Big Beer struggles to tap into shifting consumer trends
AB InBev and MillerCoors are turning to premium products, innovation and finding new occasions for consumers to enjoy their products in an effort to reverse a multi-year slide in market share.
Once the undisputed kings of beer, AB InBev and MillerCoors are struggling to curtail a multi-year slump in sales of their top brands and re-energize brews that have failed to keep pace with changing consumer tastes and trends.
"If you could go back in a time machine you would say, 'Shoot, I wish back then that we had started to follow those trends that were growing,' ...but we recognize it now and we're fixing it," Greg Butler, vice president of Miller Brands at MillerCoors, told Food Dive. "We held on to the equation for too long."
The major beer producers are facing threats on several fronts as Americans move away from domestic lagers in favor of Mexican imports, craft beers and wine and spirits. A growing number of consumers are also turning to low-calorie and no- or low-alcohol brews as part of a broader health and wellness trend sweeping the food and beverage industry.
Despite a host of new products tied to these preferences and trends, the big players in U.S. beer continue to struggle to curtail slumping sales and stem the loss in market share. Total beer shipments declined 1.3% in 2017, led by sharp drops among flagship products including Budweiser (-6.8%), Coors Light (-4.1%), Miller Lite (-2.8%) and the most popular U.S. brand, Bud Light (-5.7%).
But while the market-leading beers are still providing lucrative sources of revenue and product volume for their owners, manufacturers are not oblivious to the fact that for the industry — and their bottom lines — to rebound, they need to reinvent these beverages, giving consumers more reasons to drink them instead of competitors.
"If we can't get our big legacy brand stabilized, the math just doesn't work," Butler told attendees at the Beverage Forum in Chicago, noting a 1% drop in Coors Light requires a 12% increase in the company's Blue Moon brand to offset the decline. "The thing we always hear across CPGs is, 'How do you rebuild a legacy brand from a different generation for today's generation, especially when consumer needs are changing, and what consumers are looking for are changing?' "
Learning to adapt
The major beer manufactures have expanded their presence in many of the trends impacting the industry through acquisitions and internal innovation.
Executives at the AB InBev, the world's largest brewer, have gobbled up craft breweries in recent years — including Wicked Weed, Devils Backbone and Karbach Brewing. They've worked to position Stella Artois as a premium brand; introduced Bud Light Orange flavored with real orange peels, and partnered with Jim Beam to create a limited-edition beverage aged in bourbon barrel staves called Budweiser Reserve Copper Lager.
"You see these consumer trends and our portfolio not being adjusted to this. You see that the market is moving in a direction and we need to catch up.”
CEO of Anheuser-Busch
And AB InBev has continued to benefit from growth in its Michelob Ultra brand, a pricier, low-calorie beer that has boosted sales annually since 2011. With a 21% increase in 2017, it's the fastest-growing beer in the country during the last few years — showing if the product meets the needs of the consumer, sales will follow. AB InBev recently expanded the brand by adding 7-ounce bottles to attract more weeknight consumption and introduced Michelob Ultra Pure Gold, which is made with organic grains and has slightly fewer calories and carbs than the original.
For its part, MillerCoors introduced a new light beer called Two Hats in lime and pineapple flavors. It has a tagline of "Good, Cheap Beer" and quirky ads to appeal to millennial drinkers who are less status conscious and more budget conscious. Molson Coors, which owns MillerCoors, also has added craft players to its lineup and expanded its reach into other beverages after purchasing Aspall Cider, a nearly 300-year-old maker of premium ciders and specialty vinegars.
So far, MillerCoors and AB InBev have struggled to generate meaningful consumer traction from these and other investments. AB InBev's volume share of the U.S. beer market, by far its largest, has fallen from 49.8% in 2009 to 41.5% a year ago. MillerCoors has seen its position erode during the same period to 25%, a drop of 5.1%, according to trade group data.
"You see these consumer trends and our portfolio not being adjusted to this. You see that the market is moving in a direction and we need to catch up,” Michel Doukeris, who began overseeing AB InBev's Anheuser-Busch division in January, told Food Dive. “Trends are very brutal because they change directions, and if your portfolio is not very well aligned with those trends, you end up being behind.”
Doukeris expressed concern about the company's recent struggles and loss of market share, but was confident the steps it is taking are positioning it for future growth.
”I think we always need to do more,” he said. "At the end of day, the [sales] results, they're a very clear expression as to whether you are doing enough.”
Brian Sudano, a managing partner with the Beverage Marketing Corporation, said at the Beverage Forum that AB InBev's focus on health and wellness — and commitment to have 20% of its sales volume coming from its low- or no-alcohol portfolio by 2025 — were among the signs that the beer giant is on the right track.
“There are a lot of things going on that point to a competitor that is starting to gain their footing,” Sudano said at the conference.
Constellation Brands leads the pack
Analysts speaking at the Beverage Forum applauded the job Constellation Brands has done marketing its Mexican brands — including Corona and Modelo Especial — to stand out from its competitors and give people a reason to pay up for the products. Constellation, which controls 90% of the premium beer market, posted robust volume growth of 8.9% in 2017, its fourth straight year leading the industry.
“If you look at the marketing job that Constellation has done, it has really been phenomenal in terms of differentiating their brands and getting people to buy those particular beers that tend to be lagers," Robert Ottenstein, senior managing director at Evercore ISI, said at the conference Wednesday. "This is really great marketing, and I don’t think we should sell short marketing with these companies.”
Paul Hetterich, president of Constellation's beer division, said the company's success isn't so much tied to its Mexican beers, but is about the steps it has taken to establish them as premium brands attractive to the consumer. The company hasn't overhauled its label, formula or how it markets the products. It only recently launched a new higher-priced, low-calorie light beer called Corona Premier — its first new Corona-branded product in 29 years.
“We probably wouldn't sell as much Corona today if it were priced the same as domestic light beers, which I know sounds crazy," Hetterich said at the conference. "The consumer wants to trade up. They want ... a premium product for certain occasions.”
Shakeout in craft beer
Even craft beer, which rose 5% in 2017, is starting to experience its share of growing pains as the industry and its estimated 6,000 players mature. Some craft breweries have experienced a drop in sales as more competitors enter the segment and deep-pocketed megabrewers muscle themselves into the space.
The shakeout is proving to be especially damaging to the major beer companies who have collectively spent billions to boost their craft portfolios, only to find that growing these brands beyond their core markets can be difficult as consumers demand more locally made products.
In a study released at the conference, the Beverage Marketing Corporation found 60% of 3,900 bartenders surveyed said a beer was not craft if it was owned by a big brewery, mass produced or had no local connection. This could have long-term implications because bartenders may be less inclined to sell or recommend a beer owned by a major brewery if they don't believe it's craft.
“This creates another set of issues, which makes it difficult for the major brewers to extend craft beers beyond the local market and that might be behind some of the challenges we see,” Sudano said.
In an interview, Miller Brands' Butler echoed a common theme repeated by beer executives who spoke at the Beverage Forum. Consumers have an increasingly wide array of beverages to chose from — including thousands of beers ranging from craft to the flagship macrobrews. They need to be given reasons to want the product, whether that's through meaningful marketing or specific attributes of the brand.
"Consumers do care about their beer and what they're drinking," he said. "Choice is important and you have to have a compelling difference and you have to stand for something. For us, it's simply can we offer a better value proposition in our portfolio to" grow?
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