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Beer Industry Losing Out to Spirits


Craig Camp
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That's true, Craig, but a more detailed picture is that the beer industry's 1% decline was a 4th quarter narrowing off of a 3-3.7%% decline in 2003 Q1. In other words, I am not sure it is as much an increased market share taken by spirits as a sour economy now turning around. Time will tell, of course.

On a good note, although many of the larger craft breweries posted losses, craft brewing as a whole posted a 5% gain. Those breweries who stayed home and served their core market fared fine.

Cheers,

Paul

-Paul

 

Remplis ton verre vuide; Vuide ton verre plein. Je ne puis suffrir dans ta main...un verre ni vuide ni plein. ~ Rabelais

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I'd think that both a rise in spirits sales and bigger market share for craft brewers is an indication of a diminishing number of 18-25 year olds. It's also the reason why crime is decreasing in many, or most, major US cities.

Arthur Johnson, aka "fresco"
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in Canada we're now seeing the introduction of a *lot* of low-carbohydrate beers. i'm betting this product will sell like hotcakes in the current market.

i don't know if it'll turn around the industry, but...

"The cure for anything is salt water: sweat, tears, or the ocean."

--Isak Dinesen

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Here are my predictions. The beer industry is consolidating, obviously. The large brewers, Budweiser, Miller (SAB), Coors some time ago ventured for a minor blip into the specialty beer production arena, found it not their game, and went back to doing what they do. Consolidation will increase here.

A long anticipated demographic shift has already taken place. However, it is exactly the 18-25 year old market which will seek out more flavorful products - college age consumers choosing local, craft beer. See Bells and Oberon Ale.

Craft beer, as a sector, will continue to grow slowly, in a bricks-and-mortar pattern of solid, but not too exciting, growth. The craft beer industry is now entering a mature pattern, and consolidations will be on the rise here. See the recent purchase of Portland Brewing by Pyramid. Those now-veterans of the craft beer movement, like Sierra Nevada, New Belgium, Alaska Brewing, Sam's, (and Bells, etc., on the smaller scale), provided they do not try to go too expansive (i.e., Sams took a hit when it made too big an overture last year) will strengthen and perservere. Newcomers will find it extremely hard to find any shelf space, unless they are in an untapped market. Which is becoming hard to find.

But overall, beer is here to stay. Who makes it will change, but as a consumer product, it will stay and not weaken over any length of time.

Things like Zima of yesteryear, or low-carb beer of today, or "alco-pops" like Mike's Hard Lemonade or Hooch, are mere fads, and will pass. Any brewer who sinks considerable capitalization into equipping to make these products (if they require significant retooling to do so - i.e.., Hooch's special "Centrex" blending unit at 1 $million plus) will be hurting, as they will pass.

-Paul

 

Remplis ton verre vuide; Vuide ton verre plein. Je ne puis suffrir dans ta main...un verre ni vuide ni plein. ~ Rabelais

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I agree that beer will continue to be popular, but wouldn't bet on college kids drinking a lot of premium-priced craft beer.

Here in Canada, where I think we are a bit ahead of the US demographic curve, the two major brewers have been trying for some years to contend with a"mature" marketplace, and it is leading to some really dumb decisions--mostly recently, Molson's foray into the Brazilian market, where they bought the No. 2 or 3 brand, which had a lousy reputation and worse distribution, and got slaughtered.

Arthur Johnson, aka "fresco"
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Craft beer, as a sector, will continue to grow slowly, in a bricks-and-mortar pattern of solid, but not too exciting, growth.  The craft beer industry is now entering a mature pattern, and consolidations will be on the rise here.  See the recent purchase of Portland Brewing by Pyramid.  Those now-veterans of the craft beer movement, like Sierra Nevada, New Belgium, Alaska Brewing, Sam's, (and Bells, etc., on the smaller scale), provided they do not try to go too expansive (i.e., Sams took a hit when it made too big an overture last year) will strengthen and perservere.  Newcomers will find it extremely hard to find any shelf space, unless they are in an untapped market.  Which is becoming hard to find.

Overall this is an excellent analysis of the micro industry as a whole.

I would like to point out that some of the "shaking out" and "consolidation" that has occurred in the last three or four years is the result of two things

1) People getting into the business at the peak because money was cheap and easy to get. THese operators were just getting up steam when the stock market fell apart and 7 dollar six packs were not quite so attractive to their core group of drinkers.

