If the beer industry was a Disneyland attraction, you might hear ‘It’s a Small World After All’ playing at the entrance, but the ride would be more like ‘Pirates of the Caribbean,’ big, fast ships full of rapacious pirates sailing the Seven Seas, plundering and pillaging as they go. With all of Captain Jack Sparrow’s charm, of course. But it isn’t. This is business, big business.
The past decade has seen beer companies brew up a half-dozen of the largest industry deals in history. Following South Africa brewery SAB’s purchase of Miller in 2002, Molson and Coors merged in 2003; SAB/Miller then put together a deal with Molson Coors to form MillerCoors, a conglomeration of their U.S. business; and a joint venture of Carlsberg and Heineken purchased Scottish & Newcastle in 2007.
The biggest deal so far, in 2008, was Belgian brewer InBev’s $52 billion hostile takeover of Anheuser-Busch (and InBev itself was a merger of Brazilian brewer AmBev with the Belgian Interbrew). In 2010, Heineken purchased Femsa in a bid to ward off the competition from the latest deal, AB InBev’s recently approved purchase of the 50% of Grupo Modelo it didn’t already own.
That handful of deals has changed the brewing landscape in the U.S., as well as the picture for imports. Indeed, even the definition of an imported beer may be changing (more on that in a bit). In 1971, for example, four brewers controlled nearly 70% of the U.S. beer market by volume. Three of them’Schlitz, Falstaff and Schaefer’have been out of business for decades. In 2010, according to data compiled by the Beer Handbook and Beer Marketer’s Insights, A-B InBev and MillerCoors controlled almost 80% of the U.S. market by volume. Crown Imports, Heineken USA and Diageo/Guinness accounted for another 10.5%, with the remainder coming from all others.
Globally, A-B InBev and SAB/Miller continue to snatch up small breweries, adding new brands and local brewing capacity to their portfolios. On one hand, the proliferation of brands is good news for consumers. In theory, globalization of the industry means that consumers, whether they live in Peoria or Poughkeepsie, can get brews from all over the world that were formerly out of reach. In theory’¦
Ups And Downs
Proliferation, while great from the standpoint of offering consumers more choices, also can be a threat to growth. If there are more brands to choose from, but consumers are drinking less beer overall, then each brand’s share could potentially suffer. And some have.
The bad news first: despite a recent report out of St. Louis that A-B InBev’s beer shipments in 2012 rose a modest 0.7%, the company’s first gain since 2008, mainstream domestic beer brands are still struggling. Most of the increase in beer volume last year was due to the continued strong growth of craft beer. The good news: imported beer is back on a positive growth track, and that bodes well for the industry.
The import category showed mixed results last year, but total category sales were up 1.2%. More importantly, many mainstream import brands’often the hardest hit in a recession’showed strong growth in 2012. The top ten brands, which account for about 78% of import volume in the U.S., experienced growth of 5.3%, compared to an 11.3 percent decline of all others.
That’s good news because it means consumers are not as concerned about the economy as they have been for the past few years and are beginning to trade back up to imports, at least the somewhat more moderately priced mainstream brands. Concerned enough, though, at the end of last year and into 2013 about the fiscal cliff, sequestration and other economic news, consumers were slower to spend money on more expensive brands.
‘Consumers still have less money to spend on things like beer,’ said Bill Hackett, president of Crown Imports, LLC. ‘Net disposable income after the first of the year [when the payroll tax returned to normal levels] was a real shock to many consumers, so it was a tough first quarter. It’s a real challenge for the category and the industry as a whole.’
The craft segment has driven growth in the industry recently, largely due to consumer interest in both variety and the unique character of so many craft beer styles and brands. That trend, to a degree, has inured beer consumers to high-end beer prices, making imports a relatively easy sale.
