NOTE: This story contains additional text and charts that were not in the original version published in the September/October issue of Beverage Dynamics.

There’s nothing like a little doom-and-gloom to sell newspapers—or, in today’s world, to garner internet clicks. In the past year, many writers tasked with covering the beer industry have seized on two trends and hyped the bad news potential of both.

In one case, this has meant taking dispiriting news and declaring that really dreadful news is just around the corner. Sales for Big Beer—the dominant American brands—are slipping, and light beer styles, which picked up the slack when full-calorie beers began to wane, are now losing market share as well. But it seems premature to declare Big Beer “broken” or in terminal decline. Anheuser-Busch InBev and MillerCoors together still own three quarters of the American market, and their international reach is vast. Diversification and globalization may be the way ahead, but it’s a reasonable bet that, ten years from now, American pale lager will still be the dominant national style here at home.

In the other case, writers have looked at the persistently positive growth of craft beer and predicted darkly that it will all go south any day now, despite annual growth of 18%. Articles speculate about there being too many craft breweries, about the risk of a craft beer “bubble” that’s bound to burst, or the specter of customers so overwhelmed by beer selection that they bail on the whole category. Yes, there are over 3,000 small breweries and counting in the U.S., but the small scale of most of them suggests that there’s still room for plenty more. Most will remain small, and only a few will grow into the next generation of regional breweries, but the taste for more flavorful beers is unlikely to go into reverse.

What’s clear is that this is a time of change, but it’s evolution, not revolution. The beer field is more varied than ever before, and consumers more restless and less loyal. It’s not clear who is leading whom: the consumers who demand ever more variety, or the brewers who present ever more options.

Numbers in Review

Although beer remains the most popular alcoholic beverage among Americans, its dominance has eroded over the past decade. Where Gallup figures throughout the nineties showed nearly half of American drinkers preferring beer, more recent surveys have seen beer fall to a low of 36% in 2011 and 2013, before returning this summer to 41%, a healthy 10-point margin over wine, its closest challenger.

Of concern, however, is the fairly steady slippage in beer volumes year by year. In 2013, total beer consumption was down by 1.6% over the previous year, and domestic volumes dropped by 1.9%, according Beverage Information Group.

The beer industry is nowhere near the monolith it once was. Its various segments—differentiated by price, style, scale, image or place of origin—have fared differently. The three major categories (light beer, super premium and premium, and popular) have all lost market share, with light beer losing 4.1% of its volume in 2013 and the other categories losing 2.2% and 2.7%, respectively. The much smaller malt liquor category fell by 3.2%

Imports as a category were nearly unchanged in 2013 from the year before. Repeating the trends of recent years, the flavored malt beverage category grew this year by 2.7%. But the stand-out once again was the craft beer segment, which grew by 14% (or by as much as 18% according to the Brewers Association, the trade group for craft beer).

Mainstream Domestics Stall

The traditional pale lager and light lager styles, in both their domestic and imported versions, make up close to 85% of all beers sold in the United States. The ten top-selling brands, all examples of these two styles, comprise 60% of all beer sold here. And yet the domestic brands in particular, as huge as they are, seem to be powered by inertia, not enthusiasm. With few exceptions, the volume trend is down for most brands.

Volume declines in beer overall are due almost entirely to losses to these two dominating styles. David Almeida, Vice President, Sales at Anheuser-Busch, observes, “The industry has been hit by a number of factors in recent years, including weather, the economy and unemployment.”

At MillerCoors, Cat Corrigan, Media Relations Manager, takes a different view, noting that “volume declines are a result of increased competition from wine and spirits.”

Teasing these explanations apart, Dan Wandel, principal in the client insights group with IRI, a Chicago-based market research firm, says “I think it’s not any one cause here—there are multiple things at play. Number one, since the recession, I don’t know that the domestic premium and sub-premium drinkers are buying as much as they used to. There’s a lot of economic and unemployment factors at play there.” But, he adds, there are “inroads that the spirits category continues to make at the expense of beer, and wine to an extent as well. Those two categories continue to do quite well, and outpace the beer category sales trends.”