2) Operators who saw steady growth during the nineties fell into the mistaken impression that they could sell lots of beer if they got far flung distributors and started increasing volume in markets they could not possibly work on an active basis. The intial appeal of micro beers was (and still is, to my mind) that it was being made, sold, and promoted by local guys and that the product harkened back to the days when all breweries were more or less local. Sadly, many of us lost focus after spending too much time with excited investors and spending way too much time around the table at conventions discussing with our fellow brewers how well we were all doing. There was a blindness that ran rampant in the late nineties that manifested itself in the purchase of unneeded equipment and over expansion into markets too far from the initial home base. Frederick Brewing in MD is the most spectacular example of this kind of greed based expansion. They took on a ton of debt with the erroneous expectation the their beer would be in demand just because they had nice packaging and were from Maryland. They were horribly wrong.

The breweries that are now considered successful were the ones that handled their money well and did not get trapped in this pattern of expansion. The same success pattern that is followed by any operator in any business. The romantic notion that the beer business is fun and that people who loved the product and what they did for a living would ultimately be successful was dispelled quickly and in a pretty ugly manner. The beer business is unmerciful and cutthroat once the porduct leaves the friendly confines of the brewery.

Do not forget that many breweries (including at least two you listed as successful and several you left out of your list) are still operating with pretty large debt loads (recently made much lighter by favorable interest rates) and HAVE to move X amount of volume to make ends meet.

In short, microbreweries, to a very large degree, have been victims of their own success. The profit margins in the beer industry are low (operating costs are high and there is a limit as to how much one can get for a bottle of beer-no matter how good it is) and there is only so much money to be made. Take a look at the A-B balance sheet and see how they continue to drive their growth-1/2 of the money they make goes right back into advertising. Small brewers, on a smaller scale obviously, will need to continue to follow suit if they expect to be a success in the current marketplace.

Brooks Hamaker, aka "Mayhaw Man"

There's a train everyday, leaving either way...

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Agree wholeheartedly, Brooks, well put. Tons of stainless gets pretty expensive when receipts are not coming in. And, as the former national distribution manager of a regional craft Brewery here in Chicago, I, too, have seen what happens when craft brewers try to venture too far afield - without the economies of scale, and ironclad distribution system, of their behemoth mega-cousins.

Best example to me, is Yuengling's turn around - the opposite of Frederick's fall, both hinging on the same reason. Yuengling came back home - and prospered.

Shame, really. I brew wonderful beer, if I say so myself, and dream of opening up my own little Shepherd Neame or Hook Norton here in the states - complete with sheep lowing in the field, eating my spent grain. But it is not the climate it was a decade ago.

Cheers,

Paul

-Paul

 

Remplis ton verre vuide; Vuide ton verre plein. Je ne puis suffrir dans ta main...un verre ni vuide ni plein. ~ Rabelais

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I'm an expatriate Milwaukeean who could blind-taste all the American brands before he reached 17 years of age. I like my beer, and while I'm not as knowledgeable as some people I think I know my beer. These days I drink only craft beers or imports unless nothing else is available or on the occasional spur of the moment when I want to remind myself just how bad the major brands really are.

Craft beers and imports are usually more expensive, and I'm sure that's the primary reason why they have a low market share. Better products are always going to be more expensive, and they're always going to have a minority of the market. But 5%? That's way too low, and I think it's that low partly because the craft brewers have made some mistakes in approaching the market.

For one thing, they use the language of connoisseurship and/or a language of aggressive insurgency and the imagery of a biker gang or a punk rock band. Just by the way they carry themselves, they hold themselves out as an exclusive club or a gang of spiky haired kids. Craft beer is almost as intimidating as wine in this regard. What's wrong with simple messages aimed at people who don't especially want to join a secret society? You know, like "Made Here. Made Better." You might even try using relaxing images, instead of "Mad Dog" this and "Wild (fill in the blank)" that.

