When Will Beer Truly Recover?

FILED MAY 28, 2013

Dear Client:

Those of you who have been in the industry for a long time will remember Dr. Bob Weinberg, an economist and former analyst at Anheuser-Busch who freelanced as a data specialist in his later years. Bob was a common fixture at industry conferences where he would show his trademark "pocket charts". He used acrylic slides well after the invention of PowerPoint, because as he put it, you can't teach an old dog new tricks.

One alert reader sent me one of Bob's charts from the year 2000. Bob used to analyse Census data and demographic data -- along with per capita consumption trends -- to predict beer consumption patterns with remarkable reliability and accuracy. In his 2000 chart, he predicted that beer consumption would peak in 2010, and then proceed to fall by tens of millions of barrels until 2030, and then start rising again, not reaching 2010 levels again until 2052.

Bob couldn't predict the 2008 financial meltdown, so the declines he predicted started two years earlier. The beer industry also never reached Bob's predicted peak of 230 million barrels -- the actual peak was 219 million barrels in 2008. Bob did predict that we'd lose about 50 million barrels over 20 years, or about 2.5 million barrels a year. In fact, from 2008 to 2011, we lost around nine million barrels, or 3 million barrels a year, before gaining some back again in 2012 with its fine weather. But so far in 2013, the industry is bleeding barrels again. We've already lost 1.3 million barrels so far this year. Are we on our way to losing 3 million barrels per year again?

The really scary part of Bob's prediction is that we won't get back to our peak barrelage until 2050. Could we really be looking at 15 more years of industry declines, and not getting back to our peak barrelage for another 37 years?

Well, there are a few things that ought to give us solace. One is that Bob didn't know that a craft beer revolution was a'foot. Young people's renewed interest in all things beer could set these predictions in their ears. Another thing is that Bob's predictions are based on old consumption patterns by age group, and if this craft revolution continues to have legs, boomers and more importantly echo-boomers (Gen X, Y, and Millennials) will be drinking more beer at older ages than previous generations did. And then of course trends tend to move faster and are compressed more today than in Bob's day, so maybe we bounce back more quickly. On the other hand, Bob also didn't know how much share wine and spirits were going to take from beer. Just something to think about.


PREPARING FOR FALL SETS: MORE WARM SPACE

Retailers are changing their "outdated category management practices," consultant Bump Williams told BBD in our first podcast (see below). And that's good news for beer -- particularly high end beer -- as retailers are expanding beer's space, although the expanded space is mostly warm space. "When category management first came into being, probably in the mid '80s as I remember it, it was all about Bud Miller and Coors," recalls Bump. At the time retailers knew "those guys were the backbone of the industry, so let's make sure they have all the space they can possibly get... save some space for imports, and everybody was fat, happy, and rich..... Fast forward to today and the retailer is saying 'holy smokes, the consumer that we set our shelves for last year... are not the same consumers today. We need to change our strategy or we're going to be losing our shoppers."

"We're seeing some expansion of shelf space for the beer category" but it's "not going to the premium brands, it's going to the higher end brands." That's a massive change from the old catman days, says Bump. "We're already talking about Fall sets" and retailers are expanding warm shelf space for beer, particularly for larger format bottles, for more ciders, and more FMBs. The space hasn't come out of wine yet, says Bump, but from other categories.

When discussing coming Fall sets, Bump says many off-premise retailers are talking about three strategies:

1. Where can I put more beer on the floor away from the beer aisle? That's a smart move, says Bump, as it drives incrementality and impulse purchases. It's straight "out of the wine playbook" and a strategy that the beer industry hasn't leveraged enough in the past. That's changing.

2. Putting in four to eight feet of more warm space (mostly for single serve) coming from dry goods, snack foods, etc. Bombers allow consumers to try a wide variety of beers without taking up too much space.

3. Putting in impulse coolers away from the beer aisle with attractive LED displays and single serve pricing.

BEER BRIEFS:

TOM LONG APPEARS ON CNBC. MillerCoors chief Tom Long appeared on CNBC's Squawk Box on Friday. "Summertime is beer time, and every single week of the summer is as big as Super Bowl week for beer, so we're focused," said Tom. Tom also plugged the BEER Act, pointing out that 40% of the price of beer is excise taxes.

BEERNET RADIO. As an added free feature for BBD readers, we will be posting a series of audio podcasts on a range of issues each week. You can listen to these podcasts by clicking the link below, and you can subscribe to it on iTunes (search for "beernet" in iTunes) and listen on your iPhone/iPad by downloading the free Podcasts app from Apple. Our inaugural podcast features an interview with consultant Bump Williams. Listen here: http://www.beernet.libsyn.com

Until then, Harry

"Basic research is what I am doing when I don't know what I am doing."
-Wernher von Braun

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