What to make of light beer? Light brands still make up roughly half of the beer purchased in the United States, as they have for several years, dwarfing the premium category by three and a half times. Of the six light beers among the top ten sellers, five lost ground, and only Busch Light grew in volume during 2013.

Despite slipping numbers year after year, Bud Light still owns the light beer category. Losses of 4.1% in 2013 can’t be encouraging, but it will take a long time to erode the brand’s lead. Coors Light, which enjoyed growth in 2012, fell by 2%, but still retained its position as the number two seller. And Miller Lite slipped by 7.6%, despite a return to its original can design that underscores its legacy as “as a trailblazer in the Premium Light category—it reminded consumers that Miller Lite is not just any beer, but the Original Lite Beer,” according to Corrigan.

Not all light beer brands did badly: outside the top 10, Michelob Ultra jumped an enviable 7.1% and Corona Light by 3%. It’s tempting to speculate that consumers regard these as a super-premium beer and an import, respectively, rather than strictly as low calorie options.

Budweiser and Miller High Life, the only full-calorie premium domestics in the top ten brands, fared worse then their low-cal siblings, dropping by 5.7% and a discouraging 11%. Once ranking alongside, but now far outside the top ten, Coors Banquet received a makeover with the return to the traditional “stubby” bottle: a bid for authenticity is clearly a theme among the MillerCoors brands.

Chasing Variety

Analysts and industry professionals alike seem to agree that future potential lies with the development of brands that offer variety, choice and innovation—brands that may be destined to be relatively small and short-lived, but with the appeal to make up for the volume losses of far larger, more established brands.

As the traditional lager-buying, brand-loyal beer drinker has had to scale back, the industry has sought to understand its potential new consumers. IRI’s Wandel says, “When you look at the Millennials [legal drinkers aged 21-33], I think it’s clear that they are variety-seekers, looking to try different things. The loyalty of those consumers is not what it would have been years ago—that’s certainly a factor. With the abundance of choice that exists in these categories, there’s definitely a lot of interaction between beer, wine and spirits.”

Companies chase these new consumers with craft beer aesthetics, cocktail-like concoctions and whole orchards of changing fruit flavors. Wandel explains, “There is some blurring of the categories going on, with the flavors and styles that have emerged helping to promote a kind of product promiscuity, if you will. One or two years—three or four, tops—you say it’s a trend, but we’ve been going for long enough that you have to approach it as the new normal.”

Since the launch of Bud Light Lime-a-Rita, Anheuser Busch has introduced new fruit additions annually—raspberry, mango, strawberry—to these higher alcohol, higher priced flavored malt beverages. A-B’s Almeida explains, “A strong, sophisticated innovations pipeline is key to growing our share and resonating with today’s Millennial consumer. Specifically, the Ritas have served as an unprecedented catalyst for category expansion. We’re capturing significant volume from outside the beer category, which is a new direction with ample room for growth and additional innovation.” Almeida observes the Rita family caters to “a desire for sweeter beverages.”

MillerCoors courts the same Millennial audience with its Redd’s franchise, introduced in 2013. Corrigan writes, “These ales were the answer to consumers’ desire for more flavor and variety in their beer. Based on the continued success of Redd’s Apple and Redd’s Strawberry Ales, in August 2014, Redd’s debuted a new, higher-ABV apple ale, Redd’s Wicked Apple.”

Importers got the memo, too. Heineken USA introduced the Latin-themed, Dutch-owned, French-brewed Desperados, “inspired by the growth of imports, craft beer and spirits.” The beverage covers all bases, incorporating lemon flavor—a nod to the popularity of fruit flavoring—and tequila barrel-aged lager—a nod to both cocktails and the craft beer rage for barrel aging. According to Ward, “Desperados is positioned as the ultimate beer for nightlife and appeals to multicultural consumers.”