If there's one product that ought to be sold with humor, easy times and a light touch, beer is that product. Craft brewer humor tends to be too pointed, too cerebral or both. Bring it down a notch, guys. Poke fun at yourselves. Remember the Sam Adams T-shirts, "I'm a Revolting Beer Drinker?" Hey, you might even try pitching your product at Middle America through the use of homey imagery. Any of you craft brewers ever thought of sponsoring Little League teams, having floats in the 4th of July parade and selling your products at the county fair? If you want customers, go where the customers are.

Secondly, in many cases the craft brewers are driven to be so distinctive that they make an unbalanced product. This is particularly true in the Pacific Northwest, where the vast majority of craft beers are extremely bitter ales. Some helpful people here have been pointing out some exceptions, but I think they really prove the rule at least for the Pacific Northwest. I wonder how true this is elsewhere in the country.

Thirdly, even when their beers aren't overloaded with hops, craft beer tends to be heavy beer. Remember the old Schaeffer's slogan, "The beer to have when you're having more than one?" Other than hefeweizen, which I absolutely love in the summer time and which the craft brewers have singlehandedly revitalized in the U.S., I see very few attempts to make a lighter-bodied beer. It might be a thought in between that intense experimentation on how to make a Belgian-style watermelon beer or a triple-bock, bottle-aged barley wine.

Finally, and this is related to the first three points, the craft brewers tend to talk only to themselves. If you follow the German quality standard for beer and you otherwise care about the handling and distribution of your product, forget about the awards that you give each other. Your awards ought to be the number of barrels you sell every year. There tends to be much more me-tooism in the business than there ought to be, both in terms of the marketing voice and the products themselves. If I see one more hyper-bitter craft ale with a cute name at the grocery store here in Seattle, I just might start buying Miller Genuine Draft for the spite of it.

Edited by Wilson (log)
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Wilson, good points all.

How about the following: the line of beers is called ___ (Company name):

Due North Ales

Couple of ad campaigns:

a blank white full sheet, with a bold, black, block:

Lost?

Then a glistening beer (probably an ESB), with a scraggly black line-arrow pointing to the white head atop, then,

Head Due North.

Or,

my 82 year old Estonian grandmother in law. Handheld TV camera catches her working her garden by the wall of her home, and asks this nice lady, would you try this beer? She downs it in one sweep, and, in the sweetest Eesti voice, asks..

"More please?"

(this actually taken from life)...

I agree on the humor thing. It's a fun beverage, and inherently, cannot take itself too seriously.

-Paul

 

Remplis ton verre vuide; Vuide ton verre plein. Je ne puis suffrir dans ta main...un verre ni vuide ni plein. ~ Rabelais

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I like those ads. And I might have spoken too soon on the lack of variety in the Pac NW. I'm looking a little harder, and I am seeing more. Next step is to start tasting the non-pale ales from this region.

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How about an election-year ad with people arguing over politics. Someone interrupts and asks if anyone wants a (Beer Name) and everyone sighs a sigh of relief and says yeah get the (Beer Name). At the end, someone says to the other, "You know, you just might have a point there." The punch line is "(Beer Name) -- The One Thing Everyone Can Agree On" In fact, there could be a whole ad campaign built around the idea that if everyone sat down and had a couple of (Beer Name) together, we might be able to work a few things out. And of course, in every ad, they agree that "This (Beer Name) Is Really Good Beer."

After all, as any Milwaukeean knows, beer is the solution to our problems ... :smile:

Edited by Wilson (log)
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  • 3 weeks later...

I think it was inevitable that it was going to start going down once the advertising restrictions started to loosen off of the liquor companies.

Will they equalize liquor sales versus beer versus wine?

That's an entirely different question.

Herb aka "herbacidal"

Tom is not my friend.

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Something that's only been lightly touched on has had, I believe, a HUGE effect on beer sales recently: Atkins and South Beach. Beer is positively demonized in these diets, and they are immensely popular right now. I heard on the radio that Atkins is blamed for a huge drop (20%) in sales of orange juice. I look at all the people drinking Mich Ultra, and I think for every one of them, there are two virtuous vaporheads who aren't drinking anything.

The reciprocal, of course, is that vodka is zero carbs, wine is extremely low. Atkins is shaping the industry.

And the advertising "restrictions" on the liquor industry were all self-imposed. Decisions on whether to run these broadcast ads are all being made on a case-by-case basis by the networks.

Lew Bryson

I Drink for a Living

Somewhere in the world...it's Beer O'Clock. Let's have one.

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