We’re back to the beer wars – and it’s going to be a ground game, grinding out sales market by market.
Big operators are learning that simply acquiring a brand isn’t a guarantee of success: Anheuser-Busch‘s two largest craft brands declined last year: Goose Island was off 7% and Shock Top was off 7%. MillerCoors’ top craft brands, Blue Moon and Leinenkugels, also lost 4% and 8%, respectively. For the second consecutive year, Constellation Brands’ $1 billion acquisition of Ballast Point Brewing has resulted in a decline — 15% decline in 2018 following 2017’s decline.
Anchor Brewing, acquired by Sapporo Holdings, has fallen to 91,938 barrels last year from 159,000 barrels in 2014. That’s a 42% decline in just four years.
But long-established craft brewers are also struggling. Many of the Top 50 craft brewers didn’t grow last year, Brewers Association reports in the May/June issue of New Brewer magazine.
There are three reasons: First, we think the craft beer market is getting saturated. Second, and immediately related to it: Craft beer is sort of expensive. Third, both spirits and wine have stepped up their game.
For most of the time since Repeal of Prohibition beer has been the dominant alcohol beverage. It still is, both in terms of volume and of sales beer remains king. But its throne is a bit shakier today.
During most of the decades following Repeal, distilled spirits chose not to advertise on radio or TV. Arguably, that was a mistake: TV became the single best way to reach American consumers in the 1950s, but liquor makers stay off the air.
That changed after the spirits market plunged in the 1980s. The plunge was so bad that famed U.S. distillers such as Heublein sold to European outfits and Brown-Forman got into china, luggage and lamps. Slowly and tentatively, spirits began advertising on radio and TV. It was, we think, an act of desperation.
Beginning around the turn of the century, smart marketing led by the Distilled Spirits Council of the U.S. (DISCUS) created the cocktail culture. It’s easier to make creative drinks with liquor than beer.
And both wine and spirits launched long-term campaigns to normalize their products in American society. Wine Institute President John DeLuca took a two-pronged approach, arguing that wine was something many cultures, including Italian, enjoyed at dinner and it promoted cardiovascular health
Meanwhile, DISCUS President Peter Cressy seized on archeological work at Mount Vernon that uncovered remains of George Washington’s original distillery to tie distilled spirits tightly to the first President.
All of these efforts changed the marketing landscape. For a half-century beer had been as American as apple pie and baseball. Spirits and wine were viewed as not quite American. Cressy and DeLuca were successful in making spirts and wine as normal a part of American culture as beer, apple pie, baseball – and beer.
That means we would have been watching Big Beer’s volume decline even if craft beer had not come along. But craft beer did, which increased the pain for Big Beer. Craft beer now accounts for 13.2% of the shrunken U.S. beer market, according to Brewers Association data.
The good news for Big Beer, we think, is that craft is going to hold steady around 15% of the total beer market. The bad news for craft brewers is that the craft beer market itself is probably oversaturated.
We view craft beer as a niche market. It’s high priced, and it brews a lot of non-standard beers. But the big problem is there are a lot more craft brewers than there were a decade ago. And Big Beer is fighting back.
So it shouldn’t be a surprise that the older, larger craft brewers might see growth reverse. Americans like to try new things, and older craft brewers aren’t new. So they’ll give up some sales. That’s what happened at three of the top five craft breweries – D.G. Yuengling & Son saw growth ease 2%, Boston Beer was down 7% and New Belgium Brewing was off 11%.
That’s not to say craft brewers can’t grow. Sierra Nevada, after two years of consecutive 7% declines, increased production 2%. Bell’s Brewery was up 3%, Canarcy was up 3%, Stone was up 3% and SweetWater was up 2%.
Talk is cheap, but we think craft brewers need to build on their strengths: They are local and you can form a relationship with the founder and brewer. Even distilled spirits, which is about as industrial a business as they come, has done that. Jim Beam has done a masterful job promoting Fred Noe, the master distiller, as the face of the brand. And for decades, Jack Daniel’s has promoted the people of Lynchburg, Tenn., as the face of their brand. Both have active programs to entice consumers to visit their distillery.
The human connection, we think, explains the rise of craft beer. And the success of many smaller wine and spirits brands. Creating that human connection is, we think, the marketing challenge for the entire bev/al business.