Heineken also offers “Dos-a-Rita, which combines Dos Equis Lager and Margarita flavors – the first imported, authentically Mexican ready-to-serve lager margarita on the market,” and Amstel Radler, a take on a traditional German low-alcohol beverage blending lager with lemonade.

Import Status

“Imported beer” may be a useful category when it comes to licensing and legal status, and logistical concerns such as transportation and customs procedures. But the word sheds little light on the consumer’s beer drinking experience, any more than the word “domestic” does, nor does it offer much insight for retailers.

Throwing all beer brands of foreign origin into one analytical basket only makes sense because the import category is too small to break into more reasonable sub-categories. The imported beers Pacifico and Westvleteren have as much in common with one another as Busch has with a challenging American craft like Pliny the Elder. Still, just as most domestically-produced beers are of only two styles, full-calorie lager and light lager also dominate the import category.

And yet, the import badge in itself retains some of the caché left over from the days when all domestic beer was of one broad style and only imports offered variety for the curious drinker. That some sophistication still clings to the entire import category would seem to be the best explanation for American drinkers favoring imported brands over similarly-styled domestics. Of the ten top-selling imported beers, seven are mainstream lager styles, two are light beers, and only one—Guinness Stout—offers a stylistic alternative.

No brand has capitalized on this aura of sophistication as effectively as Dos Equis, whose Most Interesting Man in the World character manages to embody the essence of cool. Now in its sixth year, the ad campaign is largely credited with the Mexican pale lager’s handsome growth: 18% in 2013. Heineken USA, the brand’s import house, had less luck with its flagship Heineken brand. Despite a loss of 4%, Heineken, once the country’s leading import, holds the second position in sales.

Crown Imports, the leading beer import company and home to number one import Corona and the other Modelo brands, is now re-christened Constellation Brands Beer Division following consolidations in 2012. Bill Hackett, president of Crown and now of the Constellation division, describes the beer acquisition as “the most transformational event in Constellation’s almost 70 year history,” establishing Constellation Brands as the number three beer company in the United States.

As brewer, importer and marketer, the Beer Division has an unusual role in the U.S. industry. Hackett described the change: “Throughout the transition, we had to remain focused on maintaining our industry leading momentum and couldn’t allow the commercial side of the business to become distracted. At the same time we had to quickly build out the operational side of the business.” This included a doubling of the Piedras Negras Brewery in Mexico to supply the U.S. market.

Constellation is entirely focused on Mexican beers, with the exception of Tsingtao from China. The company balances the appeal of its brands to the American Hispanic drinker with the Millennial drinker that is every producer’s holy grail. Hackett explains “Our insights show that consumers’ tastes are evolving. Today’s beer drinker is more willing to trade-up as they are introduced to imports and crafts with more taste. This is important to note because Corona Light has two times the IBU’s (International Bitterness Units) as the average domestic light, giving the brand a true taste advantage in the category.”

With the consolidation in 2012 of the Modelo imports under Constellation, Anheuser-Busch was out of the Mexican beer market in the United States. This summer, AB has introduced Montejo, a golden lager that is its first import from Mexico.

Craft and its Imitators

Strategists observing beer consumers see fatigue with established brands and a quest among Millennials for something new. The solution often mashes together cocktails, novelty beverages and craft beer. While this may capture a restless young audience, craft beer supporters will resent being asked to join that particular marketing club.

Craft beer protects its exclusivity. As a David among Goliaths, sometimes exclusivity was all that the category had. The steady growth of the craft beer category over the past decade or so has spawned a few problems, but problems that any industry should be happy to have: that of imitation and challenges to authenticity that come with enviable success. That success means that in a survey like this one, crafty, craft-like, and craft-inspired beers have to be considered alongside the BA-sanctioned genuine article, because many consumers make no distinction.

