Beer Shows Signs of Recovery

Industry Experiences Sobering Tale of Two Segments as the Rise of Premium Craft Brews Tugs at the Megabrands' Dominance

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Beer, which has lost ground to spirits in recent years, is starting to flow faster across the U.S. But don't call it a comeback just yet.

The brewing industry this year is on pace to record its first sales uptick since 2008 thanks to new innovations, a recovering economy and greater availability in big chains such as Walgreens and Walmart. In the 52 weeks ending Sept. 25, beer volume sales were up 1.4%, compared with the 1% decline recorded in the same period a year ago, according to Nielsen.

"Beer is doing much better, so any rumors of its demise are not only exaggerated but I would say totally false," Danny Brager, Nielsen VP-group client director for alcohol, told the annual meeting of the National Beer Wholesalers Association, which drew nearly 2,000 industry leaders to the Manchester Grand Hyatt in San Diego last week. The news is a welcome reprieve for the industry, which in recent years has been outmarketed by surging liquor brands that have benefited from new innovations and loosened broadcast-TV ad rules.

Beer still has a steep hill to climb. Shipments remain far behind their 2008 peak, said Beer Business Daily Editor Harry Schuhmacher in a presentation at the meeting. "Long way to go, but at least we are going in the right direction," he said in an interview.

Of late beer has been a tale of two segments, with premium craft brands rising and stalwarts such as Bud Light and Miller Lite losing ground as blue-collar drinkers struggled in the down economy. While the big brands are showing signs of life, some industry observers believe that after decades of dominance, megabrands might be on a permanent slide. Challenges include keeping up with the constant variety favored by millennials and adjusting to the new media world in which beer can no longer simply blast its messages across broadcast TV.

"The megabrands are old," Joe Thompson, owner of beer-consulting company Independent Beverage Group, told distributors. He added: "You've got all these different [consumer] segments that we're targeting, and you've got to shoot them one at a time, and I don't think the big guys have quite learned how to do it. ... But I think the craft guys are really good at it."

Of course megabrands such as Bud, Coors, Miller, Heineken and Corona still command a huge majority of volume. And big brewers are responding to the new environment with a host of line extensions and new brands. For instance, MillerCoors has launched a small-batch brand called Third Shift that is priced a bit below craft beers, while Anheuser-Busch InBev has put a ton of money behind Bud Light Platinum, a higher-alcohol version of the lager that seeks to compete with spirits in nighttime occasions.

At the same time, big brewers are seeking to win over more women, who account for only about 20% of beer drinkers. A-B InBev has found early success with Bud Light Lime-A-Rita, while MillerCoors is testing Coco Breve, a coconut-water-infused clear malt beverage.

They are also relying less on ads full of frat-boy jokes and babes in bikinis in favor of more contemporary approaches. During a panel discussion of top beer execs, A-B InBev North American President Luiz Edmond conceded that in the past the brewer has been guilty of portraying women "in a way that they were not necessarily at the same level" as men. But "you see that changing," he added.

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