Beer: Sick, Maybe. But Dead?

Published in CSP Daily News

Experts say obit for venerable beverage run too soon

OAK BROOK, Ill. -- The headline reads, The Death of Beer. The accompanying artwork depicts a tombstone over an open grave. The tombstone reads, Beer R.I.P. Killed by Spirits. Dramatic? Yes. But accurate? Many are saying no. The article probably overstated the trends that we're seeing, Mark Herron, category manager for beer at 7-Eleven Inc., told CSP Daily News.

Regardless, the story in the May 2 issue of Advertising Age certainly outlines the struggles the beer industry is having in keeping up with the sales growth wine and spirits are seeing. Young [image-nocss] menare giving beer marketers such as Anheuser-Busch and Molson Coors Brewing Co. hangover-size headaches, the article states, and it's not a temporary condition.

And AdAge isn't the only one going above and beyond in its efforts to call a spade a spade. Also on May 2, Slate magazine published a story subtitled The Great American Beer Crisis. In it, Slate contends, Now there's a fear in our beer. Last week, two leading beer companies reported disappointing results. Anheuser-Busch, which claims more than half the U.S. beer market, announced it was suffering from falling demand and rising costs. The volume of Bud and Michelob sold in the United States fell 2.7% from the year-ago quarter. Newly merged cross-border beer powerhouse Molson Coors reported a loss, with net sales in the United States down 2%, and U.S. operating income off by nearly one-third.

While noting that SABMiller, the No. 2 brewer in the world, showed marginal growth in the first quarter, the magazine adds that beer volume has risen at a meager 0.5% annual rate over the past two years, according to Beverage Marketing Corp.

Why are brewers crying in their beers? Slate asks. In part, they're facing the same difficulties as other manufacturers. Costs for raw materials and energy are rising, and they're having difficulty passing costs along to consumers. But beer companies are also butting up against some powerful demographic and cultural trends that may flatten sales for years to come.

Beer sales, according to Advertising Age, which cited statistics from the Distilled Spirits Council, were 53.2% of the alcohol beverage market in 2004, down from 56% in 1999. The spirits segment, on the other hand, improved to 31.3% of the market in 2004, up from 28.2% five years earlier.

And it's true, even the leaders of beer manufacturing companies have acknowledged the slow growth of beer in recent months and years. [Spirits and wine] clearlyhave affected our industry, said Bob Lachky, vice president of brand management for A-B. [But] it's important to remember that beer continues to be America's favorite beverage.

It's also important for convenience store retailers to remember that much of the move to spirits by 20-somethings is happening in on-premise locationsbars, restaurants and clubs. As previously reported in CSP Daily News, on the off-premise side of the industry, beer has retained, and even grown, its share for drinkers between the ages of 21 and 30, according to a recent survey of 20-something drinkers conducted by Deutsche Bank Securities Inc., New York. When asked, What do you drink before you go out?, 50.6% of all respondents said beer.

This trend shows that the pre-party' may be beer's best development opportunity, the report noted. Beer drinkers drink beer, but so do spirit and wine drinkers before heading to the bar.

Herron said beer sales have grown a little bit at 7-Eleven stores. Take home packages are doing best for us, 12-packs and 18-packs, he said. Singles are still a big piece of the business. They're also growing. However, he also admits wine sales are showing bigger strides, though he's quick to point out it's coming off a smaller base.

In listing the numerous reasons beer sales are struggling, consummate beer-industry watcher Harry Schumacher, editor of Beer Business Daily, noted in a recent issue, The beer industry is surely seeing tough times. He later adds, optimistically, I am convinced, with data to back it up, that the beer industry will see a mini-renaissance start[ing] next year.

Beer expert Tom Fox, a partner with category management consultancy CM Profit Group, agreed a change might be coming. Is [beer] losing share? Yes. Are beer industry executives and distributors concerned? Yes. But, is it dead? No, he told CSP Daily News. The liquor and wine companies have got the beer people concerned, and concerned people tend to make things happen. So I totally expect innovation, I expect growth, I expect ideas to surface over the next couple years.

And he added that the c-store channel would be key in the turnaround. I think the c-stores will play a huge role because that's where the core drinker in, and that's the [consumer] they've got to protect and build, he said. The beer category is going to want to protect that territory with its life.