‘There’s a lot of resurgence at the top tier,’ said Doug Campbell, Guinness brand director. ‘Crafts are still booming in double digits, but imports are back as well. Consumers are not drinking more, but they’re drinking better and want brands they trust with heritage, quality and substance to back them up.’ ‘There’s definitely an overlap between craft and import drinkers,’ said Ryan Verschoor, import brand director at Tenth & Blake, ‘but consumers are looking for prestige and status badge opportunities as well as certain taste profiles that imports have and craft beers can’t replicate.’ ‘People are definitely willing to pay more for brands with rich heritage and authentic stories,’ said Rick Oleshak, VP, imports, crafts and specialties at Anheuser-Busch InBev. ‘Consumers want that back story, that unusual bit of history or brewing arcana that they can tell their friends about. Within our space at A-B InBev we have a good mix of high-end imports and crafts.’ ‘Wherever beer is growing,’ said Scott Blazek, VP, sales, at Heineken USA, ‘upscale beer is driving that growth. Over the past four years, the upscale segment has contributed $1.25 billion in growth; 1.5 times that of the mainstream and value segments combined. Trends indicate that consumers have an increased willingness to trade up to affordable, quality luxuries which uniquely positions upscale imports for future growth.’
Imports, especially global brands, also play well across broad demographic groups and ethnicities. Newly emigrated consumers, no matter what part of the world they come from, have seen many of these brands in their own countries. And no matter how many generations an ethnic group has been in the U.S., the status and heritage of imports offers a lot of appeal.
That’s all well and good, but what about the fact that more beers are vying for the same shelf space and a smaller share of stomach? Proliferation, while it’s occurring in all segments of the industry, has come primarily from the craft segment. The sheer number of breweries has exploded in the past few decades, giving consumers, particularly young consumers, plenty of variety and novelty.
‘Kids don’t just sit and watch TV anymore,’ Hackett said. ‘They also have an iPad and iPhone in their laps, and they multitask. The same thing is happening at retail. Consumer sets have exploded. Instead of maybe three as in the past, they have a set of 15 different beers that they enjoy with different sets of friends on different occasions. And they also drink across beverage alcohol categories.’
Younger consumers may be just as brand loyal as older generations, but their loyalties are spread thinner. That creates a tremendous amount of competition for consumers’ attention. A lot of craft brewers are going to literal extremes to attract them.
‘Young people are looking for extremes,’ said Jeff Coleman, president of Paulaner/HP USA, ‘really hoppy or high alcohol content, for example. Per capita consumption keeps declining, and I think it could be because the first beer is interesting, but you don’t need or want a second one. It’s not like the days when drinkable beers were more popular.’
Growing The Business
But importers see a couple of factors weighing in their favor. One is the fact that consumers often can’t drink more than one craft beer. The other is age.
‘People are looking for interesting and unique tastes,’ said Verschoor, ‘but there are only so many you can drink. Craft drinkers often turn to imports as their second one.’
‘What brands like Fuller’s have,’ Coleman said, ‘is balance. I’m not sure there’s a way to capture that entry level consumer, but I think’I hope’they’ll graduate to products like ours after they’re done experimenting.’
Imports have traditionally appealed to somewhat older consumers, but that doesn’t mean brewers aren’t pursuing entry-level drinkers. With new products and edgy marketing programs, a number of brands are aggressively trying to regain share from craft beers and grow the business.
Perhaps the best way to do that at retail is take a page out of A-B InBev’s playbook. The brewer divides its portfolio into three types of beers’global brands, multi-country beers and local champions. Global brands like Guinness, Beck’s, Heineken, Stella Artois and Corona are recognized around the world, and often tend to be go-to staples for retail customers. Multi-country brands are those that are popular in their home countries and a few others. Brands like Pilsner Urquell, Bass Ale, Peroni, Kirin, Fuller’s, Red Stripe and many others likely fall in this category. Last are those beers that are popular in their own countries, but little known outside them. Examples are Aquila from Colombia or Antarctica from Brazil.
Retailers can use the same strategy to meet the needs of customers, stocking the global brands that consumers expect, the multi-country beers like Leffe and Peroni that customers may be familiar with but haven’t tried yet, and some local champions that could work well in a particular store or market area, like Vietnamese beers 33 or Halida in a west coast city or near an international district, for example.
