US beer giants macro policy ignores growing micro boom
The recent trends in the US beer market to diversify product lines, create alliances and combat taxation has changed the perspective of national brewers and consumers. Large brewers such as Miller Brewing Company and Anheuser-Busch will find world recognition and increasing export sales, but most growth in the US is a result of small brewers regaining control of local markets throughout the country.
According to industry analysts, a 2% increase in sales annually over the next 10 years is in the brewers' grasp in this increasingly competitive market. Domestic sales will continue to be a combination of the large brewers, microbreweries and imports. But reports show that the larger brewers are making these distinctions less apparent as they dabble in contracts and equity investments with both the microbrewing and import companies here and abroad.
Industry statistics provided by the Beer Institute in Washington, D.C. reveal an increase in shipments to wholesalers in 1999 by 1.6% over 1998. In addition to the increase in small company growth in various cities and popular tourist-attracting brewpubs, imports contribute greatly to increases in US beer sales.
Each year since 1992, the import sector has experienced increased distribution in the national market. In fact, import companies account for half of the top malt beverage suppliers in the country. As international brewers continue to expose American consumers to unique brands and tastes, imports will continue to grow in niche markets. Currently, imported brew accounts for 9% of the total sales in the US market with Corona and Heineken leading the way.
It appears as though the market is stable and thriving in this booming economy, however further examination of government regulations reveals unsettling trends. Reports show that producers today are spending over 40% of the retail price on taxes. To the consumer, that means that $0.80 of the price that they pay for a six-pack of beer is tax-related at the federal, state and local levels.
According to Lori Levy of the Beer Institute: "Every tax increase at the federal level invites the states to follow suit. All 50 states, some cities and counties, and the District of Columbia already impose an excise tax on the sale."
"With supply and demand more balanced, brewers are seeing more opportunities to sell their beer at its full value."
Barrel prices have doubled since 1991 as a result of increased taxes and brewers in all states are questioning whether the effects of regressive taxation on some 80m consumers and 2.7m employees is worth the profits. Miller Brewing Company, for example, in the second quarter of 2000 alone, spent slightly under $200m in excise taxes that are regulated by Congress. Will the predictions of a modest increase in taxes and regulations in 2001 bring new competitors to the table?
As companies approach changes in consumer preferences in the new millennium, sales and marketing strategies are evolving. Industry sources reveal that sales will continue to increase in the citrus-flavoured beer segment nationally as companies expand their lines of specialty brews. To insure freshness, Anheuser-Busch and Miller Brewing Company have reduced distributor inventories as a means to provide the freshest product possible to its customers.
According to Jim Hoffmeister of Anheuser-Busch: "The US beer industry is experiencing its highest capacity utilization since Prohibition. With supply and demand more balanced, brewers are seeing more opportunities to sell their beer at its full value." As a result, sales continue to be on the rise nationally for Anheuser-Busch in the last six months. Although the company implemented additional discounts on approximately two-thirds of its volume in October 1999 and February 2000, Hoffmeister noted that discounts were specific to certain packaging, brands and markets.
In addition, among its smaller breweries and wholesale distributors it has offered incentive packages to distribute only the Anheuser-Busch line of products. Plans in the specialty brew market including alliances with Redhook and Widmer and the introduction of the flavoured-malt beverage, "Doc" Otis, have also contributed to increasing sales.
Anheuser-Busch currently holds half of the market nationally and internationally its investments or licensing agreements in Asia, Europe, and Latin America make them the number one producer in the world. Meanwhile, the company's 50% stake in Grupo Modelo, the maker of Corona, creates a very profitable avenue for increased sales in both the US and Mexico.
First in the industry to sell its beer in environmentally-friendly plastic bottles earlier this spring and successfully targeting Spanish-speaking consumers with its latest campaigns, Miller Brewing Company has focused its sights on new markets locally, and domestic shipment volume increased by 3.8% in 1999.
The company's interest in contract brewing (producing another company's beer under contract) and expanding in the area of craftbeer have been effective in steadily increasing revenues to support core business objectives. In addition, surges in import sales in 2000 have been a result of its agreements with Molson and Foster's, which compete with Corona, Heineken, Becks and Labatts.
However, it has been reported that Miller will discontinue its distribution of Molson and concentrate on Foster's in the upcoming year. According to Michael Hennick at Miller Brewing Company, the craft beer market will continue to grow regionally through its involvement with Leinenkugel and Henry Weinhard's families of specialty beers while maintaining its core brands, Miller Lite, Miller High Life, and Icehouse.
Although unable to divulge proprietory information about its expansion globally or new product introductions for the new year, sources expressed interest in future growth in line with its strategic planning.
Brewers in the US boast over 2,500 different beer brands from over 1,500 producers. Recent improvements in transportation and packaging in addition to a slew of lobbyists in congress are increasingly improving taxation and regulations as the government becomes better educated about the needs of the beer industry in the US. However it is likely to be the national consumer interest in imported and specialty beer that will continue to change the market in the new millennium.
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