Bart Watson is the chief economist with the Brewers Association, which is devoted to the definition and interests of craft breweries. According to Watson, craft brew grew by 18% in 2013; what’s more, “not only was it strong, it was coming from an increasing number of players, which in the long run makes it more sustainable.” By end of last year, 2,822 breweries were operating in the U.S., with 2,768 considered craft by the BA.

Eleven years ago, then-BA president Kim Jordan of New Belgium Brewing Co. threw an audacious challenge to her fellow craft brewers: build the segment until it comprises 10% of the U.S. market. This year, with craft claiming 7.8% of the volume, the stakes have been raised to “20 by 2020”: that is, 20% by the year 2020. Watson says the goal is possible, if growth continues at the current ten-year average of 10.9%—even more so if mainstream numbers keep declining.

Jim Koch, founder of Boston Beer, the largest craft brewing company in the country, says, “It will take a lot of work by a lot of people, but it’s good to have a vision. The nice part is that it won’t be easy.” However, he adds ,“Numbers are simple-minded things. More important is that craft beer is changing the beer culture in America and exciting and energizing beer drinkers in a way we haven’t seen in our lifetimes.”

Koch, whose company produces the Samuel Adams brands, is celebrating Boston Beer’s 30^th anniversary this year. He takes a bold view of the potential of craft beer: “That’s pretty cool that America today is creating classic beers that in a century people will look back on and go ‘Wow. I wonder how something so amazing as that beer came into existence?’ Every beer in history had a starting point. Somebody created it. It came out of human passion and imagination.”

Among American craft breweries, Abita Brewing Co. in Louisiana is ranked number 15 by volume, according to the Brewers Association, yet their reach and portfolio range is very different from the seemingly ubiquitous and cutting-edge Boston Beer. This may be changing, with Jaime Jurado recently hired as Director of Brewing Operations. With decades of experience, Jurado will oversee the completion of a new brewhouse, the first step in creating the infrastructure for planned growth.

Jurado sees craft beer trends heading in two opposite directions: highly drinkable session styles, and the big IPAs and their ilk. Abita excels in the former. “We’re famous for our Purple Haze and other easy-drinking beers, like our Louisiana Dark Amber and our Turbodog, Jurado says. “But we’re much more than easy-drinking beers.” New developments will include “more ‘boutique-y’ beers that cater more to the specialty drinker,” as he puts it, adding “We’ve got the chops.”

More experimental beers will always be at the fringe of craft brewing, generating excitement, but not the bulk of sales. “Brooklyn [Brewery] is a great example,” Jurado says, “because 85% of their beer is still contract brewed [mainly their more commercial styles], but it’s their 15% of unusual beers that helps to propel them.”

But if it’s the “easy-drinking” craft that pays the rent, those are also the styles that are vulnerable to appropriation by companies that are not “sanctioned” craft brewers. Blue Moon, MillerCoors’ 20 year-old wit beer, is referred to by Cat Corrigan as “a pioneer of craft brewing in the U.S.,” and “the largest craft beer in the nation.” A new offering from Guinness, Blonde American Lager—launching their Discovery Series of “fusion brew” beers—makes a point of naming the hop varieties used, details more typical of a craft beer promotion. And AB looks to its expanding Shock Top family and the Goose Island and Leinenkugel brands to give cred to its own craft beer claims.

Some craft brewers take an oppositional view of Big Beer; Jim Koch is much more conciliatory. “What I’m hoping is that the mass domestic beers get their mojo back,” he says. “Because when we all started paying attention to beer 30 or 40 years ago, the big brewers were part of the fabric of American culture, with “Whazzup!” and “Yes I am,” and “Tastes great, less filling.” I certainly hope that they’re able to reclaim that position. It would be good for the entire beer industry.”

The View from Washington

This June the Beer Institute, which represents the widest range of brewery professionals—breweries of all sizes, importers and industry suppliers—welcomed James McGreevy as its new president. As a former executive with the American Beverage Association, McGreevy is familiar with what he calls “the daily blocking and tackling of Washington D.C.”