The globalization of the industry has put all these brands in reach. The problem now is defining what an imported beer really is. Part of the reason for consolidation is to find efficiencies. For the big brewers, that now means brewing brands closer to local markets. SABMiller, Diageo and Sapporo brew Foster’s, Guinness and Sapporo, respectively, in Canada, which technically still makes them imports here in the U.S. But A-B InBev brews Bass Ale and Beck’s in St. Louis, which makes them as American as Budweiser, but are they still import brands as far as consumers are concerned?
‘When you buy a real import,’ Coleman said, ‘you’re buying a cheap ticket to Ireland or Germany or wherever the import comes from, and you get to have a little experience of being in that country, but if the beer is from St. Louis, is it the same thing? Everybody’s holding their breath to see what happens with brands like Beck’s. It’s priced the same as Warsteiner at about $10.99 a six-pack, but it’s brewed about 6,000 miles closer.’
One thing’s for sure: the import segment continues to grow, and in the last year or so as the industry has recovered from the recession, they’ve made the biggest contribution to overall industry growth. Imports represent a 15% share of the U.S. market, and that share is growing.
Anheuser-Busch InBev. The brewer has put its considerable weight behind Stella Artois since the brand’s introduction here in 1999, the result of which is that it has become the fifth largest import by volume at about 17.1 million cases (2.25-gal.). Sales last year were up 18%, according to Handbook Advance.
The brand continues to focus on the chalice as a representation of its artisinal roots. The engraved chalice consumer offer was so successful in 2012 with 100,000 given away that the brand did a reprise this year. Creative also has centered around the chalice. Last year’s spots showed how the chalice is made; this year’s shows the artistry involved. And new guy/girl photography by Annie Liebowitz is featured in print and outdoor executions.
Successful Kentucky Derby and Food & Wine tie-ins also were continued this year. The brand has a new bar and a Belgian beer sommelier at the 125 events it sponsors.
New this year is the introduction of Stella Artois Cidre, which has been available in the U.K. for a couple of years. The line extension will likely be part of an expanded Belgian sampler pack that also includes Hoegaarden and Leffe, which also is introducing new flavors this year.
Beck’s saw the introduction of Beck’s Sapphire this winter. The core brand has thrown its hat into the arts ring, commissioning over a three-year period as many as 1,000 projects from films to sculpture that promote public art. The ‘Green Box Project,’ headed by two multi-talented artists, will see its second wave of projects released this year.
Labatt Blue, number nine on the top imports list at 9.9 million cases, saw sales fall 5.0 percent in 2012. The big Canadian brands tend to play more like premium beers than imports, especially in northern states, which makes competition fierce. The brand continues to focus on hockey as a promotional vehicle. Other A-B InBev brands such as Bass, Boddington’s and Kirin, play a more tactical role in local markets.
Crown Imports, LLC. Corona Extra is still the big dog in the import category, with sales of more than 100.6 million cases last year, an increase of 2.0 percent over 2011. A-B InBev’s deal with the Justice Department to purchase Grupo Modelo, not only lets Crown retain control of the U.S. market for Corona, but also throws in a brewery in Piedra Negras, Mexico, near the Texas border. That will help Crown and its parent Constellation Brands ensure a steady supply of Corona and other Modelo brands in the U.S.
Corona Extra continues to help consumers find their ‘inner beach,’ a place they can go to with the help of a cold beer. New creative gives consumers examples of how to find that Corona state of mind when they’re not close to a beach.
Modelo Especial is now the number-three import with about 42.4 millions cases in annual volume, and growth last year of 20.6%. The brand will offer expanded support this year not only with Hispanic consumers but with general market consumers as well. Two new spots tested last year will roll out to new markets.
Corona Light, seventh on the top-ten import list, saw sales rise about 2.4 percent last year to nearly 13.5 million cases. Last year’s new creative designed to get consumers to think differently about why and where they drink light beer will continue to encourage them to ‘break from the herd.’ The brand also continues to sponsor Kenny Chesney’s tour.
Negra Modelo and Victoria, launched last year, are partnering with Chicago-based James Beard-winning chef Rick Bayless. Bayless becomes spokesperson for both brands and will talk about how they can be used in and paired with food.
