The Case for Beer


Dear Client:

Everybody wants what everybody else doesn't have. I think there's a saying for that -- the grass is always greener on the other side of the fence (at my house, the grass is actually greener because we forget to water).

The beer industry covets the wine industry's growth and inroads with females, the wine industry covets the spirits industry's brand loyalty, the spirits industry covets the beer industry's reach on occasions and market access, the wine industry covets the beer industry's relative lack of fragmentation, the beer industry covets spirits innovation, the spirits industry covets the beer industry's pricing power, the wine industry covets everybody else's lack of reliance on the vagaries of grape vintages, and everybody covets craft brewers because of their growth but mostly because they're the funnest to be around.

But while each segment of the bev-alc industry has its upsides and downsides, and each segment covets and tries to gain what the other has through regulation or marketing or whatever, I'd like to point out a few things about the beer industry that often are getting overlooked these days.

Beer is big, and getting bigger. It's the number three category in retail dollar size, behind only tobacco and carbonated beverages, and it's the third largest in dollar growth, behind snacks and tobacco. This according to my friend Danny Brager, vp of bev-alc at Neilsen who presented at CBC, using mostly data pulled from 52 week all-channel scans to 03-02-13.

Beer's pricing/mix increased the most in bev-alc. Beer (includes FMBs and cider) pricing/mix up 3.3%, while wine was up 3.2% and spirits up 2.3%.

But here's the rub. When we say "price", we sometimes forget that in data sets, what we see as changes in average pricing also includes a lot of mix shift, or trading up. And in fact, most changes in "price" are mostly mix shift in all grocery categories. But one special category close to my heart -- yes beer -- is still also taking raw unit pricing up, as well as seeing increases in mix. Danny told me Nielsen looked at the top two hundred individual items in each category over the past two years, and what they saw was that mix was up everywhere, as the higher ends of each category outperformed the lower items. However, for beer only, it was also complemented by item pricing increases over time, while wine and spirits item pricing was much flatter.

In other words, while wine and spirits have clearly taken share from beer, they have not taken unit pricing up as beer has consistently over the past several years. They've mainly only benefited from trading up.

And look at this: beer volume trends have actually improved, while wine volume trends have slowed and spirits trends have remained consistent.

Did I mention that beer is massive? Here's a stat to show your favorite retailer. If beer, wine, and spirits each grew 1% in a year, beer absolute volumes were grow 8 times as much as wine and 13 times as much as spirits. Put that in your still and, uh, distill it.

High end beer is winning universally. Danny showed that nearly every chain retailer is growing it's high end beer at least 5%, and most are growing high end beer in the double digits.

And not to beat a dead horse, but craft is the fastest growing category in bev-alc. Who is buying craft? Of course, 47% of Millenials report they or somebody in their households bought a craft beer in the past year, versus 34% of the general public. Only 16% of African Americans report buying a craft, while 21% of pre-boomers and 47% of Asians report buying one. 46% of the public report buying an import, and 77% report buying a domestic (other than craft). Source: Nielsen Household Panel Survey, March 2013.

But look. The fact is, beer, wine and spirits are all growing and are all viewed as exciting and vibrant categories to be in right now, both by consumers and retailers. When you look at all outlets and all departments within a store (not just beverages), beverage alcohol had the highest dollar growth, up 5.6%. The next highest growth department was fresh produce, up 4%.

Sometimes we get pretty myopic in our thinking, and we forget that beer drinkers drink other things too. In fact, around 70% of beer buyers buy wine and/or Spirits. Nearly 75% of craft buyers also buy wine, while over 50% of craft buyers also buy spirits.

So bottom line: Yes, wine and spirits have much to be desired in their businesses, but the beer industry is still the best place to be. Just ask Rob Sands, who is about to plunk down a few billion more to get deep into it.

[Sidebar: For a great piece on the up-and-coming craft spirits business, check out this piece we've opened up for you in Wine & Spirits Daily: ]


Having said all that above, beer is sure having a lousy March. As reported by sources, SIG all channel scans confirm that beer volumes were down 3.3% in the four weeks to 3/24. That's compared to being down 1.5% year-to-date. A-B is down nearly 6% while MillerCoors is down 3.3% for the month. Crown is bucking the trend, up 3.6% while HUSA is flat. Boston Beer had a good month, up 21.4%. Bud Black Crown has gotten to 0.5 share, while Lime-A-Rita has gotten to 0.7 share. Redd's and Third Shift are at 0.1 share.


ANOTHER EXTENSION? ABI and Modelo could announce a deal by next week, reports Bloomberg. "An agreement will probably be announced next week, said the people, who asked not to be named because the discussions are confidential. There's a chance both sides will seek a short extension of an April 9 deadline to report progress on a settlement to the federal judge in charge of the case so they can put the finishing touches on the deal, two of the people said."

DESCHUTES is planning on entering Iowa and Nebraska later this year, and Ohio next year. Iowa distributor meetings start in late April.

TYPOS FOR TATAS is proud to give another $3,125 to the Susan G. Komen for the Cure fund for breast cancer research. Thanks for your subscriptions and renewals, BBD donates $5 for each typo in BBD, kept tabs by my hawk-eyed mother. Thanks for your support.

Have yourself a great weekend, and don't forget to fertilize your lawn when it thaws.

Until Monday, Harry

"A happy childhood has spoiled many a promising life."
-Robertson Davies

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