What's in Store for 2012?

FILED JANUARY 4, 2012

January 4, 2012

What's in Store for 2012?

Dear Client:

I have no idea. But that's never stopped me before. So with a little help from our readers, here goes with some predictions for 2012:

Employment numbers will start to improve. As unemployment falls between 7 and 8%, you will start to truly see improved performance in domestic premiums and lights over the Summer.

Overall beer volumes will improve slightly from this year's -1.5%, to being down -1%. Price increases will average out at a more nominal 2.5% increase.

We will see an unprecedented number of new packages and brands coming from the big brewers this year, as they seek ways to bring drinkers back into the fold. This will cause some complexity issues with wholesalers and the requisite griping as their numbers of SKUs increase and blended margins erode.

At the same time, the big two brewers will be actively courting craft brewers while also coming out with extensions of their craft brands. Tenth and Blake will make an acquisition, as will Pabst. Will A-B? Not so sure they're actively looking as they expand distribution of Goose Island.

Craft beers will continue to driving beer growth and take share within the category, to the tune of maintaining double digit growth. However, 2012 will be the year that we see in bas relief that demand isn't the problem -- it's supply. We really are going to see capacity constraints create shortages. Sierra Nevada and New Belgium will break grounds on new eastern breweries, but they won't come online for some time. The winners will be those who can supply the beer. I suspect more breweries will withdraw from markets.

We will see more private equity coming into craft, and ironically more under-capitalized breweries come online at the same time. Will it be another 1996? (I had a travel advisor contact me yesterday asking if I knew of a brewer consultant in his area so he could start a brewery). It won't be exactly like 1996, because today we have the social web and consumers are better informed. But there will be more bad beer out there. It's a problem.

Imports volumes will continue to be up nominally, and the Belgian imports in particular will continue to rock.

2012 will be the year of cider. As the larger craft players and even big brewers get into the cider game, and they will, not to mention current cider makers expanding and international cider makers entering the market, cider will start getting lots of press, industry attention, and a wider consumer base. I expect we'll see some regulatory issues in some states on whether cider is a wine or a beer.

PABs will continue their tear, but there will be some interesting regulatory hurdles to overcome, and there will be a lot of finger-pointing among the companies in the space about who is more responsible. The introduction of malt-based alcoholic pouches will only intensify the scrutiny of this category.

Spirits and wine will continue to take share of ethanol, but the gap between their growth and beer's will narrow as spirits in particular takes pricing. High end beer will be our dog in that hunt.

We will see increased deregulation efforts at both the state and federal level. The fight to deregulate will intensify this year, with both privatization efforts, deregulation by defunding, turf wars between the FDA, FTC, and TTB, more deregulation lawsuits against states by winery interests. In addition, I think we will see a rash of new First Amendment challenges by craft brewers challenging state laws.

Larger craft brewers will get more into deeper discounting with chains, even with scarce capacity, out of fear of losing relationships and space with the chains. Like spirits did a few years ago, they are feeling the pressure from chains to offer the discounts to play with the big boys, and to a larger degree they will succumb. Also they will feel the pressure to compete with the big brewers' craft brans as well as increased competition private-label craft brands.

Brands with old time and authentic appeal will hit a tipping point in 2012. Yuengling, PBR, Lone Star, Rainier, Coors Banquet, even Budweiser in some instances will provide young drinkers who don't have the palate for heavier craft beer but still want to be seen with an authentic brand. This trend has legs.

A-B will make attempts to repair relationships with their wholesaler network, while simultaneously pushing for efficiencies through more centralized control in supplying back-office systems in their wholesalers like payroll, Mobility on the cloud, buying equipment centrally, etc. In addition, A-B will accelerate efforts to source cash from wholesalers through pushing costs down to them (like truck decals, printing POS, and freight).

We'll see a bifurcation within the red system, with those making the play for Anchor Wholesaler status, and those (more) who abandon that goal in favor of aggressive brand acquisition.

There will be enormous pressure on A-B from investors to profitably grow its US business and prove they can market beer and aren't just cost cutters, particularly as the synergies are over. In many ways, 2012 will be a make-or-break year for A-B. This year will be the first full year of their NFL deal, and a lot is riding on growing Bud Light, continuing Bud stabilization rates, and maintaining Bud Light Platinum's distribution from free-falling after the curiosity and initial trial periods wear off. I think the first two are likely to happen, as unemployment abates and they leverage their sports properties to the fullest. As for the third -- it's a tougher sell.

MillerCoors will also be seeking to beef up relations while also sourcing more cash. Both A-B and MC have completed the majority of their synergy savings programs, so they will look elsewhere for cost savings. MillerCoors will have to do it while initiating a huge IT project. Miller Lite stabilization is job 1, and I think it is likely its trends will stabilize as employment improves (Lite is more impacted by employment going both up and down) and they improve its marketing, not to mention easier comps. But Coors Light's trends will continue to soften a bit as their successful messaging on that brand starts to get some age and they meet with more distribution saturation. Tenth and Blake will continue to rock.

Craft brewers will experience more sharp elbows among each other as regional brewers expand into others' back yards, shelf space tap handles relative to the number of SKUs becomes more of an issue, and talent gets poached.

So there you have it. Roughly 50% of them will be wrong, if history is a judge. So take it with a grain of salt. A lot of the predictions are predicated on lower unemployment this year. Keep your fingers crossed on that one.

BEER BRIEFS:

BUDWEISER'S LMFAO ad featuring Steve Kerr, Mark Cuban, and others was heavily featured over the holidays, sparking heated debates on Twitter, with some loving the ads, some not, and some complaining about the frequency of it. As they say, the only worse thing than people talking about you, is people not talking about you.

THE BEER INSTITUTE SPENT $260,000 lobbying in the third quarter. That's up $40,000 from the second quarter, but down from $360,000 from the third quarter last year, according to AP.

SUPER BOWL TV AD SPACE IS SOLD OUT. NBC sold out of its commercial airtime back in November, but Adage reported two sponsors-who-must-not-be-named are trying to pull out of their agreements. Maybe its because the price packages for ads during the Super Bowl averaged about $3.5 million, a significant increase over those in recent telecasts. A-B has purchased 4.5 minutes of spots, up from 4 minutes last year, reports the Journal.

Until tomorrow, Harry

"Judge a man by his questions rather than his answers."
-Voltaire


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