Pacifico, a lifestyle and discovery brand, is slowly expanding beyond Hispanic neighborhoods and making inroads into general markets especially through its sponsorship of U.S. Open competitions in surfing and snowboarding.
Heineken USA. After a couple of rough years, Heineken’number two behind Corona’had a positive year in 2012, with sales up 1.4% to nearly 55.2 million cases. Volume grew fastest in key on-premise accounts, but the brand believes the introduction of its new Star (STR) Bottle in February is having a positive effect in the off-premise market, too, and will help reinvigorate sales. The new bottle has a redesigned label that glows under black lights. The bottle itself has a unique thumb groove to improve bottle grip and encourage drinkers to hold the bottle lower, keeping the beer colder longer.
‘The World’s Most Interesting Man’ campaign pushed sales of the fourth largest import Dos Equis up 16.0% last year to nearly 18.7 million cases. A new campaign called ‘The Arrival’ is designed to drive consumer engagement.
Sales of Tecate, the number-six brand, fell slightly last year, to just under 15.8 million cases. The brand is strongest in Hispanic markets in the West and Southwest, but its association with soccer for the past several years has helped it expand its reach to general market consumers as well.
Newcastle Brown Ale, rounding out the top import sellers at number ten, saw volume rise 3.0% percent last year to more than 7.2 million cases. Helping it into the top ten was the ‘No Bollocks’ campaign, which continues this year. The brand also stays fresh with consumers by releasing limited edition brews such as this May’s ‘Bombshell.’ Other new editions are slated for later in the year.
Diageo/Guinness. Guinness came in eighth on the list of top imports in 2012, with sales of 12.2 million cases, down about 2.0% from the prior year. This summer promises to be transformational for the brand as Guinness Draught gets new advertising and a new look at retail. Guinness Black Lager also will get continued support after delivering 1 million cases in its first year of distribution.
Diageo plans some changes for Smithwick’s Ale this summer, but the brand hadn’t released specific plans at press time. Red Stripe, too, will have something new’a smaller, more traditional size can’but its ‘little big victories’ ad campaign remains the same.
Changes and new intros on all Diageo/Guinness brands are expected to hit July 4.
Paulaner/HP USA. A new brewery under construction in Munich and expected to open in 2016 will double capacity for Paulaner and Hacker-Pschorr beers. The 480-seat Paulaner Beer Garden travels to a number of venues around the country this summer, sampling all of the brewer’s beers. A new 15-pack debuts on Aug. 1 at retail, featuring five bottles of Wiezen, five of Marzen an five Hefeweizen along with a complete party kit.
Fuller’s continues to focus on logistics to ensure that its beers are the freshest possible when consumers taste them, either at retail or on-premise.
Tenth & Blake (SABMiller). The brewer’s smaller, boutique prestige brands’Peroni, Pilsner Urquell and Grolsch’are doing well in a climate where upscale beers are coming back.
Italian style is at the heart of everything Peroni does. The brand is celebrsting its 50th anniversary this year with new global creative coming and partnerships with other Italian icons that got their start in the 1960s. The ‘Made for Peroni’ design competition finds young, up-and-coming designers and gives them an opportunity to show their work during Fashion Week. The consumer contest ends in September, with the winner showing designs at the February, 2014, Fashion Week.
This may be the year that Pilsner Urquell surprises people. As the original pilsner style beer, the brand is focused on quality. Logistics have been completely revamped; the beer is now shipped in refrigerated containers and shipping time has been cut substantially to ensure fresh product on shelves and in restaurants. The brand plans lots of sampling opportunities in key markets to demonstrate the quality improvements.
Grolsch continues to do guerrilla-style marketing with a focus on independent minded drinkers, using a program to discover and showcase young filmmakers as a way to reach them.
And while its brands from other parts of the world such as South America, Africa and Asia haven’t yet broken out of traditional spaces (such as Peruvian beer Cristal in a Peruvian restaurant), Tenth & Blake is looking to leverage opportunities to do so.
The breadth and diversity of the imported beers now available is truly astonishing. Stocking not only recognizable global brands, but unique beers from different parts of the globe will appeal to customers always looking for more variety. It is a small world after all.