How We Got Here: Three Year Analysis

FILED JANUARY 7, 2013

Dear Client:

While it's customary to go back and look at the past year to reflect on our performance, it's sometimes wise to go back more than one year and take a broad look at how our beer industry has evolved into what it is today. Using Nielsen numbers, let us look at trends over the past three years.

THREE YEAR VOLUME TRENDS. From January 2010 through 2011, beer volumes fluctuated wildly from being up nearly 4% year-over-year to being down nearly 6%. But 2010 had some really strong months, including the crucial Summer months, and only three down months. Consequently, 2011 had some tough comes and hiccups, including a disastrous April down nearly 6% and three other down months: January, February, and June.

But that created some easy comps for 2012 . Starting in late 2011, beer volumes started to accelerate, consistently meeting or beating 2% in six of the next 14 months despite higher pricing. In addition to easy comps, great weather and stronger employment numbers are the accepted reasons. And yes, better marketing and product innovations. For 2012, the only weak months were May and December, and December was a Christmas timing issue.

Our prediction: 2013 is going to be a pivotal year and a tough one, because we A). won't have easy comps, and B). weather couldn't possibly be as good as it was in 2012. The economy is anybody's guess.

PRICING AND MIX. Of course, the pricing and mix story for the US beer business has been a true success story. Since January 2010, pricing and mix have meet or beat 2% in year-over-year growth in 28 of the 36 months, and never fell below 1%, although it came very near in October of 2012, according to Nielsen. We've had some weak pricing since September, but that is the nature of price increase timing and comps. Price increases and then the next year's lull come later and later in the year. In 2010, the lull in pricing came in May and June. In 2011, it came in August and September. In 2012, it came in October and November. If history is to be repeated, pricing should resume its 2.5%-ish growth rate starting in January.

But perhaps the greatest change in pricing since 2010 is the reduction is the amount of beer sold promotion. In most of 2010, the amount of beer sold on promotion increased in every month but two. In 2011 and 2012, the amount of beer sold on promotion decreased in over half the months, and when it did increase, the increases were nominal. Now, some of that could be that chains aren't putting beer on ad as much, which isn't great. But there's just also the fact that there's less deep discounting which drives beer sold on promo.

DOMESTIC AND IMPORT PRICE NARROWING. We've known that the price gap between the major two importers and the domestics has been narrowing. In 2010, Crown and HUSA both had negative price and mix trends. But by May 2011, their pricing started creeping to being up nearly 1%, although the beer industry as a whole was averaging pricing/mix up between 2 and 3%. HUSA's and Crown's pricing/mix trends peaked in November - January 2012, and both company's pricing trends have slid a bit since then. HUSA's pricing/mix was ahead of Crown's until October 2011, when Crown's pricing/mix trend passed ahead.

On A-B's and MillerCoors pricing/mix trends, MillerCoors price/mix was ahead of A-B's trend until February 2012. A-B's pricing and mix has widened significantly over MC's since then. Platinum and Lime-A-Rita launches likely helped there.

Until tomorrow, Harry

"It is a sign of a creeping inner death when we no longer can praise the living."
Eric Hoffer (1902 - 1983)


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