Imports hit a rough patch: a variety, of factors, including bad weather, slow the import juggernaut

Modern Brewery Age, July 21, 2003

It's been rough going so far in 2003, with the four horsemen of beer apocalypse riding the land--war, recession, rain and malternatives. Actually, that last horseman has been looking less imposing of late, although Smirnoff Ice still did almost 25 million cases in '02, and that probably translates to a bit of lost imported beer business.

Imported beer shipments were down 4.4% through April, according to figures from the Beer Institute. Last year, imports were up 8.7% January to April, and imports ended the year up 6.0%. It is clear that imports will have to crank hard the rest of '03 to make up lost ground. Overall percentage growth has been slowing in the last few years (imports were up 14% in '97, 15.1% in '99, 9.03 in 2000, and 8.8% in '01). Certainly a primary reason for this is the fact that imports are working from an ever larger base, holding 11.3% of the U.S. domestic beer market as of last year.

Importers continue to project continued market share growth for the segment--some peg the ultimate level for imports at 20%, others project import share as high as 25%. But it could be a bumpy road getting there.

"I think importers are probably in for some severe slowdown," says analyst Robert Weinberg, of the Office of R.S. Weinberg, St. Louis, MO, "and they could have their first minus year. I base that on beer demand per se in the immediate future, which will be essentially the same. Segment by segment, we'll see modest growth or modest decline. Lights are strong, popular price is not. I think high-price will continue to grow."

This year, the fate of import growth seems dependent as much on micro factors as the macro. And if there is any unity among beer importers, it lies in complaints about the weather during the first half of this year. The northeast had it particularly bad, with an unusually tough winter followed by almost constant rain through the end of June. The only consolation is that everybody is in the same boat.

"There is a weather effect," says Geoff Molson, v.p. distributor development for Molson U.S.A. "When it is colder or rainier there are no winners."

Ron Christesson, director of marketing for the Gambrinus Co. of San Antonio, TX, eastern importer for Corona, can attest to that. "When Memorial Day is cold and rainy in the Northeast," he says, "it takes 200,000-300,000 cases off the table."

The weather wasn't ideal elsewhere in the country, either. "It's not been great out West," says Kevin Moodie, president of California-based Scottish & Newcastle Importers. "It was a very wet spring."

On top of the weather, the double impacts of war and a sluggish economy have taken their toll. "Overall it was a hard first quarter," Moodie adds. "Our business in February and March was just horrible. People were not going out, and for a brand like ours, which is closely linked to the on-trade, it was tough. The economy is also a huge potential down-side, with people worried about their future employment."

"It's a fragile environment out there," Geoff Molson agrees. "In talking with on-premise customers, a major issue is a decline in traffic, with consumers spending less time going out."

Even the top brand has had it tough. Although Barton and Gambrinus have started chalking up good numbers as the weather has stabilized, in the northeast the Mexican power-house has been as subject to the weather as any other brand. "Our year thus far has been basically flat," says Ron Christesson of Gambrinus. "We're up a couple of percentage points, but it's been up and down because of various factors." Christesson notes that Gambrinus instituted price increases last year in some markets, which may be having some effect.

Ron Christesson also sees pressure from new products in the malternative and domestic beer segments. "There has been an impact from the malternatives," he says, "and now we see new ones cycling through--brands like Triple Black. There is a lot of effort put forth by these folks, and they definitely absorb shelf space. When we are all fighting for space, they are a factor."

Christesson also cites two new strong entries on the domestic beer side. "Sam Adams Light and Michelob Ultra have been getting some attention," he says. "I think Ultra is the most significant new product. It has a good selling platform, it will get a lot of trial, and will retain some consumers."

Improved second half?

Importers believe that the second half will be better than the first. "Things will turn around in second half of year," says Frank Pronio, Eastern general manager for Sapporo. "So far in '03, Corona and Heineken seeing most of the growth, but we will be looking to get more aggressive. We have a new 12-pack that will allow us to get into new accounts and new markets."

"We are cautiously optimistic about this year," says Geoff Molson. "but we're not bragging yet. The fact that we're in the middle range between the domestics and the European imports may help us."

Molson's "middle range" comment addresses one of analyst Robert Weinberg's pet theories. "North American imports are not imports," he says, "they are one-for-one replacements for domestic super-premium brands."