growth.

This is all to the good, because high-price is the way the market should be going. Higher margins are better for every tier. They increase wholesaler health, retailer interest, and even consumer loyalty. If consumers are passionate about their beer, they don't view it as a simple commodity, and it becomes an important part of their lives. If consumers stick with beer instead of shifting to wine and spirits as they proceed into their 30s and 40s, this builds a beer constituency for the future.

The big U.S. brewers will make the next move in high-price. Oddly, however, they seem reluctant to move beer beyond commodity status. Their tentative high-price efforts have been short-term and singularly unsuccessful.

Anheuser was making a very nice maerzen back in the early 1990s; it got no support and no publicity, and died quietly. Ten years later, A-B's American Originals were some of the best-brewed, best-packaged, high-concept specialty beers around. Oddly, they suffered the same fate as maerzen - narrow distribution, non-existent support, and a swift, unremarked death. Miller and Coors projects were similarly stillborn. Ultimately, the big brewers decided to buy share of the craft market, by purchasing stakes in craft breweries. Anheuser has even tried that on the import side, only to be deftly outmaneuvered.

The big brewers should be helping grow the high-price end. Sure, they have raised prices of late, but only until the next round of vicious competition. To date, they seem mistrustful of their own high-price entrants, plagued by the notion that these beers will steal the thunder from their mainstream offerings. A-B now plays up Budweiser as a mainstream quasi-specialty. Sure, it's a fine beer, but that misses the point.

If the big American brewers can't make differentiated high-priced beers, then the demand for these products will be filled by international players, who will be more than willing to continue to reap the profits that high-margin beers confer.