McGreevy identified the Beer Institute’s priority as “preventing any tax increase of any kind to any brewer.” Another perennial issue that seems to be attracting less attention from legislators is underage drinking, perhaps reflecting the very active efforts of the beer industry over the past 25 years.

McGreevy’s experience in the non-alcoholic beverage world has sensitized him to some issues both industries have in common. He explained, “I spent some time at the American Beverage Association and now continuing at the Beer Institute educating policy makers, members of Congress and folks in the administration about the dysfunction in the aluminum market right now. Aluminum is obviously a very important commodity, both for the big guys and increasingly for the smaller brewers, and there’s a very complicated but critical issue around the cost of aluminum and how it gets to the brewers. There has to be some regulatory or legislative change to make the market work again.”

And another concern is on the horizon. “An emerging issue that is interesting for all alcohol is marijuana, whether it will be legalized, what its status in federal law is in particular, apart from what’s happening in the states regarding anti-criminalization and legalization,” McGreevy says. Given the shifting attitudes toward recreational marijuana use, it only makes sense that the manufacturers of recreational alcohol will be watching closely.

If Big Weed emerges as a competitor to Big Beer (and small), it could give brewers of all sizes a lot to agree on.

Cider is not beer, but brewers are picking it up

Cider is a phenomenon, like the economic prospects of certain Third World countries, whose hopes for success always seem to lie in an ever-postponed future. But perhaps that future has moved a little closer.

Cider is not beer: as a fermented beverage made from fruit, it is technically wine. But its affordability and low alcohol content put it functionally—and historically—in the beer category. It’s distributed by beer wholesalers and served alongside beer. And now it’s brewers, rather than vintners, who are picking up and popularizing the category.

Boston Beer owes its 2013 growth of 23% in large part to its “overnight’ success with Angry Orchard Cider—success that was 19 years in the making. “It’s shocked the hell out of me,” laughs Jim Koch. “Boston Beer’s never had anything that just took off. Everything else took a decade for people to grasp. Angry Orchard’s the first thing in 30 years that’s been a phenomenon. We re-worked the flavor profile to clean it up and take it out of the sort of agrarian and rural roots of cider making.”

IRI’s Dan Wandel is impressed with the success of Angry Orchard. “What I find so fascinating about it is that they’ve come into a segment and laid claim to over half the segment within two years,” he says. “And it’s not like they weren’t going up against the big players; that’s what amazes me.”

The big players included established brands like Woodchuck and Hornsby, and the big brewing companies entering the cider trade. Heineken purchased Strongbow, and this year launched Strongbow Gold Apple Hard Cider and Strongbow Honey and Apple Hard Cider, which Steve Ward describes as “uniquely positioned as premium lifestyle ciders appealing equally to men and women.”

MillerCoors is also looking closely at gender in its marketing. Cat Corrigan observes that “the growth of cider has been explosive over the past several years, but there was no cider that was made specifically for men. MillerCoors saw an opportunity there, and developed Smith & Forge, a cider that’s sweet—but not too sweet—with packaging that’s designed to appeal to guys.” Cider’s influence can also be noticed in the apple-flavored extensions of MillerCoors’ Redd line of ales.

Anheuser-Busch has also experimented with beer-cider hybrids. David Almeida reports “Shock Top Honeycrisp Apple Wheat—which merged the cider trend with unfiltered wheat beer—has been a shining star in the ever-evolving Shock Top portfolio.” He adds, “The demand for cider isn’t slowing down, and Johnny Appleseed Hard is bringing a lot of excitement to the category.”

Koch tries to explain the attraction of cider, which at one time was bigger in the U.S. than beer. “Cider to me was very much like craft beer: it’s a very traditional beverage, it has deep roots in American history, is very dependent on the quality of the natural ingredients it comes from and presents a unique flavor profile.”