Big Beer Facing 'Brutal' Spring Sales Slump
Blame it on the rain. Or higher payroll tax rates. Or gas prices. Or the continued shift to craft beer and liquor. Whatever the cause, it has been a spring to forget for big beer brands, which after showing signs of life last year are slumping through a brutal 2013 so far.
The latest bad news came from Anheuser-Busch InBev, the world's largest brewer, which on Tuesday reported a 4.1% drop in sales to U.S. retailers for the first quarter ending in March. Sales for MillerCoors brands, meanwhile, dropped 3.3% in the quarter, parent company SABMiller recently reported, while Heineken USA sales were down by low-single digits. The only big beer marketer reporting gains was Corona-seller Crown Imports, but the importer's sales were only up slightly, Beer Marketer's Insights recently reported.
April doesn't seem to be going much better. The beer business is down 2.8% for the four weeks through April 13, Beer Marketer's insights reported last week, citing Nielsen. Miller Lite was down by 8.8% in the period, while Bud Light sank by 6%. Budweiser plummeted by 7.7%, Beer Marketer's reported. Even Coors Light -- which has been growing consistently in recent years -- declined by 1.8%.
"It's brutal out there for everyone," Beer Business Daily said in a note to subscribers this morning.
Well, not exactly everyone. Craft beer sales continue to rise, while liquor brands seemed to have weathered the bad weather well enough. (Spirits industry volume growth trends "remain positive albeit down from highs in 2012," Bernstein Research said in a report earlier this month.)
Why? "Light lagers [like Bud Light and Miller Lite] are more susceptible to unseasonably cold weather than either craft beer or spirits, which are typically imbibed more indoors," Harry Schuhmacher, Beer Business Daily's editor, said in an email.
And the weather was bad. The critical beer market of Chicago had its wettest April on record. Across the country, temperatures were down by almost 20 degrees in many areas during the first quarter, A-B InBev CEO Carlos Brito said today on an earnings call. He also blamed increased payroll taxes, delays in tax refunds and higher gasoline prices, "all which puts significant pressure on consumer disposable income." Relief has already arrived at the pump, where the national average prices for gas have been declining since peaking in late February, according to AAA.
A-B InBev's global beer volumes declined by 4.1%, with Brazil suffering a particularly rough quarter for which the brewer blamed poor weather, food inflation and the earlier timing of Carnival. China was a bright spot, with volumes up by 15.5%. Earnings before interest, taxes, amortization and depreciation, excluding some items, fell to $3.43 billion, missing the $3.57 billion median estimate of 10 analysts, Bloomberg reported.
Despite the disappointing results, the brewer pledged to stick to its "premiumization" strategy in key markets, which involves closing price gaps between economy and mainstream beers and launching new brands and line extensions that are higher-priced.
As long as the industry's woes are felt all big brewers- which at this point looks to be the case - it could ease pressure on chief marketing officers and ad agencies. Nonetheless, marketers will be pressed to capture some momentum in the summer, which is considered the most important selling season of the year.
A-B InBev appears to be banking on getting a boost from flavorful line extensions like Bud Light Lime "Straw-Ber-Rita," a margarita-flavored malt beverage that follows last year's "Lime-A-Rita." The two line extensions achieved a 1.3% market share in the first two weeks of April, the brewer said, citing IRI data. A-B InBev plans to expand production of the two drinks in the second quarter from one to three breweries. In coming weeks, the brewer plans to launch Stella Artois' Cidre in the U.S., which it describes as a "crisp, distinctive European cider" made from apples. Also hitting the market soon is a bow-tie shaped Budweiser can that will be sold alongside regular Bud cans. MillerCoors is making its own packaging play, counting on a new Miller Lite bottle to turn things around for the long-suffering brand.
Part of A-B InBev's innovation strategy relies on higher-alcohol line extensions, including new Budweiser Black Crown. The brew follows last year's successful launch of Bud Light Platinum, which this year is being backed with ads starring Justin Timberlake by Translation, which is the Bud Light agency-of-record. (Anomalyhandles most Budweiser advertising.)
But after rocketing out of the gate, Platinum has declined. Sales of the beer - which is positioned for nighttime drinking occasions - fell by 36% in the four weeks ending April 13, as it lost 0.7% share, Beer Marketer's reported citing Nielsen data. According to A-B InBev, Platinum has "held a stable market share of around 0.8% since the middle of 2012." The beer peaked at 1.9% share in the wake of its launch, which was backed by Super Bowl advertising.