VOLUME VS. PROFIT
GOOSE Island is the new Bud. So are Shock Top and ZiegenBock. And Leinenkugel’s and Blue Moon, for that matter, could be called the new Coors or Miller.
Those brands are owned by the world’s biggest brewers, which are aggressively rolling out products designed to appeal to fans of craft beer. But they’re not putting the microbrewers who started it out of business.
Instead, the new labels are taking sales from troubled mass-market brands owned by industry giants peddling the crafty brews. Analysts say that may actually be a boon for their owners. Margins can be “considerably higher” for craft beers, says researcher Canadean.
“I don’t really drink Bud Light anymore,” says Tait Foster, a 27-year-old working at a foreign policy research group in New York. Instead, he is sampling a wider range of brews such as Goose Island and Blue Moon. “Bud Light, Coors and all those others are like beer-flavoured water.”
Sales of craft beers grew 16% in volume over the past year versus a 1.7% decline for the biggest US beer brands, says researcher Symphony IRI. Sales of Bud Light were off 1.3% and Miller Lite slid 4.4%.
That has prompted multinationals such as Anheuser-Busch and MillerCoors, with about 75% of the US market between them, to introduce their own craft-like brews — many of which make little or no mention of their corporate parentage.
Anheuser-Busch paid $38.8m for Goose Island in 2011, five years after it signed a distribution deal with the Chicago brewer. And in 2006 it created Shock Top, a Belgian-style wheat ale, to take on Blue Moon, the biggest of the craft-like labels owned by industry leaders. The Goose Island brands soared 69% last year, Anheuser-Busch said, citing Symphony IRI data, and Shock Top beers jumped 14%.
MillerCoors, co-owned by SABMiller and Molson Coors, in 2010 set up a unit called Tenth & Blake to focus on Blue Moon and other niche brews as well as premium imports such as Pilsner Urquell from the Czech Republic and Cusquena from Peru. Today it has more than a dozen brands, including two hard ciders.
“We looked at where the growth sectors were, and craft was exploding,” said Tom Cardella, president of Tenth & Blake. “The marketing of craft requires a different approach.”
As the popularity of these beers cuts into sales of the biggest brands, it is fostering a new crop of mid-sized labels, says Trevor Stirling, an analyst at Sanford C Bernstein. And craft brews are wooing drinkers back from wine and spirits. While craft beer has only about 6% of the market, that share could more than triple in the next five years, Canadean predicts.
“There’s a new generation choosing a much broader repertoire of drinks,” Stirling said. “It’s virtually inevitable that the larger brands will lose market share to craft.”
That is not to say that the big brands are going to give up on their mass-market brews soon. With about 21% of the beer market by volume, Bud Light alone is about triple the size of the entire craft sector, Symphony IRI data show. “I don’t see the era of big brands being over, but more that there’ll be a bigger mix of beers,” says Lawrence Hutter, who heads the European corporate solutions unit at consultant Alvarez & Marsal.
“Don’t forget that people still like those lighter, lager-style beers. They are very drinkable”
The US Brewers Association defines “craft” as beers with annual sales below 6-million barrels and ownership by a big player of no more than 25%. Despite the industry’s homespun image, 60% of drinkers do not give much thought to what company owns the brand they drink, a survey by Anheuser-Busch shows.
“It’s kind of a disconnect for me that being bigger is necessarily bad,” said Paul Chibe, head of US marketing at Anheuser-Busch. “What’s important is that if a beer gets bigger, it has to stay true to what it is.”
Even as the giant brewers lose some market share with their leading brands, the shift could shore up their profits since their craft-like beers enjoy higher margins. Goose Island retails for an average of about $33.10 a per case versus $20.17 for Bud Light, according to Symphony IRI. Some offshoots can be far pricier. Goose Island sells a brew called Bourbon County Stout one day a year, the Friday after Thanksgiving, at about $25 for a four-pack of 12-ounce bottles.
The higher prices help offset the added costs of producing more small brands.